10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   

Commission File Number	Registrant, State of Incorporation, Address and Telephone Number	I.R.S. Employer Identification No.
1-11377	CINERGY CORP. (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-1385023
1-1232	THE CINCINNATI GAS & ELECTRIC COMPANY (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-0240030
1-3543	PSI ENERGY, INC. (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (513) 421-9500	35-0594457
2-7793	THE UNION LIGHT, HEAT AND POWER COMPANY (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 421-9500	31-0473080

Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange:

Registrant	Title of each class
Cinergy Corp.	Common Stock
	Income PRIDES
The Cincinnati Gas & Electric Company	Cumulative Preferred Stock	4	%
	Junior Subordinated Debentures	8.28	%
PSI Energy, Inc.	Cumulative Preferred Stock	4.32	%
	Cumulative Preferred Stock	4.16	%
	Cumulative Preferred Stock	6-7/8	%
The Union Light, Heat and Power Company	None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that such registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ( )

Requirements pursuant to Item 405 of Regulation S-K are not applicable for The Union Light, Heat and Power Company.

The Union Light, Heat and Power Company meets the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction I (2) of Form 10-K.

Indicate by check mark whether each registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes ý   No o

As of January 31, 2003, the aggregate market value of the common equity of Cinergy Corp. held by nonaffiliates (shareholders who are not directors or executive officers) was $5.3 billion.  All of the common stock of The Cincinnati Gas & Electric Company and PSI Energy, Inc. is owned by Cinergy Corp., and all of the common stock of The Union Light, Heat and Power Company is owned by The Cincinnati Gas & Electric Company.  As of January 31, 2003, each registrant had the following shares of common stock outstanding:

Registrant	Description	Shares
Cinergy Corp.	Par value $.01 per share	168,979,381
The Cincinnati Gas & Electric Company	Par value $8.50 per share	89,663,086
PSI Energy, Inc.	Without par value, stated value $.01 per share	53,913,701
The Union Light, Heat and Power Company	Par value $15.00 per share	585,333

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of Cinergy Corp. and the Information Statement of PSI Energy, Inc. filed, or to be filed, with the Securities and Exchange Commission are incorporated by reference into Part III of this report.

This combined Form 10-K is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company.  Information contained herein relating to any individual registrant is filed by such registrant on its own behalf.  Each registrant makes no representation as to information relating to registrants other than itself.

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TABLE OF CONTENTS

Item Number
	Cautionary Statements Regarding Forward-Looking Information
PART I
1	Business
	Website Access to Reports
	Organization
	Employees
	Current Trends
	Business Units
	Other Developments
	Environmental Matters
	Future Expectations/Trends
2	Properties
	Energy Merchant
	Regulated Businesses
3	Legal Proceedings
	New Source Review (NSR) and Notices of Violation (NOV)
	Manufactured Gas Plant Sites (MGP)
	Gas Customer Choice
4	Submission of Matters to a Vote of Security Holders
PART II
5	Market for Registrant’s Common Equity and Related Stockholder Matters
6	Selected Financial Data
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Introduction
	Liquidity and Capital Resources
	2002 Results of Operations - Historical
	2001 Results of Operations - Historical
	Results of Operations - Future
7A	Quantitative and Qualitative Disclosures About Market Risk
	Index to Financial Statements and Financial Statement Schedules
8	Financial Statements and Supplementary Data
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
10	Directors and Executive Officers of the Registrants
	Board of Directors
	Executive Officers
11	Executive Compensation
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13	Certain Relationships and Related Transactions
14	Controls and Procedures

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PART IV
15	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	Financial Statements and Schedules
	Reports on Form 8-K
	Exhibits
	Signatures
	Certifications

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CAUTIONARY STATEMENTS

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as “we”, “our”, or “us”.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements are based on management’s beliefs and assumptions.  These forward-looking statements are identified by terms and phrases such as “anticipate”, “believe”, “intend”, “estimate”, “expect”, “continue”, “should”, “could”, “may”, “plan”, “project”, “predict”, “will”, and similar expressions.

Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted.  Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

•Factors affecting operations, such as:

(1)unusual weather conditions;

(2)catastrophic weather-related damage;

(3)unscheduled generation outages;

(4)unusual maintenance or repairs;

(5)unanticipated changes in fossil fuel costs, gas supply costs, or

availability constraints;

(6)environmental incidents, including costs of compliance with existing and future environmental requirements; and

(7)electric transmission or gas pipeline system constraints.

•State, federal, and local legislative and regulatory initiatives.

•The timing and extent of the entry of additional competition in electric or gas markets and the effects of continued industry consolidation through the pursuit of mergers, acquisitions, and strategic alliances.

•Regulatory factors such as changes in the policies or procedures that set rates; changes in our ability to recover expenditures for environmental compliance, purchased power costs and investments made under traditional regulation through rates; and changes to the frequency and timing of rate increases.

•Financial or regulatory accounting principles or policies imposed by governing bodies.

•Political, legal, and economic conditions and developments in the United States (U.S.) and the foreign countries in which we have a presence.  These would include inflation rates and monetary fluctuations.

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•Changing market conditions and other factors related to physical energy and financial trading activities.  These would include price, basis, credit, liquidity, volatility, capacity, transmission, currency exchange rates, interest rates, and warranty risks.

•The performance of projects undertaken by our non-regulated businesses and the success of efforts to invest in and develop new opportunities.

•Availability of, or cost of, capital.

•Employee workforce factors, including changes in key executives, collective bargaining agreements with union employees, and work stoppages.

•Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures.

•Costs and effects of legal and administrative proceedings, settlements, investigations, and claims.  Examples can be found in Note 11 of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data”.

•Changes in international, federal, state, or local legislative requirements, such as changes in tax laws, tax rates, and environmental laws and regulations.

Unless we otherwise have a duty to do so, the Securities and Exchange Commission’s (SEC) rules do not require forward-looking statements to be revised or updated (whether as a result of changes in actual results, changes in assumptions, or other factors affecting the statements).  Our forward-looking statements reflect our best beliefs as of the time they are made and may not be updated for subsequent developments.

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BUSINESS

PART I

ITEM 1.  BUSINESS

WEBSITE ACCESS TO REPORTS

We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 available free of charge on or through our internet website, www.cinergy.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

ORGANIZATION

Cinergy Corp., a Delaware corporation created in October 1994, owns all outstanding common stock of The Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc. (PSI), both of which are public utility subsidiaries.  As a result of this ownership, we are considered a utility holding company.  Because we are a holding company with material utility subsidiaries operating in multiple states, we are registered with and are subject to regulation by the SEC under the Public Utility Holding Company Act of 1935, as amended.  Our other principal subsidiaries are:

•Cinergy Services, Inc. (Services);

•Cinergy Investments, Inc. (Investments);

•Cinergy Global Resources, Inc. (Global Resources); and

•Cinergy Wholesale Energy, Inc. (Wholesale Energy).

CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana.  CG&E’s principal subsidiary, The Union Light, Heat and Power Company (ULH&P), is a Kentucky corporation that provides electric and gas service in northern Kentucky.  CG&E’s other subsidiaries are insignificant to its results of operations.

In 2001, CG&E began a transition to electric deregulation and customer choice.  Currently, the competitive retail electric market in Ohio is in the development stage.  CG&E is recovering its Public Utilities Commission of Ohio (PUCO) approved costs and retail electric rates are frozen during this market development period.  See the “Retail Market Developments” section in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of key elements of Ohio deregulation.

PSI, an Indiana corporation, is a vertically integrated and regulated electric utility that provides service in north central, central, and southern Indiana.

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The following table presents further information related to the operations of our domestic utility companies (our operating companies):

	Principal Line(s) of Business	Major Cities Served	Approximate Population Served
CG&E and subsidiaries	•Generation, transmission, distribution, and sale of electricity •Sale and/or transportation of natural gas	Cincinnati, OH Middletown, OH Covington, KY Florence, KY Newport, KY Lawrenceburg, IN	2,053,000
PSI	•Generation, transmission, distribution, and sale of electricity	Bloomington, IN Carmel, IN Columbus, IN Kokomo, IN Lafayette, IN New Albany, IN Terre Haute, IN	2,230,000
ULH&P	•Transmission, distribution, and sale of electricity •Sale and transportation of natural gas	Covington, KY Florence, KY Newport, KY	342,000

Services is a service company that provides our subsidiaries with a variety of centralized administrative, management, and support services.  Investments holds most of our domestic non-regulated, energy-related businesses and investments, including gas marketing and trading operations.  Global Resources holds most of our international businesses and investments.

Wholesale Energy, through a wholly-owned subsidiary, Cinergy Power Generation Services, LLC (Generation Services), provides electric production-related construction, operation, and maintenance services to certain affiliates and non-affiliated third parties.

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EMPLOYEES

We have collective bargaining agreements with the International Brotherhood of Electrical Workers (IBEW), the United Steelworkers of America (USWA), the Utility Workers Union of America (UWUA), formerly the Independent Utilities Union, and various international union organizations.

The following table indicates the number of employees by classification at December 31, 2002:

	Regulated				Non-Regulated
Classification	CG&E(4)	PSI	ULH&P	Total Regulated	Domestic(5)(6)	International	Total Non- Regulated	Cinergy Total
IBEW(1)	509	1,267	55	1,831	903	—	903	2,734
USWA(2)	277	—	85	362	13	—	13	375
UWUA(3)	371	—	53	424	373	—	373	797
Various Union Organizations	—	—	—	—	57	219	276	276
Non-Bargaining	208	370	20	598	2,851	192	3,043	3,641
	1,365	1,637	213	3,215	4,197	411	4,608	7,823

(1)IBEW #1347 contract will expire on April 1, 2006, IBEW #1393 contract will expire on May 1, 2005, and IBEW #352 contract will expire on February 5, 2005.

(2)USWA #12049 and #5541-06 contracts will expire on May 15, 2007.

(3)Contract will expire on March 31, 2005.

(4)CG&E and subsidiaries excluding ULH&P.

(5)Includes 2,485 Services’ employees, who provide services to both regulated and non-regulated operations.

(6)Includes 1,353 Generation Services’ employees who provide services to certain affiliates and non-affiliated third parties.

Collective Bargaining Agreements

The collective bargaining agreements of the UWUA and the IBEW #1393 expired on April 1, 2002 and April 30, 2002, respectively.  With regards to the contracts, the parties have negotiated new three-year agreements that will run through March 31, 2005 and May 1, 2005 for the UWUA and IBEW #1393, respectively.

CURRENT TRENDS

For many years our industry has been relatively stable and dominated by vertically integrated companies.  However, in recent years a number of federal and state developments, aimed at promoting competition, initiated a de-integration of the traditional value chain and triggered industry restructuring.

New business models emerged as market participants sought to exploit opportunities along the de-integrated value chain.  The marketplace became characterized by independent power producers, energy marketers and traders, energy merchants, transmission and distribution providers and retail energy suppliers.  New market entrants and activity among the traditional participants, such as mergers, acquisitions, asset sales and spin-offs of lines of business, reshaped the industry.  Power generators attempted to differentiate themselves to attract a new customer base; large wholesalers expanded through acquisitions of regional businesses; transmission

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systems are being operated by Regional Transmission Operators; and the sale of retail energy is no longer the exclusive business of the traditional integrated utility.  Recent events have led to the challenge of certain business models and are significantly altering the industry landscape.

In late 2000 and early 2001, California experienced unprecedented high prices, extreme price volatility, a lack of market liquidity and inadequate generation supply, leading to customer blackouts.  Ultimately, California’s two largest utilities accumulated significant unpaid obligations, which resulted in one of the utilities declaring bankruptcy during 2001.  By the end of 2001, several states, which had previously adopted deregulation plans had decided to delay or suspend their activities.  In December 2001, Enron Corp. (Enron), a dominant energy trader and former seventh largest company of the Fortune 500 in terms of revenue, filed for bankruptcy protection after disclosing substantial third quarter losses and a restatement of prior period results, which contributed to a significant downgrade in its credit ratings.  The SEC, the Federal Energy Regulatory Commission (FERC), the U.S. Department of Justice and numerous Congressional committees initiated investigations of Enron’s collapse.

The events and circumstances with California, Enron and others, are significantly influencing the industry landscape.  In 2002, wholesale electric markets were characterized by lower prices, decreased liquidity, and the near evaporation of mid- to long-term markets.  Developers cancelled turbine orders and abandoned existing power projects.  Several trading operations announced plans to curtail or exit their wholesale trading activities.  Credit rating agencies downgraded many industry participants.  In this period of unprecedented change and uncertainty, energy industry participants are likely to reconsider their strategies and business models.

The highly publicized accounting restatements of Enron in 2001 and others in 2002 also led to a crisis of investor confidence regarding the reliability of financial statements, as reflected in the Dow Jones Utility Index, which receded to less than half its value during the highs of 2000-2001 and hit a five-year low.  As a result, new legislation, regulations, and additional accounting guidance were developed and enacted, with more on the horizon.

BUSINESS UNITS

We conduct operations through our subsidiaries and manage through the following three business units:

•Energy Merchant Business Unit (Energy Merchant);

•Regulated Businesses Business Unit (Regulated Businesses); and

•Power Technology and Infrastructure Services Business Unit (Power Technology).

The following section describes the activities of our business units as of December 31, 2002.

See Note 16 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for financial information by business segment.

Energy Merchant

Energy Merchant manages wholesale generation and energy marketing and trading of energy commodities.  Energy Merchant operates and maintains our regulated and non-regulated electric

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generating plants, including some of our jointly-owned plants.  Energy Merchant is also responsible for our international operations.  As of December 31, 2002, the total winter electric capability (including our portion of the total capacity for the jointly-owned plants) of our domestic generating plants was 13,112 megawatts (MW).  Approximately 75 percent of this generation portfolio is coal-fired.  See “Item 2.  Properties” for a further discussion of the generating facilities.

Energy Merchant also performs the following activities:

•energy risk management;

•proprietary arbitrage activities; and

•customized energy solutions.

See the “Market Risk Sensitive Instruments and Positions” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information on risks associated with these activities.

Energy Merchant competes for wholesale contracts for the purchase and sale of electricity and natural gas.  Energy Merchant’s main competitors include public utilities, power and natural gas marketers and traders, and independent power producers.

Fuel Supply

Each year, through CG&E and PSI, we purchase approximately 28 million tons of coal to generate electricity.  We purchase approximately 80 percent of our coal supply through long-term coal supply agreements and approximately 20 percent through the spot market or through short-term supply agreements.  We receive our coal supply primarily from mines located in Indiana, West Virginia, Ohio, Kentucky, Pennsylvania, and Illinois.  In early 2001, the market price for coal increased due to the buildup of inventories at various generators and the low production levels of coal mines.  In 2002, coal prices decreased as normal production levels returned the market to a balanced state.  We expect this to continue and anticipate market prices for coal to be relatively level through 2003.

Cinergy has a fleet of natural gas-fired peaking plants that have a capacity of 2,719 MW.  The fuel for these units is obtained through the natural gas open market.  For further information on the risk of purchasing natural gas see the “Market Risk Sensitive Instruments and Positions” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Energy Merchant monitors alternative sources of coal and gas to assure a continuing availability of economical fuel supplies.  As such, it will maintain its practice of purchasing a portion of coal and gas requirements on the open market and will continue to investigate least-cost coal options to comply with new and existing environmental requirements.  Cinergy, CG&E, and PSI believe that they can continue to obtain enough coal and gas to meet future needs.  However, future environmental requirements may significantly impact the availability and price of these fuels.

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Cogeneration

Energy Merchant is an on-site energy solutions provider, including cogeneration and operation and maintenance services for large industrial customers.  Cogeneration is the simultaneous production of two or more forms of useable energy from a single fuel source.

Purchased Power

At times, we purchase power to meet the energy needs of our wholesale customers and to meet the requirements of our retail native load customers (end-use customers within our operating companies’ franchise territory).  Factors that could cause Cinergy to purchase power for retail native load customers include generating plant outages, extreme weather conditions, growth, and other factors associated with supplying full requirements electricity.  We believe we can obtain enough purchased power to meet future needs.  However, during periods of excessive demand, the price and availability of these purchases may be significantly impacted.  See the “Significant Rate Developments” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on PSI’s Purchased Power Tracker.

Trading Operations and Risk Management

The energy marketing and trading activities of Energy Merchant principally consists of Cinergy Marketing & Trading, LP’s (Marketing & Trading) natural gas marketing and trading operations, Cinergy Global Trading Limited’s (Global Trading) European natural gas and power trading operations, and CG&E’s and PSI’s power marketing and trading operations.  In April 2002, CG&E and PSI executed a new joint operating agreement whereby new power marketing and trading contracts since April 2002 are originated on behalf of CG&E.  See the “Termination of Operating Agreement” section in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Our domestic operations market and trade over-the-counter (an informal market where the buying/selling of commodities occurs) contracts for the purchase and sale of electricity (primarily in the Midwest region of the U.S.), natural gas, and other energy-related products.  In addition, our domestic operations also market and trade natural gas and other energy-related products on the New York Mercantile Exchange.  Global Trading’s operations trade over-the-counter contracts for the purchase and sale of natural gas and electricity (both primarily in the United Kingdom).  Global Trading also trades natural gas on the International Petroleum Exchange.  See the “Market Risk Sensitive Instruments and Positions” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information on risks associated with these activities.

International

As of December 31, 2002, we had ownership interests in energy-related assets located in six different countries.  These assets serve retail and wholesale customers by providing utility services including generation of electricity and heat as well as the distribution of gas and electric commodities.

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Revenue Data and Customer Base

Energy Merchant’s operating revenue is derived primarily by providing and trading electricity in the Midwest region of the U.S.  In addition, Energy Merchant provides and trades natural gas primarily to wholesale customers across the U.S.  The majority of Energy Merchant’s customers are public utilities, power and natural gas marketers and traders, and independent power producers.

Regulated Businesses

Regulated Businesses consists of PSI’s regulated, integrated utility operations, and Cinergy’s other regulated electric and gas transmission and distribution systems.  Regulated Businesses plans, constructs, operates, and maintains Cinergy’s transmission and distribution systems and delivers gas and electric energy to consumers.  Regulated Businesses also earns revenues from wholesale customers primarily by transmitting electric power through Cinergy’s transmission system.  Regulated Businesses operated approximately 46,500 circuit miles (the total length in miles of separate circuits) of electric lines to provide regulated transmission and distribution service to 1.5 million customers as of December 31, 2002.

Regulated Businesses operated approximately 8,500 miles of gas mains (gas distribution lines that serve as a common source of supply for more than one service line) and service lines to provide domestic regulated transmission and distribution services to approximately 500,000 customers as of December 31, 2002.  See “Item 2.  Properties” for a further discussion of the transmission and distribution systems owned by our operating companies.

Electric Operations

Regulated Businesses (through our operating companies) and other non-affiliated utilities in a nine-state region are parties to the East Central Area Reliability Council Agreement (ECAR Agreement).  The ECAR Agreement coordinates the planning and operation of generation and transmission facilities, which provides for maximum reliability of regional bulk power supply.

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Transmission System Interconnections

The following map illustrates the interconnections between our electric systems and other electric systems.

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Midwest Independent Transmission System Operator, Inc. (Midwest ISO)

As part of the effort to create a competitive wholesale power marketplace, the FERC approved the formation of the Midwest ISO during 1998.  In that same year, Cinergy agreed to join the Midwest ISO in preparation for meeting anticipated changes in the FERC regulations and future deregulation requirements.  The Midwest ISO was established as a non-profit organization to maintain functional control over the combined transmission systems of its members.  For further information on the Midwest ISO, see the “Midwest ISO” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Electricity Supply

A new joint operating agreement, effective in April 2002, allows Cinergy to jointly dispatch the regulated generating assets of PSI in conjunction with the deregulated generating assets of CG&E.  Under this agreement, transfers of power between PSI and CG&E are generally priced at market rates.  See the “Termination of Operating Agreement” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.  With the implementation of electric deregulation in Ohio, effective January 1, 2001, Regulated Businesses continues, through a market development period, to acquire its electricity requirements through Energy Merchant for those retail customers who do not switch suppliers.

ULH&P purchases energy from CG&E pursuant to a new contract effective January 1, 2002, which was approved by the FERC and the Kentucky Public Service Commission (KPSC).  This five-year agreement is a negotiated fixed-rate contract with CG&E and replaces the previous cost of service based contract, which expired on December 31, 2001.

For further details on electricity supply of CG&E, PSI, and ULH&P, refer to the “Retail Market Developments” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Gas Supply

Regulated Businesses is responsible for the purchase and the subsequent delivery of natural gas to native load customers.  Regulated Businesses’ natural gas procurement strategy is to buy firm gas supplies (gas intended to be available at all times) and firm interstate pipeline capacity during the winter season (November through March) and buy spot supply and capacity during the non-heating season (April through October).  This strategy allows Regulated Businesses to assure reliable gas supply for its high priority (non-curtailable) customers during peak winter conditions and provides Regulated Businesses the flexibility to reduce its contract commitments if firm customers choose alternate gas suppliers under the Regulated Businesses’ customer choice/gas transportation programs.  In 2002, firm supply purchase commitment agreements provided approximately 49 percent of the natural gas supply, with the remaining gas purchased on the spot market.  These firm supply agreements feature two levels of gas supply, specifically (1) base load, which is a continuous supply to meet normal demand requirements, and (2) swing load, which is gas available on a daily basis to accommodate changes in demand due primarily to

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changing weather conditions.  Regulated Businesses pays reservation charges for base and swing load.

Regulated Businesses manages gas procurement-hedging programs for CG&E and ULH&P.  These programs include the use of fixed purchase prices as well as variable price arrangements (collars), which have a minimum (floor) and maximum (cap) established on the price to be paid.  ULH&P has received approval from the KPSC for its hedging program.  In accordance with a PUCO ruling, CG&E may apply for approval of its hedging program on an after-the-fact basis.  As of December 31, 2002, CG&E and ULH&P, combined, had hedged approximately 30 percent of their winter 2002/2003 base load requirements.  See the “Gas Industry” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.

Interstate pipelines either (1) transport gas purchased directly to the distribution systems or (2) inject gas purchased into pipeline storage facilities for future withdrawal and delivery.  The majority of the gas supply comes from the Gulf of Mexico coastal areas of Texas and Louisiana.  In addition, a limited supply comes from the mid-continent (Arkansas-Oklahoma) basin.  Also, industrial transportation customers behind Cinergy’s city gate (point where the distribution system connects to an interstate gas pipeline) are obtaining methane gas recovered locally from an Ohio landfill.

Regulated Businesses expects the natural gas market will remain competitive in future years.  While natural gas prices remained moderate for most of the year 2002, prices began to escalate in the fourth quarter of the year.  We expect the prices to continue to rise throughout the 2002/2003 winter season.  Price movement will be driven by the effects of weather conditions, availability of supply, and changes in demand and storage inventories.  Currently, neither CG&E nor ULH&P profit from changes in the cost of gas.  Natural gas purchase costs are passed directly to the customer dollar-for-dollar under the gas cost recovery mechanism that is mandated under state law.

In November 2002, CG&E’s and ULH&P’s agreement with Mirant Americas Energy Marketing, LP (Mirant) to manage theirinterstate pipeline transportation and storage capacity and gas supply contracts was assigned to Marketing & Trading, a non-regulated affiliate of CG&E and ULH&P, for the remaining term of the contract.  Under the terms of this agreement, which expires in October 2003, Marketing & Trading is obligated to deliver gas to meet CG&E’s and ULH&P’s firm requirements.  ULH&P is in the process of seeking approval of this affiliate contract from the KPSC.  No other regulatory approvals are required.

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Revenue Data and Customer Base

The percent of retail operating revenues derived from full service electricity and gas sales and transportation for each of the three years ended December 31 were as follows:

	Retail Operating Revenues
Registrant	2002		2001		2000
	Electric %	Gas %	Electric %	Gas %	Electric %	Gas %
Cinergy	85	15	81	19	84	16
CG&E and subsidiaries	77	23	71	29	75	25
PSI	100	—	100	—	100	—
ULH&P	73	27	68	32	71	29

Electric and gas sales are seasonal.  Electricity usage in our service territory peaks during the summer and gas usage peaks during the winter.  Air conditioning increases electricity demand and heating increases electricity and gas demand.

The service territory of CG&E and its utility subsidiaries, including ULH&P, is heavily populated and is characterized by a stable residential customer base and a diverse mix of industrial customers.  The territory served by PSI is composed of residential, agricultural, and widely diversified industrial customers.  No single customer provides more than 10 percent of total operating revenues (electric or gas) for any of our operating companies.

Under the Ohio customer choice program, CG&E’s retail customers may choose their electric supplier.  As of December 31, 2002, the number of customers switching to other electric suppliers by customer class was as follows:

Revenue Class	Number of Accounts	Switching Percentage(1)
Residential	18,792	3.8	%
Commercial	2,178	21.5	%
Industrial	169	24.6	%
Other Public Authorities	410	21.5	%
Total	21,549

(1)The residential switching percentage is based on annual energy consumption and the non-residential switching percentages are based on average monthly peak demand.

Customer switching reduces retail revenues by the generation component of rates and shopping incentives.  CG&E still collects transmission and distribution revenues from the delivery of electricity to switched customers.  During the market development period, the reduction in revenues due to customer switching is generally offset by wholesale power sales from the freed-up generation capacity and recoveries of lost revenues and shopping incentives through the Regulatory Transition Charge (RTC).  The RTC is a mechanism through which CG&E recovers its previous generation related regulatory assets and other transition costs.  For further discussion

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on Ohio deregulation see “Ohio” in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Power Technology

Power Technology primarily manages the development, marketing, and sales of our non-regulated retail energy and energy-related businesses.  This is accomplished through various subsidiaries and joint ventures.  Power Technology also manages Cinergy Ventures, LLC (Ventures), Cinergy’s venture capital subsidiary.  Ventures invests in emerging energy technologies that can benefit future Cinergy business development activities.

OTHER DEVELOPMENTS

During 2002, Cinergy sold or initiated plans to dispose of generation and electric and gas distribution operations in the Czech Republic, Estonia, and South Africa.  These investments have been classified as discontinued operations.  For further information see Note 15 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data”.

ENVIRONMENTAL MATTERS

On December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in principle with the United States, three northeast states, and two environmental groups for a negotiated resolution of Clean Air Act (CAA) Amendments claims and other related matters brought against coal-fired power plants owned and operated by Cinergy’s operating companies.  The estimated cost for capital expenditures associated with this proposed settlement is expected to be approximately $700 million.  These capital expenditures are in addition to ongoing efforts to maintain and enhance emissions control equipment at our power plants, including our previously announced commitment to install Nitrogen Oxide (NO_X) controls at various power plants.  In 2002, we spent $259 million for NO_X and other environmental compliance projects.  Forecasted expenditures for NO_X and other environmental compliance projects (in nominal dollars) are approximately $200 million for 2003 and $440 million for the 2003-2007 period.  See Note 11(f) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for a discussion of the Environmental Protection Agency (EPA) agreement in principle and other related environmental issues.

FUTURE EXPECTATIONS/TRENDS

See the information appearing under the same caption in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the following discussions:

•Wholesale Market Developments;

•Retail Market Developments;

•Midwest ISO;

•Significant Rate Developments; and

•Gas Industry.

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PROPERTIES

ITEM 2.  PROPERTIES

ENERGY MERCHANT

Our operating companies’ total winter electric capabilities, reflected in MW, as of December 31, 2002, are shown in the table that follows.  Our electric generating plants, which are managed by our Energy Merchant business unit, are located in Ohio, Kentucky, and Indiana and are wholly-owned or jointly-owned facilities.

Registrant(1)	Stations	Coal MW	Natural Gas MW	Oil MW	Hydro MW	Total MW
CG&E	9	4,186	736	323	—	5,245
PSI	9	5,578	120	261	45	6,004
Total	18	9,764	856	584	45	11,249

(1)  This table includes only our portion of the total capacity for the jointly-owned plants.  Refer to Note 12 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for a discussion of the jointly-owned plants.

During 2002, electric generating plants, including those that we own but do not operate, performed reliably, as evidenced by our annual capacity factor of 70 percent (excluding natural gas and fuel oil peaking stations), a utilization factor of 84 percent and anequivalent availability factor of 84 percent.  A capacity factor is a percentage that indicates how much of a power plant’s capacity is used over time.  A utilization factor is a percentage that indicates how much of a power plant’s capacity is used while being available.  An equivalent availability factor is a percentage that indicates how much a unit is available to generate compared to its potential maximum generation.

In July 2002, we experienced record peak loads of 11,133 MW, 5,265 MW,and 6,088 MW for Cinergy, CG&E, and PSI, respectively.  Cinergy and CG&E subsequently set new record peak loads of 11,305 MW and 5,311 MW, respectively, in August 2002.  At times, we purchase power to meet the energy needs of our wholesale customers and to meet the requirements of our retail native load customers.  Factors that could cause Cinergy to purchase power for retail native load customers include outages, extreme weather conditions, growth, economics, and other factors associated with supplying full requirements electricity.  We believe we can obtain enough purchased power to meet future needs.

In December 2002, the Indiana Utility Regulatory Commission (IURC) approved PSI’s request to acquire the Butler County, Ohio and the Henry County, Indiana peaking plants under the terms and conditions contained in a settlement agreement with PSI, the IURC Testimonial Staff and the Indiana Office of the Utility Consumer Counselor.  On February 4, 2003, the FERC issued an order approving the transfer.  This action was the final regulatory approval needed for the transfer, which occurred on February 5, 2003.  See “Transfer of Generating Assets to PSI” in

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“Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

Ohio Deregulation

In its transition plan, CG&E proposed to transfer its generating stations and their related assets and obligations to an Exempt Wholesale Generator (EWG) affiliate, subject to receipt of FERC, SEC, and applicable third-party approvals and consents.  To facilitate this transfer, the generation assets of CG&E, as of August 2000, were released from the first mortgage indenture lien allowing them to be moved unencumbered to the EWG affiliate.  Generation assets added after August 2000 remain subject to the lien of CG&E’s first mortgage bond indenture and would require release at some future date prior to being transferred.  A FERC order, that was effective April 2002, allowed Cinergy to jointly dispatch the regulated generating assets of PSI in conjunction with the deregulated generating assets of CG&E.  Transfers of power between PSI and CG&E are generally priced at market rates, see the “Termination of Operating Agreement” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.  FERC has also authorized the transfer of CG&E’s generating assets to a non-regulated affiliate.  However, Cinergy has determined that it can realize the benefits of the new joint dispatch agreement without transferring CG&E’s generation assets to an EWG affiliate, and therefore Cinergy does not plan to transfer CG&E’s generation assets to a non-regulated affiliate in the foreseeable future.  For further discussion of Ohio deregulation, see the “Retail Market Developments” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Merchant Plants

Domestic

At December 31, 2002, our domestic merchant plant capacity consisted of four gas-fired peaking plants with a total capacity of 1,863 MW.  A merchant plant only sells electricity on the wholesale market without the benefit of long-term contracts that cover 100 percent of the plant capacity.  The following is the breakdown of capacity for each generating facility:

Plant	MW Capacity
Brownsville	480
Caledonia	550
Butler County(1)	704
Henry County(1)	129

(1)Transferred to PSI in February 2003.

International

As of December 31, 2002, we had ownership interests in six countries.  We had ownership interests in generation assets located in three countries.  We also have ownership interests in

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approximately 2,000 miles of gas and electric transmission and distribution systems through jointly-owned investments in three countries.  We serve approximately 22,000 transmission and distribution customers.

Cogeneration

As of December 31, 2002, Cinergy had ownership interests in and/or operated eighteen domestic cogeneration facilities capable of producing 559 MW of electricity.  Cogeneration is the simultaneous production of two or more forms of useable energy from a single fuel source.  During 2003-2004, Cinergy anticipates completion of an additional 761 MW of electric capacity.

Other

In the third quarter of 2002, Cinergy Capital & Trading, Inc. completed an acquisition of a coal-based synthetic fuel production facility, which converts coal feedstock into synthetic fuel for sale to a third party.  The synthetic fuel replaces coal in the generation of electricity.  This facility can be disassembled and transported to an alternate location at a minimal expense if needed.  See the “Results of Operations - Future” section of “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding this new business initiative.

REGULATED BUSINESSES

Electric

Metrics for our operating companies’ electric transmission and distribution systems located in Ohio, Kentucky, and Indiana (excluding our proportionate share of jointly-owned facilities) are as follows:

Registrant	Electric Transmission Systems	Electric Distribution Systems	Substation Combined Capacity
	(circuit miles)	(circuit miles)	(kilovolt-amperes)(1)
CG&E	1,658	15,714	20,980,288
ULH&P	106	2,750	1,334,998
Other subsidiaries	40	—	—
CG&E and subsidiaries	1,804	18,464	22,315,286
PSI	5,361	20,907	29,762,209
Total	7,165	39,371	52,077,495

(1)  Kilovolt-amperes (1,000 volt-amperes) are a broad measure of our substation transformer capacity.

At the end of 2002, our operating companies’ electric systems were interconnected with fifteen other utilities.

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Our electric transmission and distribution systems are designed and constructed to further the goal of providing reliable service to our customers.  Every effort is made to ensure that sufficient facilities are in service to meet this goal without installing facilities beyond what is required to operate reliably and within the design or designed parameters.  Through our ongoing review of these systems, enhancements are developed and constructed to meet our planning, loading, and reliability guidelines.  This process allows us to prudently invest in capacity additions only when and where they are required.

On February 1, 2002, the Midwest ISO assumed functional control of Regulated Businesses’ transmission systems.  Although the Midwest ISO continues to develop, modify, and change its various operating practices, it does handle all transmission tariff administration.

Gas

As of December 31, 2002, the natural gas transmission and distribution systems of CG&E and its subsidiaries had approximately 8,500 miles of mains and service lines located in southwestern Ohio, southeastern Indiana, and northern Kentucky.  CG&E and its subsidiaries also jointly own three underground caverns with a total storage capacity of approximately 23 million gallons of liquid propane (of which 7 million gallons belonged to ULH&P).  As of December 31, 2002, CG&E had 20 million gallons of liquid propane in storage (of which 7 million gallons belonged to ULH&P).  This liquid propane is used in the three propane/air peak shaving plants located in Ohio and Kentucky.  Propane/air peak shaving plants store propane and, when needed, vaporize the propane and mix with natural gas to supplement the natural gas supply during peak demand periods and emergencies.  During 2002, CG&E and its subsidiaries’ natural gas transmission and distribution systems operated reliably.

In November 2002, CG&E’s and ULH&P’s agreement with Mirant to manage theirinterstate pipeline transportation and storage capacity and gas supply contracts was assigned to Marketing & Trading, a non-regulated affiliate of CG&E and ULH&P, for the remaining term of the contract.  Under the terms of this agreement, which expires in October 2003, Marketing & Trading is obligated to deliver gas to meet CG&E’s and ULH&P’s firm requirements.  ULH&P is in the process of seeking approval of this affiliate contract from the KPSC.  No other regulatory approvals are required.

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LEGAL PROCEEDINGS

ITEM 3.  LEGAL PROCEEDINGS

NEW SOURCE REVIEW (NSR) AND NOTICES OF VIOLATION (NOV)

The CAA’s NSR provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major modification to an existing facility, unless the changes are exempt.

On November 3, 1999, the United States sued a number of holding companies and electric utilities, including Cinergy, CG&E, and PSI, in various U.S. District Courts (District Court).  The Cinergy, CG&E, and PSI suit alleged violations of the CAA at two of our generating stations relating to NSR and New Source Performance Standards requirements.  The suit sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at CG&E’s W.C. Beckjord Generating Station and at PSI’s Cayuga Generating Station, and (2) civil penalties in amounts of up to $27,500 per day for each violation.  Since that time, two amendments to the complaint have been filed by the United States, alleging additional violations of the CAA, including allegations involving different generating units.  In addition, three northeast states and two environmental groups have intervened in the case.

On December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in principle with the parties in the litigation for a negotiated resolution of the CAA claims in the litigation.  See Note 11(f) of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data” for a discussion of the tentative EPA Agreement.

On October 4, 2002, the Indiana District Court issued a Revised Case Management Plan in Cinergy’s case that sets forth the dates by which various events in the litigation, such as discovery and the filing of dispositive motions, must be completed.  Consistent with the plan, on October 9, 2002, the Indiana District Court set the case for trial by jury commencing on October 4, 2004.

At this time, it is not possible to predict whether a final agreement implementing the agreement in principle can be reached.  The parties continue to negotiate.  If the settlement is not completed, we intend to defend against the allegations vigorously in court.  In such an event, it is not possible to determine the likelihood that the plaintiffs would prevail upon their claims or whether resolution of these matters would have a material effect on our financial position or results of operations.

MANUFACTURED GAS PLANT SITES (MGP)

Prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of coal and/or oil.  The gas produced from this process was sold for residential, commercial, and industrial uses.

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Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 sites which PSI or its predecessors previously owned.  PSI acquired four of the sites from NIPSCO in 1931.  At the same time, PSI sold NIPSCO the sites located in Goshen and Warsaw, Indiana.  In 1945, PSI sold 19 of these sites (including the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc. (IGC).  IGC later sold the site located in Rochester, Indiana to NIPSCO.

IGC and NIPSCO have both made claims against PSI, alleging that PSI is a Potentially Responsible Party with respect to the 21 MGP sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).  The claims further asserted that PSI was legally responsible for the costs of investigating and remediating the sites.  In August 1997, NIPSCO filed suit against PSI in federal court, claiming recovery (pursuant to CERCLA) of NIPSCO’s past and future costs of investigating and remediating MGP-related contamination at the Goshen, Indiana MGP site.

In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation and Cost Sharing Agreement (Agreement).  This Agreement allocated CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies.  As a result of the Agreement, NIPSCO’s lawsuit against PSI was dismissed.  Similar agreements were reached between IGC and PSI that allocate CERCLA liability at 14 MGP sites with which NIPSCO was not involved.  These agreements concluded all CERCLA and similar claims between the three companies related to MGP sites.  The parties continue to investigate and remediate the sites, as appropriate, under the agreements and applicable laws.  The Indiana Department of Environmental Management (IDEM) oversees investigation and cleanup of some of the sites.

PSI notified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and IDEM.  In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana against its general liability insurance carriers.  PSI sought a declaratory judgment to obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay PSI’s costs of defense and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites.  The lawsuit was moved to the Hendricks County Superior Court (Superior Court) in July 1998.  The trial court issued a variety of rulings with respect to the claims and defenses in the litigation.  PSI has appealed certain adverse rulings to the Indiana Court of Appeals.  At the present time, PSI cannot predict the outcome of this litigation, including the outcome of the appeals to the Indiana Court of Appeals.

PSI has accrued costs for the sites related to investigation, remediation, and groundwater monitoring.  However, PSI currently cannot determine the total costs that may be incurred in conection with remediation of all sites, to the extent that remediation is required.  Until investigation and remediation activities have been completed on these sites, and the extent of insurance coverage for these costs, if any, is determined, we are unable to reasonably estimate the total costs and impact on our financial position or results of operations.

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GAS CUSTOMER CHOICE

In January 2000, Investments sold Cinergy Resources, Inc. (Resources), a former subsidiary, to Licking Rural Electrification, Inc., doing business as The Energy Cooperative (Energy Cooperative).  In February 2001, Cinergy, CG&E, and Resources were named as defendants in three class action lawsuits brought by customers relating to Energy Cooperative’s removal from the Ohio Gas Customer Choice program and the failure to deliver gas to customers.

Subsequently, these class action suits were amended and consolidated into one suit.  CG&E has been dismissed as a defendant in the consolidated suit.  In March 2001, Cinergy, CG&E, and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and Resources.  This lawsuit concerns any obligations or liabilities Investments may have to Energy Cooperative following its sale of Resources.  This lawsuit is pending in the Licking County Common Pleas Court.  Trial is anticipated to occur in late 2003 or early 2004.  In October 2001, Cinergy, CG&E, and Investments initiated litigation against the Energy Cooperative, requesting indemnification by the Energy Cooperative for the claims asserted by former customers in the class action litigation.  This customer litigation is pending in the Hamilton County Common Pleas Court.  A trial date has not been set.  We intend to vigorously defend these lawsuits.  At the present time, we cannot predict the outcome of these suits.

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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of Cinergy, CG&E, or PSI during the fourth quarter of 2002.

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MARKET FOR REGISTRANT’S COMMON EQUITY

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Cinergy Corp.’s common stock is listed on the New York Stock Exchange.  The high and low stock prices for each quarter for the past two years are indicated below:

	High		Low
2002
First Quarter	$	35.75	$	31.00
Second Quarter	37.19		34.25
Third Quarter	36.21		25.40
Fourth Quarter	34.19		28.25
2001
First Quarter	$	35.15	$	28.81
Second Quarter	35.60		32.20
Third Quarter	35.00		28.00
Fourth Quarter	33.85		28.16

Cinergy Corp. holds all outstanding CG&E and PSI common stock, and CG&E holds all ULH&P common stock.  Therefore, no public trading market exists for the common stock of CG&E, PSI, and ULH&P.

As of January 31, 2003, Cinergy Corp. had 55,637 shareholders of record.

Cinergy Corp. declared dividends on its common stock of $.45 per share for each quarter of 2002 and 2001.  The quarterly dividends paid to Cinergy Corp. by CG&E and PSI, and to CG&E by ULH&P for the past two years were as follows:

Registrant	Quarter	2002		2001
		(in thousands)
CG&E	First	$	44,787	$	71,535
	Second	46,866		71,551
	Third	47,059		71,588
	Fourth	47,197		71,595
PSI	First	$	26,944	$	—
	Second	28,194		—
	Third	28,310		—
	Fourth	28,394		—
ULH&P	First	$	—	$	—
	Second	2,675		4,829
	Third	—		—
	Fourth	6,995		6,878

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On January 14, 2003, the board of directors of Cinergy Corp. declared dividends on its common stock of $.46 per share, payable February 15, 2003, to shareholders of record at the close of business on January 24, 2003.

See Note 2(b) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for a brief description of the registrants’ common stock dividend restrictions.

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SELECTED FINANCIAL DATA

ITEM 6.  SELECTED FINANCIAL DATA

	2002			2001			2000			1999		1998
	(in millions, except per share amounts)
Cinergy(1)
Results of Operations:
Operating revenues(2)	$	11,960		$	12,997		$	8,397		$	5,953	$	5,778
Income before discontinued operations and cumulative effect of a change in accounting principle	397			459			400			402		261
Discontinued operations, net of tax(3)	(25		)	(17		)	(1		)	2		—
Cumulative effect of a change in accounting principle, net of tax(4)	(11		)	—			—			—		—
Net income	361			442			399			404		261
Per Share Data:
Earnings per common share (EPS)
Income before discontinued operations and cumulative effect of a change in accounting principle	2.37			2.88			2.52			2.53		1.65
Discontinued operations, net of tax(3)	(0.15		)	(0.10		)	(0.01		)	.01		—
Cumulative effect of a change in accounting principle, net of tax(4)	(0.06		)	—			—			—		—
Net income	2.16			2.78			2.51			2.54		1.65
EPS - assuming dilution
Income before discontinued operations and cumulative effect of a change in accounting principle	2.34			2.85			2.51			2.52		1.65
Discontinued operations, net of tax(3)	(0.15		)	(0.10		)	(0.01		)	.01		—
Cumulative effect of a change in accounting principle, net of tax(4)	(0.06		)	—			—			—		—
Net income	2.13			2.75			2.50			2.53		1.65
Dividends declared per share	1.80			1.80			1.80			1.80		1.80
Balance Sheet Data (at end of period):
Total assets	13,307			12,300			12,330			9,617		9,687
Long-term debt (including amounts due in one year)	4,272			3,745			2,917			3,020		2,740
CG&E
Results of Operations:
Operating revenues(2)	$	4,951		$	4,752		$	3,237		$	2,578	$	2,784
Net income	264			327			267			234		216
Balance Sheet Data (at end of period):
Total assets	5,542			5,360			5,987			4,917		5,154
Long-term debt (including amounts due in one year)	1,690			1,205			1,206			1,206		1,350
PSI
Results of Operations:
Operating revenues(2)	$	2,359		$	4,108		$	2,691		$	2,163	$	2,342
Net income	214			162			135			117		52
Balance Sheet Data (at end of period):
Total assets	4,223			4,571			4,630			3,835		3,584
Long-term debt (including amounts due in one year)	1,372			1,348			1,113			1,243		1,032

(1)The results of Cinergy also include amounts related to non-registrants.

(2)Emerging Issues Task Force Issue 02-3, Accounting for Contracts Involved in Energy Trading and Risk Management Activities will require that all gains and losses on energy trading derivatives be presented on a net basis beginning January 1, 2003.  This will result in substantial reductions in reported Operating Revenues, Fuel and purchased and exchanged power expense, and Gas purchased expense.  However, Operating Income and Net Income will not be affected by this change.  For further information see Note 1(q)(i) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data”.

(3)See Note 15 of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data” for further explanation.

(4)In 2002, Cinergy recognized a cumulative effect of a change in accounting principle of $11 million (net of tax as a result of an impairment charge for goodwill related to certain of our international assets. See Note 14 of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data”.

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MD&A - - LIQUIDITY AND CAPITAL RESOURCES

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as “we”, “our”, or “us”.

The following discussion should be read in conjunction with the accompanying financial statements and related notes included elsewhere in this report.  The results discussed below are not necessarily indicative of the results to be expected in any future periods.

INTRODUCTION

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), we explain our general operating environment, as well as our liquidity, capital resources, and results of operations.  Specifically, we discuss the following:

•factors affecting current and future operations;

•what our expenditures for construction and other commitments were during 2002, and what we expect them to be in 2003-2007;

•potential sources of cash for future capital expenditures;

•why revenues and expenses changed from period to period; and

•how the above items affect our overall financial condition.

LIQUIDITY AND CAPITAL RESOURCES

COMPARATIVE CASH FLOW ANALYSIS

Cinergy

At December 31, 2002, Cinergy’s consolidated cash and cash equivalents totaled $221.1 million compared to $111.1 million at December 31, 2001.  This increase was primarily attributable to increases in cash from operating activities and to the proceeds received from the monetization of certain non-core investments.  These increases were partially offset by additional construction expenditures, including our operating companies’ environmental compliance programs, and by additional investments.

The Cincinnati Gas & Electric Company (CG&E)

At December 31, 2002, CG&E’s consolidated cash and cash equivalents totaled $45.3 million compared to $9.1 million at December 31, 2001.  Increased cash from operating activities was largely offset by the payment of common stock dividends, repayments of debt, and additional construction expenditures.

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PSI Energy, Inc. (PSI)

At December 31, 2002, PSI’s consolidated cash and cash equivalents totaled $2 million as compared to $1.6 million at December 31, 2001.  Increased cash from operating activities was offset by additional construction expenditures.

The Union Light, Heat and Power Company (ULH&P)

At December 31, 2002, ULH&P’s cash and cash equivalents totaled $3.9 million as compared to $4.1 million at December 31, 2001.  Increased cash from operating activities was offset by construction expenditures and the repayment of short-term debt.

Operating Activities

For each of the years ended December 31, 2002, 2001, and 2000, our cash flows from operating activities were as follows:

Net Cash Provided by (Used in) Operating Activities

	2002		2001		2000
	(in thousands)
Cinergy(1)	$	996,199	$	717,849	$	632,045
CG&E and subsidiaries	653,029		343,118		470,170
PSI	499,047		401,911		343,038
ULH&P	60,707		47,766		49,559

(1)The results of Cinergy also include amounts related to non-registrants.

The tariff-based gross margins of our operating companies continue to be the principal source of cash from operating activities.  The diversified retail customer mix of residential, commercial, and industrial classes and a commodity mix of gas and electric services provide a reasonably predictable gross cash flow.

For the year ended December 31, 2002, Cinergy’s, CG&E’s, PSI’s, and ULH&P’s net cash provided by operating activities increased, as compared to 2001, primarily due to increases in income after adjusting for increases in non-cash items such as depreciation, favorable working capital fluctuations, and deferred income taxes.   The increase in deferred income taxes, in part, reflects a change in accounting methodology for tax purposes related to capitalized costs, which increased current tax deductions.  Current tax obligations were also reduced by increases in tax credits associated with the production and sale of synthetic fuel.

Cinergy’s net cash provided by operating activities increased for 2001, as compared to 2000, primarily as a result of increased income and a net cash inflow from working capital fluctuations.  CG&E’s net cash provided by operating activities decreased primarily due to working capital fluctuations, offset in part by increased income.  PSI’s cash from operating activities increased primarily due to increased income.

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Financing Activities

For each of the years ended December 31, 2002, 2001, and 2000, our cash flows from financing activities were as follows:

Net Cash Provided by (Used in) Financing Activities

	2002			2001			2000
	(in thousands)
Cinergy(1)	$	3,225		$	867,263		$	161,430
CG&E and subsidiaries	(293,445		)	16,841			(192,665		)
PSI	(43,817		)	34,723			(77,955		)
ULH&P	(22,026		)	(14,678		)	(18,006		)

(1)The results of Cinergy also include amounts related to non-registrants.

For the year ended December 31, 2002, Cinergy’s net cash provided by financing activities decreased, as compared to 2001.  This decrease was primarily due to the net proceeds received in 2001 from the issuance of Preferred trust securities and from new debt issuances, which were used to fund the purchase of new peaking generation facilities and environmental compliance expenditures.  The payment of common stock dividends and the repayment of both long- and short-term debt reduced cash proceeds recognized in 2002 from the issuances of common stock and new long-term debt.

CG&E’s, PSI’s,and ULH&P’s net cash used in financing activities increased during 2002, as compared to 2001.  CG&E’s increase reflects a net reduction in debt financing, partially offset by a decrease in dividends paid on common stock.  PSI’s increase primarily reflects the payment of approximately $112 million in common stock dividends in 2002, as compared to 2001, when no common dividends were paid.  ULH&P’s increase primarily reflects the repayment of short-term debt in 2002.

For the year ended December 31, 2001, Cinergy’s, CG&E’s, and PSI’s cash provided by financing activities increased, as compared to 2000.  Cinergy’s increase was primarily due to the net proceeds from the issuance of Preferred trust securities and proceeds from debt issuances to fund the purchase of new generating facilities and environmental compliance expenditures.  CG&E’s increase was primarily a result of increased short-term borrowings offset by an increase in dividends paid on common stock.  PSI’s increase was primarily the result of no dividends paid on common stock in 2001 and the retirement of preferred stock in 2000.

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Investing Activities

For each of the years ended December 31, 2002, 2001, and 2000, our cash flows used in investing activities were as follows:

Net Cash Provided by (Used in) Investing Activities

	2002			2001			2000
	(in thousands)
Cinergy(1)	$	(889,408	)	$	(1,567,099	)	$	(782,340	)
CG&E and subsidiaries	(323,322		)	(371,522		)	(266,422		)
PSI	(454,810		)	(436,358		)	(272,614		)
ULH&P	(38,854		)	(35,449		)	(28,734		)

(1)The results of Cinergy also include amounts related to non-registrants.

For the year ended December 31, 2002, Cinergy’s net cash used in investing activities decreased, as compared to 2001.  This decrease was primarily the result of Cinergy’s 2001 acquisition of peaking generation facilities, increased capital expenditures related to environmental compliance programs, and other non-core investments.  Proceeds from the sale of certain non-core investments in 2002, were offset by expenditures for our operating companies’ capital programs, including ongoing environmental compliance, additional investments in cogeneration projects, and capital expenditures related to the purchase of a synthetic fuel production facility.

CG&E’s, PSI’s, and ULH&P’s net cash used in investing activities was comparable to 2001, reflecting ongoing construction expenditures.

Cinergy’s, CG&E’s, PSI’s, and ULH&P’s net cash used in investing activities increased in 2001, as compared to 2000, as a result of an increase in capital expenditures related to environmental compliance projects.  Cinergy’s increase also reflects the acquisition of additional peaking generation facilities.

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Capital Requirements

Actual construction and other committed expenditures (including capitalized financing costs) for 2002 and forecasted construction and other committed expenditures for the year 2003 and for the five-year period 2003-2007 (in nominal dollars) are presented in the table below:

Capital and Investment Expenditures

	Actual 2002		Forecasted
			2003		2003-2007
	(in millions)
Cinergy(1)	$	988	$	759	$	3,102
CG&E and subsidiaries	324		326		1,477
PSI(2)	467		367		1,369
ULH&P	40		43		242

(1)The results of Cinergy also include amounts related to non-registrants.

(2)Excludes intercompany purchase of peaking plants from non-regulated affiliates.

This forecast includes an estimate of expenditures in accordance with the companies’ plans regarding Nitrogen Oxide (NO_X) emission control standards and other environmental compliance (excluding implementation of the tentative United States (U.S.) Environmental Protection Agency (EPA) Agreement), as discussed in Note 11(f) of “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data”.  In 2002, we spent $259 million for NO_X and other environmental compliance projects.  Forecasted expenditures for NO_X and other environmental compliance projects (in nominal dollars) are approximately $200 million for 2003 and $440 million for the 2003-2007 period.  All forecasted amounts and the underlying assumptions are subject to risks and uncertainties as disclosed in “Cautionary Statements Regarding Forward-Looking Information”.

Environmental Commitment and Contingency Issues

EPA Agreement

On December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in principle with the United States, three northeast states, and two environmental groups for a negotiated resolution of Clean Air Act (CAA) Amendments claims and other related matters brought against coal-fired power plants owned and operated by Cinergy’s operating companies.  The estimated cost for capital expenditures associated with this settlement is expected to be approximately $700 million.  These capital expenditures are in addition to ongoing efforts to maintain and enhance emissions control equipment at our power plants.  See Note 11(f) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for a discussion of the agreement in principle and related environmental issues.

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Manufactured Gas Plant (MGP) Sites

In November 1998, PSI entered into a Site Participation and Cost Sharing Agreement with Northern Indiana Public Service Company and Indiana Gas Company, Inc. related to contamination at MGP sites, which PSI or its predecessors previously owned.  Until investigation and remediation activities have been completed on the sites, we are unable to reasonably estimate the total cost and impact on our financial position or results of operations.  In relation to the MGP claims, PSI also filed suit against its general liability insurance carriers.  Subsequently, PSI sought a declaratory judgment to obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay PSI’s costs of defense and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites.  At the present time, PSI cannot predict the outcome of this litigation.  See Note 11(g) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for further information on MGP Sites.

Ambient Air Standards

In 1997, the EPA revised the National Ambient Air Quality Standards (NAAQS) for ozone and fine particulate matter.  State ozone non-attainment area designations are due to the EPA in April 2003.  Fine particulate non-attainment designations are expected in the 2004-2006 timeframe.  Fine particulate matter refers to very small solid or liquid particles in the air.  Following identification of non-attainment areas, each individual state will identify the sources of emissions and develop emission reduction plans.  These plans may be state-specific or regional in scope.  Under the CAA, individual states have up to 12 years from the date of designation to secure emissions reductions from sources contributing to the problem.

Cinergy may face further reductions of NO_X, sulfur dioxide (SO₂), and particulate emissions due to the implementation of the fine particulate matter and 8-hour ozone NAAQS as required by the EPA.  However, we cannot predict the exact amount and timing of these reductions at this time.  Nonetheless, Cinergy expects that compliance costs with these new standards will be significant.

Regional Haze

The EPA published the final regional haze rule on July 1, 1999.  This rule established planning and emission reduction timelines for states to use to improve visibility in national parks throughout the U.S.  The ultimate effect of the new regional haze rule could be requirements for (1) newer and cleaner technologies and additional controls on particulates emissions, and (2) reductions in SO₂ and NO_X emissions from utility sources.  If more utility emissions reductions are required, the compliance cost could be significant.  In August 1999, several industry groups (some of which we are a member) filed a challenge to the regional haze rules with the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals).  On May 24, 2002, the Court of Appeals set aside a portion of the EPA’s rule, holding that the rule improperly forced states to require emissions controls without adequate consideration of an individual source’s impact on visibility impairment.  We currently cannot predict the timing or outcome of the EPA’s response to the Court of Appeals’ ruling.

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In July 2001, the EPA proposed guidance to implement portions of the regional haze rule.  This guidance recommends that states require widespread installation of scrubbers to reduce SO₂ emissions.  We currently cannot determine whether or how the EPA will modify the scope of this guidance, or whether the states in which we operate will adopt the EPA’s proposed guidance.

Global Climate Change

In December 1997, delegates to the United Nations’ climate summit in Japan adopted an agreement, the Kyoto Protocol (Protocol), to address global warming.  The Protocol establishes legally binding greenhouse gas emission (man-made pollutants thought to be artificially warming the earth’s atmosphere) targets for developed nations.  On November 12, 1998, the U.S. signed the Protocol; however, it will not be effective in the U.S. until it is approved by a two-thirds vote of the U.S. Senate, which we currently believe is unlikely, as the current Administration is opposed to the Protocol and has not submitted it to the Senate for ratification.

A total of 108 nations, including the European Union, Japan, and Canada have ratified the Protocol.  If the Protocol goes into effect, Cinergy does not anticipate that its operations will be impacted so long as the U.S. remains outside the Protocol agreement.  In addition, there are still major uncertainties concerning the Protocol including how the Protocol will be implemented, the level and timing of greenhouse gas emissions reductions, the extent to which greenhouse gas trading would be allowed, and whether companies would be allowed to comply with emission reduction requirements through agricultural, geologic, or oceanic sequestration, or through projects in the U.S. and abroad to reduce other greenhouse gas emissions (such as methane).  Because of these uncertainties, Cinergy cannot, at this time, identify specific impacts of the Protocol on its operations, even if the U.S. should change its course and ratify the Protocol.

In February 2002, the Bush Administration announced a voluntary global climate change initiative that calls for industries to undertake voluntary activities to reduce the intensity of greenhouse gas emissions.  The Bush Administration initiative also called for increased funding of scientific research and for increased research and development.  In response to President Bush’s call for industries to take voluntary actions, Cinergy signed a commitment with the EPA to participate in its Climate Leaders program.  As a participant, Cinergy is committed to conducting an annual inventory of its corporate greenhouse gas emissions, to developing a greenhouse gas emission reduction goal, and to reporting annually on its corporate-wide greenhouse gas emissions and its progress toward achieving its greenhouse gas reduction goal.

Our plan for managing the potential risk and uncertainty of regulations relating to climate change includes the following:

•implementing cost-effective greenhouse gas emission reduction and offsetting activities;

•funding research of more efficient and alternative electric generating technologies;

•funding research to better understand the causes and consequences of climate change;

•encouraging a global discussion of the issues and how best to manage them; and

•advocating comprehensive legislation for fossil-fired power plants.

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Air Toxics Regulation

On December 14, 2000, the EPA made a determination that additional regulation of mercury emissions from coal-fired power plants was appropriate.  It is currently developing a Maximum Achievable Control Technology (MACT) standard for mercury.  Although the issue is highly uncertain, there is some possibility that the EPA may also seek to establish MACT standards for other pollutants such as acid gases, metals, and organics.  The EPA is expected to issue draft regulations in December 2003, and final rules by December 2004, with reductions required as soon as December 2007.  We currently cannot predict the outcome or costs relating to the EPA’s determination and subsequent regulation.

At this time, Cinergy cannot predict the exact mercury target that the EPA will finalize nor the specific compliance timing.  In addition, the form of the standard and the availability of flexibility mechanisms is also not yet known.  Nonetheless, Cinergy has analyzed various mercury MACT regulatory scenarios and has initially estimated total capital compliance costs of between $500 million and $700 million for mercury emissions control equipment.  This range corresponds to an emissions reduction target between 50 percent and 90 percent per power plant.

Asbestos Claims Litigation

CG&E and PSI have been named in lawsuits related to Asbestos at their electric generating stations.  In these lawsuits, plaintiffs claim to have been exposed to Asbestos containing products in the course of their work at the CG&E and PSI generating stations.  The plaintiffs further claim that, as the property owner of the generating stations, CG&E and PSI should be held liable for their injuries and illnesses based on an alleged duty to warn and protect them from any Asbestos exposure.  A majority of the lawsuits to date have been brought against PSI.  The impact on CG&E’s and PSI’s financial position or results of operations of these cases to date has not been material.  See Note 11(h) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for a discussion of Asbestos claims and related cases.

Pensions

Cinergy maintains qualified defined benefit pension plans covering substantially all U.S. employees meeting certain minimum age and service requirements.  Plan assets consist of investments in equity and fixed income securities.  Funding for the qualified defined benefit pension plans is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974, as amended.  Due to the decline in market value of the investment portfolio over the last few years, assets held in trust to satisfy plan obligations have decreased.  Additionally, recent decreases in long-term interest rates have the effect of increasing the measured liability for funding purposes.  As a result of these events, future funding obligations could increase substantially.  Based on preliminary estimates, we expect to fund approximately $33 million for the calendar year 2003.  Contributions for the calendar year 2002 were $4 million.

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Other Investing Activities

Our ability to invest in growth initiatives is limited by certain legal and regulatory requirements, including the Public Utility Holding Company Act of 1935, as amended (PUHCA).  The PUHCA limits the types of non-utility businesses in which Cinergy and other registered holding companies under PUHCA can invest as well as the amount of capital that can be invested in permissible non-utility businesses.  Also, the timing and amount of investments in the non-utility businesses is dependent on the development and favorable evaluations of opportunities.  Under the PUHCA restrictions, we are allowed to invest or commit to invest in certain non-utility businesses, including:

1.Exempt Wholesale Generators (EWG) and Foreign Utility Companies (FUCO)

An EWG is an entity, certified by the Federal Energy Regulatory Commission (FERC), devoted exclusively to owning and/or operating, and selling power from one or more electric generating facilities.  An EWG whose generating facilities are located in the U.S. is limited to making only wholesale sales of electricity.

A FUCO is a company all of whose utility assets and operations are located outside the U.S. and which are used for the generation, transmission, or distribution of electric energy for sale at retail or wholesale, or the distribution of gas at retail.  A FUCO may not derive any income, directly or indirectly, from the generation, transmission or distribution of electric energy for sale or the distribution of gas at retail within the U.S.  An entity claiming status as a FUCO must provide notification thereof to the Securities and Exchange Commission (SEC) under PUHCA.

In May 2001, the SEC issued an order under PUHCA authorizing Cinergy to invest (including by way of guarantees) an aggregate amount in EWGs and FUCOs equal to the sum of (1) our average consolidated retained earnings from time to time plus (2) $2 billion.  As of December 31, 2002, we had invested or committed to invest $1.2 billion in EWGs and FUCOs, leaving available investment capacity under the May 2001 order of $2.1 billion.

2.Qualifying Facilities and Energy-Related Non-utility Entities

SEC regulations under the PUHCA permit Cinergy and other registered holding companies to invest and/or guarantee an amount equal to 15 percent of consolidated capitalization (consolidated capitalization is the sum of Notes payable and other short-term obligations, Long-term debt (including amounts due within one year), Preferred Trust Securities, Cumulative Preferred Stock of Subsidiaries, and total Common Stock Equity) in domestic qualifying cogeneration and small power production plants (qualifying facilities) and certain other domestic energy-related non-utility entities.  At December 31, 2002, we had invested and/or guaranteed approximately $0.7 billion of the $1.3 billion available.

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Contractual Cash Obligations

The following table presents Cinergy’s, CG&E’s, PSI’s, and ULH&P’s significant contractual cash obligations:

	Payments Due
Contractual Cash Obligations	2003		2004		2005			2006		2007		There- after			Total
	(in millions)
Cinergy(1)
Notes payable and other short-term obligations	$	521	$	—	$	—		$	—	$	—	$	147	(2)	$	668
Lease obligations	47		37		30			26		23		74			237
Long-term debt (including amounts due within one year)	191		815		204		(3)(4)	335		374		2,351			4,270
Preferred trust securities	7		8		2			—		316		—			333
Fuel purchase contracts	562		510		455			502		293		1,523			3,845
Power purchase contracts(5)	2,313		577		254			148		88		246			3,626
Total Cinergy	$	3,641	$	1,947	$	945		$	1,011	$	1,094	$	4,341		$	12,979
CG&E and subsidiaries
Notes payable and other short-term obligations(6)	$	—	$	—	$	—		$	—	$	—	$	112	(2)	$	112
Lease obligations	11		9		9			9		8		25			71
Long-term debt (including amounts due within one year)	120		110		150		(4)	—		100		1,212			1,692
Fuel purchase contracts	208		175		135			191		—		—			709
Power purchase contracts(5)	2,059		374		134			62		27		21			2,677
Total CG&E and subsidiaries	$	2,398	$	668	$	428		$	262	$	135	$	1,370		$	5,261
PSI
Notes payable and other short-term obligations(6)	$	138	$	—	$	—		$	—	$	—	$	35	(2)	$	173
Lease obligations	11		10		9			9		8		28			75
Long-term debt (including amounts due within one year)	56		2		51		(3)	328		267		676			1,380
Fuel purchase contracts	354		335		320			311		293		1,523			3,136
Power purchase contracts(5)	215		163		79			47		20		21			545
Total PSI	$	774	$	510	$	459		$	695	$	588	$	2,283		$	5,309
ULH&P
Notes payable and other short-term obligations(6)	$	14	$	—	$	—		$	—	$	—	$	—		$	14
Lease obligations	—		—		1			1		1		3			6
Long-term debt (including due within one year)	20		—		—			—		—		55			75
Total ULH&P	$	34	$	—	$	1		$	1	$	1	$	58		$	95

(1)Includes amounts for non-registrants.

(2)Includes Variable Rate Pollution Control Notes depicted according to scheduled maturities, which the holders have the right to have redeemed on any business day, with the remainder being redeemable annually.  See Variable Rate Pollution Control Notes below.

(3)Includes 6.50% Debentures due August 1, 2026, reflected as maturing in 2005, as the interest rate resets on August 1, 2005.

(4)Includes 6.90% Debentures due June 1, 2025, reflected as maturing in 2005, as the debentures are putable to CG&E at the optionof the holders on June 1, 2005.

(5)Firm commitments are disclosed on a gross basis and are not netted against firm sales with like counterparties for purposes of this disclosure.

(6)Includes net Money Pool borrowings.

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Guarantees

We are subject to an SEC order under the PUHCA, which limits the amounts Cinergy Corp. can have outstanding under guarantees at any one time to $2 billion.  As of December 31, 2002, we had $526 million outstanding under the guarantees issued, of which approximately 88 percent represents guarantees of obligations reflected on Cinergy’s Consolidated Balance Sheets.  The amount outstanding represents Cinergy Corp.’s guarantees of liabilities and commitments of its consolidated subsidiaries, unconsolidated subsidiaries, and joint ventures.  See Note 11(b) of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data” for a discussion of guarantees in accordance with Financial Accounting Standards Board Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).  FIN 45 requires disclosure of maximum potential liabilities for guarantees issued on behalf of unconsolidated subsidiaries and joint ventures and under indemnification clauses in various contracts.  The FIN 45 disclosure is different from the PUHCA restrictions in that it requires a calculation of maximum potential liability, rather than actual amounts outstanding; it excludes guarantees issued by consolidated subsidiaries; and it includes potential liabilities under indemnification clauses.

Collateral Requirements

Cinergy has certain contracts in place, primarily with trading counterparties, that require the issuance of collateral in the event our debt ratings are downgraded below investment grade.  Based upon our December 31, 2002 trading portfolio, if such an event were to occur, Cinergy would be required to issue up to approximately $69 million in collateral related to its gas and power trading operations.

Capital Resources

Cinergy meets current and future capital requirements through:

•internally generated funds;

•cash and cash equivalents on hand ($221 million as of December 31, 2002);

•issuance of debt and equity securities;

•bank financing under new and existing facilities; and

•monetization of assets.

Cinergy believes that it has adequate financial resources to meet its future needs.

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Notes Payable and Other Short-term Obligations

We are required to secure authority to issue short-term debt from the SEC under the PUHCA and the state utility commission of Ohio.  The SEC under the PUHCA regulates the issuance of short-term debt by Cinergy Corp., PSI, and ULH&P.  The Public Utilities Commission of Ohio (PUCO) has regulatory jurisdiction over the issuance of short-term debt by CG&E.

	Short-term Regulatory Authority December 31, 2002
	(millions)
	Authority			Outstanding
Cinergy Corp.	$	5,000	(1)	$	498
CG&E and subsidiaries	671			9
PSI	600			138
ULH&P	65			14

(1)Cinergy Corp., under the PUHCA, was granted approval to increase total capitalization (which excludes retained earnings and accumulated other comprehensive income (loss)) by $5 billion.  Outside this requirement, Cinergy Corp. is not subject to specific regulatory debt authorizations.

For the purposes of quantifying regulatory authority, short-term debt includes revolving credit borrowings, uncommitted credit line borrowings, inter-company money pool obligations, and commercial paper.

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Cinergy Corp.’s short-term borrowing consists primarily of unsecured revolving lines of credit and the sale of commercial paper.  Cinergy Corp.’s $1 billion credit facilities and $800 million commercial paper program also support the short-term borrowing needs of CG&E and PSI.  In addition, Cinergy, CG&E, and PSI maintain uncommitted lines of credit.  These facilities are not firm sources of capital but rather informal agreements to lend money, subject to availability with pricing determined at the time of advance.  A summary of outstanding short-term borrowings for Cinergy, CG&E, PSI, and ULH&P, including variable rate pollution control bonds is as follows:

	Short-term Borrowings December 31, 2002
	Established Lines		Outstanding		Unused		Standby Liquidity(3)		Available Revolving Lines of Credit
	(millions)
Cinergy
Cinergy Corp.
Revolving lines	$	1,000	$	25	$	975	$	481	$	494
Uncommitted lines(1)	65		—		65
Commercial paper(2)	800		473		327
Operating companies
Uncommitted lines(1)	75		—		75
Pollution control notes			147
Non-regulated subsidiaries
Revolving lines	7		1		6				6
Short-term debt	22		22		—
Cinergy Total			$	668					$	500
CG&E and subsidiaries
Uncommitted lines(1)	$	15	$	—	$	15
Pollution control notes			112
Money pool			9
CG&E Total			$	121
PSI
Uncommitted lines(1)	$	60	$	—	$	60
Pollution control notes			35
Money pool			138
PSI Total			$	173
ULH&P
Money pool			$	14
ULH&P Total			$	14

(1)Outstanding amounts may be greater than established lines as uncommitted lenders are, at times, willing to loan funds in excess of the established lines.

(2)The commercial paper program is supported by Cinergy Corp.’s revolving lines.

(3)Standby liquidity is reserved against the revolvers to support the commercial paper program and outstanding letters of credit (currently $473 million and $8 million, respectively).

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At December 31, 2002, Cinergy Corp. had $494 million remaining unused and available capacity relating to its $1 billion revolving credit facilities.  These revolving credit facilities include the following:

Credit Facility	Expiration	Established Lines		Outstanding and Committed		Unused and Available
				(in millions)
364-day senior revolving(1)	April 2003
Direct borrowing		$		$	—	$
Commercial paper support				473
Total 364-day facility		600		473		127
Three-year senior revolving	May 2004
Direct borrowing				25
Commercial paper support				—
Letter of Credit support				8
Total three-year facility		400		33		367
Total credit facilities		$	1,000	$	506	$	494

(1)Cinergy Corp. has historically followed the practice of renewing its 364-day facility upon expiration.

In our credit facilities, Cinergy Corp. has covenanted to maintain:

•a consolidated net worth of $2 billion; and

•a ratio of consolidated indebtedness to consolidated total capitalization not in excess of 65 percent.

A breach of these covenants could result in the termination of the credit facilities and the acceleration of the related indebtedness.  In addition to breaches of covenants, certain other events that could result in the termination of available credit and acceleration of the related indebtedness include:

•bankruptcy;

•defaults in the payment of other indebtedness; and

•judgments against the company that are not paid or insured.

The latter two events, however, are subject to dollar-based materiality thresholds.

Variable Rate Pollution Control Notes

CG&E and PSI have issued certain variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development for pollution control purposes).  Because the holders of these notes have the right to have their notes redeemed on a daily, monthly, or annual basis, they are reflected in Notes payable and other short-term obligations on the Balance Sheets

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for Cinergy, CG&E, and PSI.  In October 2002, CG&E and PSI redeemed $84 million and $47.6 million, respectively, of variable rate pollution control notes.  At December 31, 2002, CG&E had $112 million and PSI had $35 million outstanding in variable rate pollution control notes, classified as short-term debt.  Any short-term pollution control note borrowings outstanding do not reduce the unused and available short-term debt regulatory authority of CG&E, PSI, and ULH&P.  See Notes 4 and 5 of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data” for additional information regarding pollution control notes.

Money Pool

Cinergy Corp., Cinergy Services, Inc. (Services), and our operating companies participate in a money pool arrangement to better manage cash and working capital requirements.  Under this arrangement, those companies with surplus short-term funds provide short-term loans to affiliates (other than Cinergy Corp.) participating under this arrangement.  This surplus cash may be from internal or external sources.  The amounts outstanding under this money pool arrangement are shown as a component of Notes receivable from affiliated companies and/or Notes payable to affiliated companies on the Balance Sheets of CG&E, PSI, and ULH&P.  Any money pool borrowings outstanding reduce the unused and available short-term debt regulatory authority of CG&E, PSI, and ULH&P.

Operating Leases

We have entered into operating lease agreements for various facilities and properties such as computer, communication and transportation equipment, and office space.  See Note 7(a) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional information regarding operating leases.

Capital Leases

Our operating companies are able to enter into capital leases subject to the authorization limitations of the applicable state utility commissions.  New financing authority is subject to the approval of the respective commissions.  In May 2002, ULH&P received approval from the Kentucky Public Service Commission (KPSC) to enter into an additional $25 million of capital lease obligations for the period ending December 31, 2004.  In June 2002, PSI received approval from the Indiana Utility Regulatory Commission (IURC) to enter into an additional $100 million of capital lease obligations for the period ending December 31, 2003.  In December 2002, CG&E received approval from the PUCO to enter into an additional $74 million of capital lease obligations for the period ending December 31, 2003.  See Note 7(b) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional information regarding capital leases.

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Long-term Debt

A summary of our long-term debt authorizations at December 31, 2002, is as follows:

	Authorized		Used		Available
			(in millions)
Cinergy Corp.
PUHCA total capitalization(1)	$	5,000	$	1,750	$	3,250
CG&E
State Public Utility Commission	500		500		—
PSI
State Public Utility Commission	500		48		452
ULH&P
State Public Utility Commission	75		—		75

(1)Cinergy Corp., under PUHCA, was granted approval to increase total capitalization (which excludes retained earnings and accumulated other comprehensive income (loss)) by $5 billion.  Outside this requirement, Cinergy Corp. is not subject to specific regulatory debt authorizations.

We are required to secure authority to issue long-term debt from the SEC under the PUHCA and the state utility commissions of Ohio, Kentucky, and Indiana.  The SEC under the PUHCA regulates the issuance of long-term debt by Cinergy Corp.  The respective state utility commissions regulate the issuance of long-term debt by our operating companies.  In June 2000, the SEC issued an order under the PUHCA authorizing Cinergy Corp., over a five-year period expiring in June 2005, to increase its total capitalization based on a balance at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income (loss)) by an additional $5 billion, through the issuance of any combination of equity and debt securities.  This increased authorization is subject to certain conditions, including, among others, that common equity comprises at least 30 percent of Cinergy Corp.’s consolidated capital structure and that Cinergy Corp., under certain circumstances, maintains an investment grade rating on its senior debt obligations.

In July 2002, CG&E filed a shelf registration statement with the SEC for the issuance of up to $700 million in any combination of unsecured debt securities, first mortgage bonds, or preferred stock.  This shelf registration statement became effective in September 2002, and CG&E subsequently sold $500 million of senior unsecured debentures thereby reducing the standby capacity of its shelf registration statement with the SEC to $200 million.  PSI maintains shelf registration statements with the SEC with authority remaining to issue $400 million in unsecured debentures, $205 million first in mortgage bonds, and $40 million in preferred stock.  ULH&P may issue up to $30 million in secured or unsecured debt securities and up to $20 million in first mortgage bonds.

On January 15, 2003, Cinergy Corp. filed a shelf registration statement with the SEC with respect to the issuance of common stock, preferred stock, and other securities including senior

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unsecured debt securities in an aggregate offering amount of $750 million.  This registration statement became effective in January 2003, and on February 5, 2003, Cinergy sold $175 million of Cinergy Corp. common stock.

In February 2003, both CG&E and PSI filed shelf registration statements with the SEC for the issuance of unsecured debt securities, first mortgage bonds, or preferred stock.  These filings will increase the available amounts for these securities under the SEC shelf registration statements by $300 million and $55 million for CG&E and PSI, respectively.

CG&E, PSI, and ULH&P are also subject to the various state public utility commissions for authority to issue securities.  In December 2002, CG&E filed an application with the PUCO seeking authorization to issue secured and unsecured debt securities in any combination up to an aggregate amount of $500 million for the period ending December 31, 2003.  In January 2003, the PUCO granted this request.

In October 2002, PSI filed a petition with the IURC for the purpose of securing authorization and approval to issue promissory notes to Cinergy Corp. for the acquisition of the Butler County, Ohio and Henry County, Indiana peaking plants.  On January 22, 2003, the IURC granted this request, and on February 5, 2003, PSI issued the notes.

Off-Balance Sheet Financing

Cinergy uses special-purpose entities (SPE) from time to time to facilitate financing of various projects.  SPEs are entities often created for a single specified purpose, for example, to facilitate securitization, leasing, hedging, research and development, and reinsurance, or other transactions or arrangements.  Due to our lack of control of these entities, a substantive investment by unrelated parties, and various other criteria, Cinergy does not consolidate these SPEs.  The Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (Interpretation 46) in January 2003.  This interpretation will significantly change the consolidation requirements for SPEs and may impact certain of our SPEs.  Refer to “Accounting Changes” in “Results of Operations - Future” for further information.

The following describes our major off-balance sheet financings excluding the investments Cinergy holds in various unconsolidated subsidiaries which are accounted for under the equity method (see Note 1(b) of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data”).  Cinergy Corp. has guaranteed approximately $8 million of the debt of these entities.

(i)Power Sales

Cinergy Capital & Trading, Inc. (Capital & Trading) is a 10 percent owner of two SPEs that were created to facilitate power sales to Central Maine Power (Central Maine).  The SPEs raised capital to purchase Central Maine’s existing power supply contracts from two independent power producers.  The SPEs restructured the terms of the agreements, resulting in power sales contracts for approximately 45 MW, ending in 2009, and 35 MW, ending in 2016.  Since the SPEs have no generation sources, power purchase agreements were entered into with Capital & Trading with near equivalent terms.  The total debt outstanding at December 31, 2002, within these two SPEs is approximately $233 million.  This debt is non-recourse to Cinergy and Capital & Trading in the event of non-performance by Central Maine.  A portion of the cash flows received by the SPEs from Central Maine is reserved to pay the interest and principal on the debt.

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Capital & Trading provides various services, including certain credit support facilities.  The maximum exposure under the capped credit facilities is approximately $25 million.  There is a non-capped facility, but it can only be called upon in the event the SPE breaches representations, violates covenants, or other unlikely events.

Capital & Tradingaccounts for its 10 percent interest in both SPEs under the equity method of accounting.

(ii)Leasing

Cinergy had an arrangement with an SPE that had contracted to buy several combustion turbines from an unrelated party.  Cinergy entered this arrangement with the intention of leasing these turbines after construction.  In the second quarter of 2002, Cinergy exercised its option to purchase the contractual rights to two of the turbines and subsequently sold those rights to third parties.  Cinergy recognized a loss of approximately $7 million on this sale.  The rights to the remaining turbines remained with the SPE.

In the fourth quarter of 2002, Cinergy decided not to pursue the leasing arrangement with the SPE.  We incurred a charge of approximately $14 million for the cancellation of the leasing arrangement.

(iii)Sales of Accounts Receivable

In February 2002, CG&E, PSI, and ULH&P replaced their existing agreement to sell certain of their accounts receivable and related collections.  Cinergy Corp. formed Cinergy Receivables Company, LLC (Cinergy Receivables) to purchase, on a revolving basis, nearly all of the retail accounts receivable and related collections of CG&E, PSI, and ULH&P.  Cinergy Corp. does not consolidate Cinergy Receivables since it meets the requirements to be accounted for as a qualifying SPE.  The sales of receivables are accounted for under Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (Statement 140).  For a more detailed discussion of our sales of accounts receivable, see Note 6 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data”.

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Securities Ratings

As of January 31, 2003, the major credit ratings agencies rated our securities as follows:

	Fitch(1)	Moody’s(2)	S&P(3)
Cinergy Corp.
Corporate Credit	BBB+	Baa2	BBB+
Senior Unsecured Debt	BBB+	Baa2	BBB
Commercial Paper	F-2	P-2	A-2
Preferred Trust Securities	BBB+	Baa2	BBB
CG&E
Senior Secured Debt	A-	A3	A-
Senior Unsecured Debt	BBB+	Baa1	BBB
Junior Unsecured Debt	BBB	Baa2	BBB-
Preferred Stock	BBB	Baa3	BBB-
Commercial Paper	F-2	P-2	Not Rated
PSI
Senior Secured Debt	A-	A3	A-
Senior Unsecured Debt	BBB+	Baa1	BBB
Junior Unsecured Debt	BBB	Baa2	BBB-
Preferred Stock	BBB	Baa3	BBB-
Commercial Paper	F-2	P-2	Not Rated
ULH&P
Senior Unsecured Debt	Not Rated	Baa1	BBB

(1)Fitch IBCA (Fitch)

(2)Moody’s Investors Service (Moody’s)

(3)Standard & Poor’s Ratings Services (S&P)

The lowest investment grade credit rating for Fitch is BBB-, Moody’s is Baa3, and S&P is BBB-.

In April 2002, Moody’s affirmed the credit ratings of Cinergy Corp. and its operating subsidiaries, CG&E and PSI.  Moody’s also removed Cinergy Corp. from review for possible downgrade, and assigned stable outlooks to the debt and preferred stock of Cinergy Corp. and all of its operating subsidiaries.

In June 2002, S&P affirmed Cinergy Corp.’s corporate credit rating, the rating of the company’s commercial paper program, and the secured debt ratings of CG&E and PSI, while lowering the credit ratings on other issuances.  S&P removed all of the Cinergy Corp., CG&E,and PSI ratings from CreditWatch with negative implications and assigned a stable outlook.

Also in June 2002, Fitch affirmed the credit ratings of Cinergy Corp.  Fitch also changed the rating outlook on these securities from negative to stable and affirmed the ratings of CG&E and PSI.

These securities ratings may be revised or withdrawn at any time, and each rating should be evaluated independently of any other rating.

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Equity Securities

Under the SEC’s June 2000 Order, Cinergy Corp. is permitted to increase its total capitalization by $5 billion (as previously discussed).  The proceeds from any new issuances will be used for general corporate purposes.

In November 2001, Cinergy Corp. chose to reinstitute the practice of issuing new Cinergy Corp. common shares to meet its obligations under the various employee stock plans and the Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan.  This replaces the previous practice of purchasing open market shares to fulfill plan obligations.  See Note 2(a) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional information on issued shares.

In December 2001, under an existing registration statement, Cinergy Corp. issued approximately $316 million notional amount of combined securities (Income PRIDES), a component of which is stock purchase contracts.  These contracts obligate the holder to purchase common shares of Cinergy Corp. in, and/or before, February 2005.  See Note 2(e) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional information regarding the stock purchase contracts.

In February 2002, Cinergy Corp. issued 6.5 million shares of common stock with net proceeds of approximately $200 million.

In July 2002, Cinergy implemented a policy that prohibits executive officers and directors from selling shares of Cinergy Corp. common stock acquired through the exercise of stock options (except to the extent necessary to pay the exercise price and/or any accompanying tax obligation) until 90 days after they leave the company or board.

On January 15, 2003, Cinergy Corp. filed a registration statement with the SEC with respect to the issuance of common stock, preferred stock, and other securities in an aggregate offering amount of $750 million.  On February 5, 2003, Cinergy sold 5.7 million shares of common stock of Cinergy Corp. with net proceeds of approximately $175 million under this registration statement.

Dividend Restrictions

Cinergy Corp.’s ability to pay dividends to holders of its common stock is principally dependent on the ability of CG&E and PSI to pay Cinergy Corp. common dividends.  Cinergy Corp., CG&E, and PSI cannot pay dividends on their common stock if their respective preferred stock dividends or preferred trust dividends are in arrears.  The amount of common stock dividends that each company can pay is also limited by certain capitalization and earnings requirements under CG&E’s and PSI’s credit instruments.  Currently, these requirements do not impact the ability of either company to pay dividends on its common stock.

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Other

Where subject to rate regulations, our operating companies have the ability to timely recover certain cash outlays through regulatory mechanisms such as fuel adjustment clause, purchased power tracker (Tracker), gas cost recovery, and construction work in progress (CWIP) ratemaking.  For further discussion see “Electric Industry” and “Gas Industry”.

As opportunities arise, we will continue to monetize certain non-core investments, which would include our international and renewable assets operated by Cinergy Global Resources, Inc. (Global Resources) and other technology investments.

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The Results of Operations discussions for Cinergy, CG&E, and PSI are combined within this section.

2002 RESULTS OF OPERATIONS - HISTORICAL

Summary of Results

Electric and gas gross margins and net income for Cinergy, CG&E, and PSI for the years ended December 31, 2002 and 2001 were as follows:

	Cinergy(1)				CG&E and subsidiaries				PSI
	2002		2001		2002		2001		2002		2001
	(in thousands)
Electric gross margin	$	2,400,458	$	2,250,044	$	1,228,005	$	1,215,385	$	1,083,218	$	942,530
Gas gross margin	247,978		231,017		204,534		199,665		—		—
Net income	360,576		442,279		263,696		326,654		214,249		162,333

(1)The results of Cinergy also include amounts related to non-registrants.

Net income for the year ended December 31, 2002, was $361 million ($2.13 per share on a diluted basis) as compared to $442 million ($2.75 per share on a diluted basis) for the same period last year.  Income before taxes for the period was $558 million compared to $718 million for the prior year.  Increased gross margins were offset by the recognition of costs associated with employee severance programs, charges related to the write-off of certain investments, and higher operating costs.  Increased gross margins were also offset by a cumulative effect of a change in accounting principle related to the implementation of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (Statement 142).

The explanations below follow the line items on the Statements of Income for Cinergy, CG&E, and PSI.  However, only the line items that varied significantly from prior periods are discussed.

Electric Operating Revenues

	Cinergy(1)						CG&E and subsidiaries						PSI
	2002		2001		% Change		2002		2001		% Change		2002		2001		% Change
	(in millions)
Retail	$	2,771	$	2,691	3		$	1,412	$	1,444	(2	)	$	1,360	$	1,247	9
Wholesale	3,970		5,482		(28	)	2,964		2,645		12		959		2,835		(66	)
Transportation	13		3		—		13		3		—		—		—		—
Other	158		80		98		125		64		95		40		26		54
Total	$	6,912	$	8,256	(16	)	$	4,514	$	4,156	9		$	2,359	$	4,108	(43	)

(1)The results of Cinergy also include amounts related to non-registrants.

Electric operating revenues decreased for Cinergy and PSI and increased for CG&E for the year ended December 31, 2002, as compared to 2001.  Increases in retail sales, including transportation, were offset by an overall reduction in wholesale sales.

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Cinergy’s wholesale sales decrease primarily reflects a reduction in the average price per megawatt hour (MWh) realized on non-firm wholesale transactions related to CG&E’s and PSI’s energy marketing and trading activities.  Non-firm power is power without a guaranteed commitment for physical delivery.  Additionally, CG&E’s increase and PSI’s decrease in wholesale revenues reflect the implementation of the new joint operating agreement effective April 2002 (see “Termination of Operating Agreement” in “Results of Operations - Future”).  In connection with implementation of the new operating agreement, new wholesale sales transactions entered into since April 2002 were originated on behalf of CG&E.

Retail revenues increased for Cinergy and PSI due to increased MWh sales, attributable to weather and increased customer usage.  Also contributing to this increase were changes in rate tariff adjustments associated with demand-side management, Tracker, CWIP, and fuel cost recovery programs.  The cost of fuel for PSI’s retail customers is passed on dollar-for-dollar under the state mandated fuel cost recovery mechanism.  CG&E’s retail revenues were relatively flat for the year ended December 31, 2002, as compared to 2001.  Increased residential sales, primarily attributable to weather, were offset by decreases in revenue from commercial and industrial customers.  This decrease reflects a sluggish economy and the migration of such customers to a transportation-only tariff, in connection with the Ohio electric customer choice program.

Other Electric operating revenues for Cinergy, CG&E, and PSI increased for the year ended December 31, 2002, as compared to 2001.  Cinergy’s and CG&E’s increase is due primarily to third party coal sales.  Cinergy’s, CG&E’s, and PSI’s increase also reflects transmission revenues associated with the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) which began operations in early 2002.

Gas Operating Revenues

	Cinergy(1)						CG&E and subsidiaries
	2002		2001		% Change		2002		2001		% Change
	(in millions)
Retail	$	386	$	547	(29	)	$	386	$	547	(29	)
Wholesale	4,481		4,068		10		—		—		—
Transportation	47		40		18		47		40		18
Other	3		8		(63	)	4		9		(56	)
Total	$	4,917	$	4,663	5		$	437	$	596	(27	)

(1)The results of Cinergy also include amounts related to non-registrants.

Gas operating revenues for Cinergy increased for the year ended December 31, 2002, as compared to 2001.  Cinergy’s increase was primarily the result of increased volumes sold by Cinergy Marketing & Trading, LP (Marketing & Trading), slightly offset by a lower price received per thousand cubic feet (mcf).  Wholesale natural gas commodity spot prices were 16 percent lower on average than the year ended December 31, 2001.

CG&E’s retail gas revenues decreased primarily due to a lower price received per mcf delivered.  The lower price reflects a substantial decrease in the wholesale gas commodity cost, which is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism

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that is mandated by state law.  Partially offsetting this decrease in retail gas revenues was an increase in CG&E’s base rates approved by the PUCO in May 2002 (See “CG&E Gas Rate Case” in “Results of Operations - Future”).

Other Revenues

Other revenues for Cinergy increased for the year ended December 31, 2002, as compared to 2001.  This increase is primarily due to the sale of synthetic fuel, which began in July 2002.

Operating Expenses

	Cinergy(1)						CG&E and subsidiaries						PSI
	2002		2001		% Change		2002		2001		% Change		2002		2001		% Change
	(in millions)
Fuel	$	865	$	779	11		$	410	$	332	23		$	455	$	453	—
Purchased and exchanged power	3,647		5,227		(30	)	2,876		2,609		10		821		2,713		(70	)
Gas purchased	4,669		4,432		5		233		397		(41	)	—		—		—
Operation and maintenance	1,298		1,013		28		533		442		21		489		413		18
Depreciation	414		374		11		196		187		5		156		149		5
Taxes other than income taxes	263		228		15		198		174		14		57		50		14
Total	$	11,156	$	12,053	(7	)	$	4,446	$	4,141	7		$	1,978	$	3,778	(48	)

(1)The results of Cinergy also include amounts related to non-registrants.

Fuel

Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity.   The following table details the changes to fuel expense from the year ended December 31, 2001, to the year ended December 31, 2002:

	Cinergy(1)			CG&E			PSI
	(in millions)
2001 fuel expense	$	779		$	332		$	453
Increase (Decrease) due to changes in:
Price of fuel	(8		)	(22		)	14
Deferred fuel cost	(5		)	—			(5		)
MWh generation	23			30			(7		)
Other(2)	76			70			—
2002 fuel expense	$	865		$	410		$	455

(1)The results of Cinergy also include amounts related to non-registrants.

(2)Includes costs of third party coal sales through our marketing and trading activities.

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Purchased and Exchanged Power

Purchased and exchanged power expense decreasedfor Cinergy and PSI and increased for CG&E for the year ended December 31, 2002, as compared to 2001.  Cinergy’s decrease primarily reflects a reduction in the average price paid per MWh as wholesale electric on-peak commodity prices were approximately 23 percent lower on average as compared to 2001.  CG&E’s and PSI’s purchased and exchanged power expense also reflects the implementation of the new joint operating agreement beginning in April 2002.

Gas Purchased

Gas purchased expense increased for Cinergy for the year ended December 31, 2002, as compared to 2001.  Cinergy’s increase primarily reflects higher gas volumes purchased by Marketing & Trading.  Increased volumes purchased were partially offset by decreases in the average cost of mcf purchased.  Wholesale natural gas commodity spot prices were 16 percent lower on average for the year ended December 31, 2002, as compared to 2001.  CG&E’s gas purchased expense decreased primarily due to a decrease in the average cost purchased per mcf.  CG&E’s wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated by state law.

Operation and Maintenance

Operation and maintenance expense increased for Cinergy, CG&E, and PSI for the year ended December 31, 2002, as compared to 2001.  Cinergy’s, CG&E’s, and PSI’s increase reflects the recognition of costs associated with employee severance programs, which began in the second quarter of 2002.  Also contributing to this increase were higher transmission costs, increased costs of employee compensation and benefit programs, and expenditures related to process improvement and performance measurement initiatives.  Cinergy’s and PSI’s increase also reflects increased amortization of demand-side management expenditures.  Additionally, Cinergy’s increase includes costs associated with the production of synthetic fuel, beginning in July 2002 and increased operating costs for certain of our non-regulated investments.

Depreciation

Depreciation expense increased for Cinergy, CG&E, and PSI for the year ended December 31, 2002, as compared to 2001.  This increase was primarily attributable to the addition of depreciable plant, including Cinergy’s acquisitions of non-regulated peaking generation in 2001 and a synthetic fuel project in 2002.

Taxes Other Than Income Taxes

Taxes other than income taxes expense increased for Cinergy, CG&E, and PSI for the year ended December 31, 2002, as compared to 2001.  This increase is primarily attributable to increased property taxes.  Cinergy’s and CG&E’s increase also reflects other tax changes associated with deregulation in Ohio.

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Equity in Earnings (Losses) of Unconsolidated Subsidiaries

Equity in earnings (losses) of unconsolidated subsidiaries increased for the year ended December 31, 2002, as compared to 2001, primarily due to changes in the market valuation of certain investments and the dissolution and write-off of subsidiaries in 2001.

Miscellaneous - Net

Miscellaneous - net decreased for Cinergy for the year ended December 31, 2002, as compared to 2001, primarily reflecting the write-off of technology investments and costs accrued related to the termination of a contract for the construction of combustion turbines.  Partially offsetting this decrease were net gains realized from the sale of equity investments in certain renewable energy projects.

Interest

Interest expense decreased for Cinergy, CG&E, and PSI for the year ended December 31, 2002, as compared to 2001, primarily as a result of lower interest rates.

Preferred Dividend Requirement of Subsidiary Trust

Preferred dividend requirement of subsidiary trust relates to quarterly payments to be made to holders of Cinergy’s preferred trust securities, which were issued in December 2001.

Income Taxes

Income taxes expense decreased for Cinergy and CG&E for the year ended December 31, 2002, as compared to 2001.  This decrease was primarily due to the decrease in taxable income.  Also contributing to Cinergy’s decrease were tax credits associated with the production and sale of synthetic fuel beginning July 2002.  PSI’s income tax expense increased for the year ended December 31, 2002, as compared to 2001, mainly due to the increase in taxable income.

Discontinued Operations

In 2002, Cinergy sold and/or classified as held for sale, several non-core investments.  Pursuant to Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-lived Assets (Statement 144), these investments have been classified as discontinued operations in our financial statements.  See Note 15 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for further information.

Cumulative Effect of a Change in Accounting Principle

Cinergy recognized a Cumulative effect of a change in accounting principle of approximately $11 million (net of tax) as a result of an impairment charge for goodwill related to the implementation of Statement 142.  See Note 14 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for further information.

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ULH&P

The Results of Operations discussion for ULH&P is presented only for the year ended December 31, 2002, in accordance with General Instruction I(2)(a).

Electric and gas margins and net income for ULH&P for the year ended December 31, 2002 and 2001, were as follows:

	ULH&P
	2002		2001
	(in thousands)
Electric gross margin	$	67,122	$	79,398
Gas gross margin	34,820		36,740
Net income	12,150		35,924

Electric Gross Margins

Electric operating revenues decreased for the year ended December 31, 2002, as compared to 2001, primarily due to the recognition of revenues in 2001 which were previously deferred subject to refund in connection with a 2000 retail rate filing with the KPSC.  A settlement was reached in May 2001, allowing ULH&P to retain these revenues. Partially offsetting this decrease in revenues was an increase in sales attributable to warmer than normal weather.

Electricity purchased from parent company for resale increased for the year ended December 31, 2002, as compared to 2001, due primarily to a new wholesale power contract with CG&E that became effective in January 2002.  This five-year agreement is a negotiated fixed-rate contract that replaced the previous cost of service based contract that expired on December 31, 2001.

Gas Gross Margins

Gas operating revenues decreased for the year ended December 31, 2002, as compared to 2001.  This decrease is primarily due to lower price received per mcf.  The lower price reflects a substantial decrease in the wholesale gas commodity cost.  Partially offsetting the decrease in gas revenues was an increase in ULH&P’s base rates approved by the KPSC in January 2002 (see “ULH&P Gas Rate Case” in “Results of Operations - Future”).

Gas purchased expenses decreased for the year ended December 31, 2002, as compared to 2001, due to lower prices paid per mcf.  The wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated under state law.

Operation and Maintenance

Operation and maintenance expense increased for the year ended December 31, 2002, as compared to 2001, due primarily to higher transmission costs associated with the new wholesale power contract with CG&E that became effective in January 2002.

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2001 RESULTS OF OPERATIONS - HISTORICAL

Summary of Results

Electric and gas gross margins and net income for Cinergy, CG&E, and PSI for the years ended December 31, 2001 and 2000 were as follows:

	Cinergy(1)				CG&E and subsidiaries				PSI
	2001		2000		2001		2000		2001		2000
	(in thousands)
Electric gross margin	$	2,250,044	$	2,220,084	$	1,215,385	$	1,183,816	$	942,530	$	959,541
Gas gross margin	231,017		267,304		199,665		224,633		—		—
Net income	442,279		399,466		326,654		266,820		162,333		135,398

(1)The results of Cinergy also include amounts related to non-registrants.

Diluted earnings per share for the year ended December 31, 2001, was $2.75 as compared to $2.50 for the year ended December 31, 2000.  Included in 2000 results were previously reported one-time charges totaling $.11 per share related to a tentative agreement reached with the EPA and a limited early retirement program (LERP) offered to employees during 2000.

The increase in 2001 earnings was primarily attributable to increased electric gross margins within Energy Merchant Business Unit’s (Energy Merchant) origination, marketing and trading segment, and reduced operating expenditures.  Partially offsetting this increase were lower electric gross margins within our regulated operations, mainly driven by mild weather and a slowed economy, and increased depreciation and interest expenses associated with new investments.  Gas gross margins decreased for the year ended December 31, 2001, as compared to 2000, primarily as a result of mild weather.

The explanations below follow the line items on the Statements of Income for Cinergy, CG&E, and PSI.  However, only the line items that varied significantly from prior periods are discussed.

Electric Operating Revenues

	Cinergy(1)					CG&E and subsidiaries						PSI
	2001		2000		% Change	2001		2000		% Change		2001		2000		% Change
	(in millions)
Retail	$	2,691	$	2,692	—	$	1,444	$	1,482	(3	)	$	1,247	$	1,210	3
Wholesale	5,482		2,615		—	2,645		1,233		—		2,835		1,450		96
Transportation	3		—		—	3		—		—		—		—		—
Other	80		52		54	64		31		—		26		31		(16	)
Total	$	8,256	$	5,359	54	$	4,156	$	2,746	51		$	4,108	$	2,691	53

(1)The results of Cinergy also include amounts related to non-registrants.

Electric operating revenues for Cinergy, CG&E, and PSI increased for the year ended December 31, 2001, as compared to 2000, mainly due to an increase in volumes and average

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price per MWh realized on non-firm wholesale transactions related to energy marketing and trading activities.  Non-firm power is power without a guaranteed commitment for physical delivery.

Gas Operating Revenues

	Cinergy(1)						CG&E and subsidiaries
	2001		2000		% Change		2001		2000		%Change
	(in millions)
Retail	$	547	$	429	28		$	547	$	429	28
Wholesale	4,068		2,454		66		—		—		—
Transportation	40		56		(29	)	40		56		(29	)
Other	8		3		—		9		6		50
Total	$	4,663	$	2,942	58		$	596	$	491	21

(1)     The results of Cinergy also include amounts related to non-registrants.

Gas operating revenues for Cinergy increased for the year ended December 31, 2001, as compared to 2000.  Cinergy’s increase was primarily the result of increased volumes sold by Marketing & Trading.

CG&E’s retail gas revenues increased primarily due to a higher price received per mcf sold.  This increase was partially offset by a decrease in retail gas sales resulting from warmer weather during the fourth quarter of 2001.  The higher price reflects a substantial increase in the wholesale gas commodity cost during the first six months, which is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated by state law.  Retail sales also increased and transportation sales decreased due to transportation customers (customers who purchase gas directly from other suppliers) returning to full gas service (customers who purchase gas and utilize the transportation services of CG&E).

Operating Expenses

	Cinergy(1)						CG&E and subsidiaries						PSI
	2001		2000		% Change		2001		2000		% Change		2001		2000		% Change
	(in millions)
Fuel	$	779	$	760	3		$	332	$	344	(3	)	$	453	$	407	11
Purchased and exchanged power	5,227		2,379		—		2,609		1,218		—		2,713		1,325		—
Gas purchased	4,432		2,675		66		397		266		49		—		—		—
Operation and maintenance	1,013		1,112		(9	)	442		492		(10	)	413		464		(11	)
Depreciation	374		342		9		187		181		3		149		141		6
Taxes other than income taxes	228		268		(15	)	174		208		(16	)	50		57		(12	)
Total	$	12,053	$	7,536	60		$	4,141	$	2,709	53		$	3,778	$	2,394	58

(1)     The results of Cinergy also include amounts related to non-registrants.

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Fuel

Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity.  The following table details the changes to fuel expense from the year ended December 31, 2000, to the year ended December 31, 2001:

	Cinergy(1)			CG&E			PSI
	(in millions)
2000 fuel expense	$	760		$	344		$	407
Increase (Decrease) due to changes in:
Price of fuel	47			22			25
Deferred fuel cost	45			2			43
MWh generation	(58		)	(36		)	(22		)
Other	(15		)	—			—
2001 fuel expense	$	779		$	332		$	453

(1)     The results of Cinergy also include amounts related to non-registrants.

Purchased and Exchanged Power

Purchased and exchanged power expense for Cinergy, CG&E, and PSI increased for the year ended December 31, 2001, as compared to 2000, primarily due to an increase in purchases of non-firm wholesale power, reflecting higher sales volumes and higher prices paid per MWh.

Gas Purchased

Gas purchased expense for Cinergy increased for the year ended December 31, 2001, as compared to 2000, primarily due to an increase in gas commodity trading volumes.  CG&E’s gas purchased expense increased primarily due to higher prices paid per mcf during the first six months of 2001.  CG&E’s wholesale gas commodity cost is passed directly to the retail customer dollar-for-dollar under the gas cost recovery mechanism that is mandated by state law.

Operation and Maintenance

Operation and maintenance expense for Cinergy, CG&E, and PSI decreased for the year ended December 31, 2001, as compared to 2000, due in part to one-time charges related to a tentative agreement reached with the EPA in late 2000 and the LERP offered during 2000, as part of a corporate restructuring initiative.  Cinergy’s and CG&E’s decrease is also attributable to a sale of emission allowances, due to decreased electric generation, and Cinergy’s and PSI’s decrease reflects the reduction in amortization of demand-side management costs, resulting from the expiration of the agreement in May 2000.

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Depreciation

Depreciation expense for Cinergy increased for the year ended December 31, 2001, as compared to 2000.  This increase was primarily attributable to the acquisition of additional depreciable plant, including investments in peaking generation.

Taxes Other Than Income Taxes

Taxes other than income taxes expense for Cinergy, CG&E, and PSI decreased for the year ended December 31, 2001, as compared to 2000, primarily due to reduced property tax expense and other tax changes associated with deregulation in Ohio.

Miscellaneous – Net

Miscellaneous - net increased for Cinergy, CG&E,and PSI for the year ended December 31, 2001, as compared to 2000, due in part to gains associated with the demutualization of one of our medical insurance carriers.  Cinergy’s and PSI’s increase also reflects income associated with capitalized financing costs of PSI’s pollution control projects.

Interest

Interest expense for Cinergy increased for the year ended December 31, 2001, as compared to 2000, mainly due to debt issuances principally associated with the acquisition of additional peaking generation.  Partially offsetting this increase was a decrease in short-term interest rates.

Income Taxes

Income taxes expense for Cinergy, CG&E, and PSI increased for the year ended December 31, 2001, as compared to 2000, primarily due to an increase in taxable income.

Discontinued Operations

In 2002, Cinergy sold and/or classified as held for sale, several non-core investments resulting in a reclassification of those investments as discontinued operations.  See Note 15 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for further information.

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MD&A - - RESULTS OF OPERATIONS - FUTURE

FUTURE EXPECTATIONS/TRENDS

In the “Future Expectations/Trends” section, we discuss electric and gas industry developments, market risk sensitive instruments and positions, inflation, and accounting matters.  Each of these discussions will address the current status and potential future impact on our results of operations and financial condition.

ELECTRIC INDUSTRY

The utility industry has traditionally operated as a regulated monopoly but is transitioning to an environment of increased wholesale and retail competition.  Regulatory and legislative decisions being made at the federal and state levels are aimed at promoting customer choice and are shaping this transition.  Customer choice provides the customer with the ability to select an energy supplier (the company that generates or supplies the commodity) in an open and competitive marketplace.  In particular, the FERC issued a Notice of Proposed Rulemaking (NOPR) proposing significant changes to enhance wholesale competition and create more customer options, among other initiatives.

The events and circumstances with California, Enron Corp. (Enron), and others, are significantly influencing the transition to increased wholesale and retail competition.  In 2002, wholesale electric markets were characterized by lower prices, decreased liquidity, and the near evaporation of mid- to long-term markets.  Developers cancelled turbine orders and abandoned existing power projects.  Several trading operations announced plans to curtail or exit their wholesale trading activities.  Credit rating agencies downgraded many industry participants.  In this period of unprecedented change and uncertainty, energy industry participants are re-evaluating their strategies and business models.

Wholesale Market Developments

FERC NOPR on “Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design”

In July 2002, the FERC issued a NOPR on “Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design” that proposed significant changes, intended by FERC, to enhance wholesale competition, enable efficient transmission system development, provide correct pricing signals for investment in transmission and generation facilities, and create more customer options.  Market monitoring and market power mitigation proposals are also critical parts of the proposals for standardized power market rules.  As part of this process, the FERC proposes to amend its regulations under the Federal Power Act, to modify the pro-forma open access transmission tariff established under the FERC’s Order No. 888.  FERC proposes to require all public utilities with open access transmission tariffs to file modifications to their tariffs to implement its proposed standardized transmission services and standardized wholesale electric market design.  On November 15, 2002, Cinergy submitted initial NOPR comments to the FERC as part of this proceeding, generally supporting the FERC’s pro-competitive goals but suggesting modifications and sensitivity to some regional differences.  Pursuant to FERC’s procedural directives, Cinergy anticipates filing additional comments on this NOPR with the FERC in the first quarter of 2003.

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The FERC issued a news release on January 13, 2003, stating its intention to issue an additional document on this NOPR in April 2003.  The FERC also indicated that it would seek comments on the new document from interested parties.  As a result, it is likely that the original timeline included in the NOPR will be delayed.  Cinergy continues to evaluate this NOPR, but at this time, cannot determine the impact to either its financial position or results of operations.

FERC NOPR on New Standards of Conduct Regulations

In September 2001, the FERC issued a NOPR proposing to promulgate new standards of conduct regulations that would apply, uniformly, to natural gas pipelines and transmitting public utilities.  The FERC is proposing to adopt one set of standards of conduct to govern the relationships between regulated transmission providers and all their energy affiliates, broadening the definition of an affiliate covered by the standards of conduct from the more narrow definition in the existing regulations.  At this time, we are unable to predict either the outcome of this proceeding or its effect on Cinergy.

Supply-side Actions

In December 2001, the IURC approved PSI’s plan for converting its Noblesville generating station from coal to natural gas, which will increase the electric generating capacity at the plant from approximately 100 megawatts (MW) to 300 MW.  The conversion is expected to be completed in June 2003.  In addition to increasing capacity, upon completion of the project, overall emissions to the environment will be reduced.  Also, in December 2001, PSI filed a petition with the IURC to acquire the Butler County, Ohio and Henry County, Indiana peaking plants from subsidiaries of Capital & Trading.  In December 2002, the IURC approved PSI’s purchase of the two plants, and on February 4, 2003, the FERC issued an order approving the transfer.  See “Transfer of Generating Assets to PSI” for additional information.

Demand-side Actions

Pursuant to Ohio’s customer choice legislation enacted in 2001, four percent of CG&E’s residential customers and 23 percent of CG&E’s non-residential retail customers, in terms of annual energy consumption, had switched electric suppliers as of December 31, 2002.  CG&E currently has no plans to replace these customers by acquiring new retail customers, although CG&E reserves the flexibility to replace load in the wholesale market, to the extent it chooses.  For a further discussion on Ohio deregulation, see “Retail Market Developments” in this section.

In July 2002, we experienced record peak loads of 11,133 MW, 5,265 MW,and 6,088 MW for Cinergy, CG&E, and PSI, respectively.  Cinergy and CG&E subsequently set new record peak loads of 11,305 MW and 5,311 MW, respectively, in August 2002.  We met customer demands with our own supply and planned purchases from other regional electric suppliers.

Retail Market Developments

Currently, regulatory and legislative initiatives shaping the transition to a competitive retail market are the responsibilities of the individual states.  Many states, including Ohio, have enacted electric utility deregulation legislation.  In general, these initiatives have sought to separate the electric utility service into its basic components (generation, transmission, and distribution) and offer each component separately for sale.  This separation is referred to as

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unbundling of the integrated services.  Under the customer choice initiatives in Ohio, we continue to transmit and distribute electricity; however, the customer can purchase electricity from any available supplier, and we are compensated through a transportation charge.  The following sections further discuss the current status of federal and state energy policies and deregulation legislation in the states of Ohio, Indiana, and Kentucky, each of which includes a portion of our service territory.

Federal Update

Energy Bill

President Bush, in conjunction with the work of an inter-agency energy task force headed by Vice President Richard Cheney, developed a number of recommendations to address the energy security needs of America.  The U.S. House of Representatives passed its version of energy security legislation (H.R. 4) in 2001, and the U.S. Senate passed its version (S. 517) on April 25, 2002.  After significant debate, the bill died in a conference committee because differences could not be resolved.  While the Bush Administration has urged Congress to take up similar legislation during 2003, it is unclear how quickly Congress will move to enact a bill.  Last year’s versions of the energy bill included a provision to repeal the PUHCA, which Cinergy supported.  It is likely that early versions of the energy bill will include PUHCA repeal, but it is too early to determine if an energy bill with electricity provisions will pass Congress this year.

Clear Skies Legislation

At the end of the 107th Congress, President Bush requested the introduction of legislation that would create a clear roadmap for environmental laws, allowing the nation to meet air goals but providing certainty for electric utilities with coal-fired power.  That legislation is expected to be re-introduced in this session of Congress, and President Bush, in his 2003 State of the Union address, expressed that passage of his Clear Skies legislation was a top priority.  Cinergy has been a promoter of this legislation, as it will create a clear roadmap of its environmental requirements while providing the time necessary to make required environmental improvements.

The importance of Clear Skies legislation is that it would replace unpredictable environmental regulations with set targets and timetables, allowing the industry adequate time to access needed capital and build environmental improvement projects.  Clear Skies legislation would seek an overall 70 percent improvement in emissions from power plants over a phased-in reduction schedule beginning in 2010 and stretching to 2018.  The leaders of the U.S. Senate Environmental Committee have promised to consider the legislation early in 2003; however, timing for consideration is less certain with the U.S. House of Representatives.  Therefore, the prospects for passage of the Clear Skies legislation are unclear.

Ohio

In July 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio.  The Electric Restructuring Bill created a competitive electric retail service market effective January 1, 2001.  The legislation provides for a market development period that began January 1, 2001 and ends no later than December 31, 2005.

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In May 2000, CG&E reached a stipulated agreement with the PUCO staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio effective January 1, 2001.  In August 2000, the PUCO approved CG&E’s stipulation agreement.  Subsequently, two parties filed applications for rehearing with the PUCO.  In October 2000, the PUCO denied these applications.  One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000, and CG&E subsequently intervened in that case.  In April 2002, the Ohio Supreme Court affirmed the PUCO’s stipulated agreement with CG&E with respect to implementing electric customer choice.  The Ohio Supreme Court ruling leaves CG&E’s transition plan entirely intact.

Under CG&E’s transition plan, retail customers continue to receive transportation services from CG&E but may purchase electricity from another supplier.  Retail customers that purchase electricity from another supplier receive shopping credits from CG&E.  The shopping credits generally reflect the costs of electric generation included in CG&E’s frozen rates.  However, shopping credits for the first 20 percent of electricity usage in each customer class to switch suppliers, are higher than CG&E’s electric generation costs in order to stimulate the development of the competitive retail electric service market.

CG&E recovers its regulatory assets and other transition costs through a Regulatory Transition Charge (RTC) paid by all retail customers.  As the RTC is collected from customers, CG&E amortizes the deferred balance of regulatory assets and other transition costs.  A portion of the RTC collected from customers is recognized currently as a return on the deferred balance of regulatory assets and other transition costs and as reimbursement for the difference in the shopping credits provided to customers and the wholesale revenues from switched generation.  The ability of CG&E to recover its regulatory assets and other transition costs is dependent on several factors, including, but not limited to, the level of CG&E’s electric sales, prices in the wholesale power markets, and the amount of customer switching to other electric suppliers.

On January 10, 2003, CG&E filed an application with the PUCO for approval of a methodology to establish how market-based rates for non-residential customers will be determined when the market development period ends.  In the filing, CG&E seeks to establish a market-based standard service offer rate for non-residential customers that do not switch suppliers, and a process for establishing the competitively-bid generation service option required by the Electric Restructuring Bill.  As of December 31, 2002, more than 20 percent of the load in each of CG&E’s non-residential customer classes has switched to other electric suppliers.  Under its transition plan, CG&E may end the market development period for those classes of customers once 20 percent switching has been achieved; however, PUCO approval of the standard service offer rate and competitive bidding process is required before the market development period can be ended.  CG&E is not requesting to end the market development period for non-residential customers at this time.  CG&E is unable to predict the outcome of this proceeding.

A FERC order, that was effective April 2002, allowed Cinergy to jointly dispatch the regulated generating assets of PSI in conjunction with the deregulated generating assets of CG&E.  The order also authorizes the transfer of the CG&E generating assets to a non-regulated affiliate.  However, Cinergy has determined that it can realize the benefits of the new joint dispatch agreement without transferring CG&E’s generation assets, and therefore Cinergy does not plan

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to transfer CG&E’s generating assets to a non-regulated affiliate in the foreseeable future.  For further discussion of the joint dispatch agreement, see “Termination of Operating Agreement”.

Indiana

In 2002, Indiana lawmakers anticipated the creation of an Energy Policy Commission to assist in the creation of a comprehensive energy plan.  However, no such commission was formed and, as a result, there are no current plans for electric deregulation in Indiana.

Kentucky

Throughout 1999, a special Kentucky Electricity Restructuring Task Force (Task Force), convened by the Kentucky legislature, studied the issues of electric deregulation.  In January 2000, the Task Force issued a final report to Kentucky Governor Paul Patton recommending that lawmakers wait until the 2002 General Assembly before considering any deregulation that would open the state’s electric industry to competition.  The state legislature did not take any action in 2002 to move Kentucky towards electric deregulation.

Other States

At the end of 2000, approximately one half of the states and the District of Columbia had adopted deregulation plans.  However, recent events are significantly influencing political and legislative activity.  At the end of 2001, eight of the states decided to delay or suspend their deregulation activities.  No additional states adopted deregulation plans during 2002.

Other

Under generally accepted accounting principles (GAAP), CG&E, PSI, and ULH&P apply the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71) to the applicable rate-regulated portions of their businesses.  The provisions of Statement 71 allow CG&E, PSI, and ULH&P to capitalize (record as a deferred asset) costs that would normally be charged to expense.  These costs are classified as regulatory assets in the accompanying financial statements, and the majority have been approved by regulators for future recovery from customers through our rates.  As of December 31, 2002, our operating companies have approximately $1 billion of net regulatory assets, of which more than 90 percent has been approved for recovery.

Except with respect to the generation assets of CG&E, as of December 31, 2002, our operating companies continue to meet each of the criteria required for the application of Statement 71.  However, to the extent other states implement deregulation legislation, the application of Statement 71 will need to be reviewed.  Based on our operating companies’ current regulatory orders and the regulatory environment in which they currently operate, management believes the future recovery of regulatory assets recognized in the accompanying Balance Sheets, as of December 31, 2002, is probable.  See Note 1(c) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for a further discussion of our regulatory assets.

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Midwest ISO

Historical

As part of the effort to create a competitive wholesale power marketplace, the FERC approved the formation of the Midwest ISO during 1998.  In that same year, Cinergy agreed to join the Midwest ISO in preparation for meeting anticipated changes in the FERC regulations and future deregulation requirements.  The Midwest ISO was established as a non-profit organization to maintain functional control over the combined transmission systems of its members.

On December 15, 2001, the Midwest ISO initiated startup of its operations with the provision of a variety of support or stand alone services to its transmission owning members.  The Midwest ISO achieved full startup, including implementation of tariff administration, on February 1, 2002.  Although the Midwest ISO continues to develop, modify, and enhance its various operating practices, it has assumed functional control of the transmission systems of its member companies, including the Cinergy utilities.  This transfer of control was implemented without significant impact on the operations of Cinergy’s transmission systems.

FERC Orders

In December 2001, the FERC approved the proposal of the Midwest ISO to become the first FERC-approved Regional Transmission Organization (RTO) and denied a similar proposal from the Alliance Regional Transmission Organization (Alliance RTO) on the basis that the proposal lacked sufficient scope.  The FERC encouraged the former Alliance RTO companies to explore joining the Midwest ISO.  Certain former Alliance RTO companies have joined or announced intent to join the Midwest ISO.  The remaining former Alliance RTO companies have announced that they will join the PJM Interconnection, LLC (PJM).

In its July 17, 2002 open meeting and subsequent orders, the FERC reaffirmed its expectation that the Midwest ISO and PJM implement a common wholesale market between them by October 1, 2004.  FERC also imposed more immediate deadlines upon the Midwest ISO, PJM, and various other parties to establish certain protocols, including the elimination of pancaked transmission rates between the Midwest ISO and PJM, necessary to establish a “virtual” single regional transmission organization among the Midwest ISO and PJM companies.  Pancaked transmission rates are multiple transmission charges imposed for a single transaction crossing between multiple transmission providers.  As part of the FERC orders, the FERC has opened an investigation, under Section 206 of the Federal Power Act (Section 206), into the justness and reasonableness of the “through and out” transmission rates of the Midwest ISO and PJM.  Cinergy is participating in the Section 206 hearing, along with the other transmission owners who are members, or potential members, of the Midwest ISO or PJM.  Pursuant to an order issued in July 2002, the FERC indicated that it plans to issue a decision by July 31, 2003.  As part of this proceeding, Cinergy is advocating the removal of pancaked transmission rates between the Midwest ISO and PJM, including all of the former Alliance RTO companies, as well as lost revenue recovery for transmission owners who are affected by the removal of the pancaked transmission rates.  At this time, Cinergy cannot determine the impact of either the FERC orders or the related Section 206 investigation upon either our financial position or results of operations.

In related activity, the FERC issued an order in December 2001, in response to protests of the Midwest ISO’s proposed methodology related to the calculation of its administrative adder fees

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for the services it provides.  Cinergy and a number of other parties filed protests to the proposed methodology, suggesting, among other things, that the methodology was inconsistent with the transmission owners’ prior agreement with the Midwest ISO and selectively allowed only independent transmission companies to choose which unbundled administrative adder services they wished to purchase from the Midwest ISO.  A partial settlement was reached in the FERC proceeding, resolving the issues addressed by Cinergy’s protest in a manner favorable to Cinergy.  Most active parties in the FERC proceeding filed comments in support of the settlement.  The only contested issue under the settlement involved an agreed upon deferred accounting and regulatory asset mechanism to be established as a backstop to guard against any under-recovery of assessed administrative fees in retail ratemaking proceedings.  The settlement agreement was neither approved nor denied approval by the FERC by December 31, 2002.  Cinergy anticipates that the settlement will need to be renegotiated in early 2003 and resubmitted to the FERC for approval.  Cinergy also anticipates that the Midwest ISO transmission members will reach a similar settlement with the Midwest ISO, and that such agreement will be approved by the FERC without material change.

In late 2001 and early 2002, the FERC issued its Opinion No. 453 and 453-A ordering, among other things, that transmission service for bundled retail customers (i.e., customers who cannot select an alternative energy provider) shall be provided under the Midwest ISO’s open access transmission tariff, and that the Midwest ISO’s charges for its administrative services shall apply to bundled retail customers.  PSI and other parties have appealed these orders to the U.S. Court of Appeals for the District of Columbia Circuit, challenging the application of the Midwest ISO’s tariff, and the Midwest ISO’s charges for its administrative services to bundled retail customers.  PSI cannot predict either when the court will issue its opinion in the appeal or the outcome of the appeal.

On November 22, 2002, the FERC issued an order conditionally approving the Midwest ISO’s recovery of costs associated with the establishment of financial transmission rights, and the development of energy markets within the Midwest ISO’s operating area.  The FERC’s order suspended the proposed rates and made them effective November 25, 2002, subject to refund, and set for a hearing the issues identified below.  The FERC’s order expressed the expectation that the Midwest ISO’s board of directors will guard against any unreasonable costs being incurred by the Midwest ISO.  The Midwest ISO had proposed to assess a withdrawal/exit fee on any transmission owner member who withdraws from the Midwest ISO for its proportionate share of any unrecovered deferred costs.  The Midwest ISO transmission owners, including Cinergy, filed a protest with the FERC, challenging the cost allocation and the implementation of an exit fee within the Midwest ISO proposal.  The FERC subsequently set these issues for a hearing.

In July 2002, the FERC issued a NOPR that proposed significant changes to the electricity wholesale market.  At this time, we are unable to determine the impact of the NOPR on the Midwest ISO and Cinergy.  See “FERC NOPR on ‘Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design’” for further discussion.

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State Regulatory Agencies Filings

This past summer, PSI and the other investor-owned transmission companies in Indiana who are members of the Midwest ISO, requested approval from the IURC to defer, for subsequent recovery from their respective Indiana retail electric customers, the applicable costs incurred by the companies for administrative services provided by the Midwest ISO.

The actual costs for 2002 were approximately $6 million and $3 million for PSI and CG&E, respectively, and are deferred on their respective Balance Sheets as of December 31, 2002.  A settlement was reached between the Indiana Office of the Utility Consumer Counselor, PSI, and the other parties to the IURC proceeding providing for the requested rate and deferred accounting treatment.  The settlement was approved by the IURC on December 11, 2002.  PSI anticipates that its recovery of these deferred amounts will commence with the IURC’s order in PSI’s upcoming retail electric rate case.  For the market development period, CG&E is authorized to recover these costs in Ohio through its regulatory transition plan.

Significant Rate Developments

PSI Retail Rate Case

In December 2002, PSI filed a petition with the IURC seeking approval of a base retail electric rate increase.  PSI’s proposed increase reflects an average increase of approximately 16 to 19 percent over PSI’s current retail electric rates.  If approved by regulators, PSI estimates the rate request will become effective in early 2004.  PSI plans to file initial testimony in this case in March 2003.  An IURC decision is expected in the first quarter of 2004.

Transfer of Generating Assets to PSI

In December 2001, PSI filed a petition with the IURC requesting approval, under Indiana’s Power Plant Construction Act, to acquire the Butler County, Ohio and Henry County, Indiana peaking plants from their current owners, subsidiaries of Capital & Trading, to address its need for increased generating capacity.  In September 2002, PSI reached a settlement agreement with various parties, authorizing PSI to purchase the two peaking plants.  In December 2002, the IURC issued an order approving the settlement agreement and providing state authorization to transfer the plants.

In September 2002, PSI and the applicable Capital & Trading subsidiaries filed applications with the SEC under the PUHCA and the FERC, under the Federal Power Act, requesting authorization for the transfer.  However, in October 2002, the SEC notified PSI that the transaction is exempt from the SEC’s jurisdiction under the PUHCA, and accordingly, PSI and the Capital & Trading subsidiaries withdrew the SEC application.  In October 2002, several parties intervened and filed protests in the proceeding before the FERC, opposing the transfer.  Cinergy timely filed an answer to these protests.

On February 4, 2003, the FERC issued an order, under Section 203 of the Federal Power Act, authorizing PSI’s proposed acquisition of the Henry County, Indiana and Butler County, Ohio gas-fired peaking power plants.  This action was the final regulatory approval needed for the transfer, which occurred on February 5, 2003.

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On January 8, 2003, the IURC issued an order authorizing PSI to defer post-in-service depreciation and carrying costs associated with these peaking plants and PSI’s Noblesville generating station until the costs are reflected in PSI’s base rates after a rate case.  Pursuant to Statement of Financial Accounting Standards No. 92, Regulated Enterprises-Accounting for Phase-in Plans (Statement 92), the equity component of allowance for funds used during construction (AFUDC) will not be deferred for financial reporting.  Also, PSI is allowed to retain off-system sales profits associated with the three plants but will be required to credit such off-system sales profits (other than 50 MWs of Henry County capacity committed to wholesale) to customers from January 1, 2004 until the effective date of PSI’s next retail base rate change.  See “Supply-side Actions” for additional detail.

Purchased Power Tracker

In May 1999, PSI filed a petition with the IURC seeking approval of a Tracker.  This request was designed to provide for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not recovered through the existing fuel adjustment clause.

A hearing was held before the IURC in February 2001, to determine whether it was appropriate for PSI to continue the Tracker for future periods.  In April 2001, a favorable order was received extending the Tracker for two years, through the summer of 2002.  PSI is authorized to seek recovery of 90 percent of its purchased power expenses through the Tracker (net of the displaced energy portion recovered through the fuel recovery process and net of the mitigation credit portion), with the remaining 10 percent deferred for subsequent recovery in PSI’s next general rate case.  In March 2002, PSI filed a petition with the IURC seeking approval to extend the Tracker process beyond the summer of 2002.  A hearing was held on January 16, 2003.  We cannot predict the outcome of this proceeding at this time.

In June 2002, PSI also filed a petition with the IURC seeking approval of the recovery through the Tracker of its actual summer 2002 purchased power costs.  A hearing on this matter is scheduled for the first quarter of 2003.

2002 Purchased Power Costs

In May 2002, the IURC approved a settlement agreement between PSI, the IURC staff, and the Indiana Office of the Utility Consumer Counselor pertaining to PSI’s 2002 purchased power arrangements.  This agreement allowed PSI to purchase the output of the Henry County, Indiana and Butler County, Ohio peaking plants through December 31, 2002.  The parties also agreed to not challenge the recovery of costs for the purchase of power from these plants, as well as the costs of additional summer 2002 purchases needed for reliability purposes, through PSI’s Tracker and fuel recovery mechanism.  Before PSI can begin recovering its summer 2002 purchased power costs through its Tracker, however, it must obtain an order authorizing such from the IURC in PSI’s summer 2002 Tracker case.  The hearing relating to PSI’s summer 2002 Tracker case is scheduled for the first quarter of 2003.  If approved, recovery of PSI’s summer 2002 purchased power costs via the Tracker will likely begin in the second quarter of 2003 and extend over a 12 month period.

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We have $27 million of 2002 purchased power costs deferred for recovery at December 31, 2002.  Of the $27 million, $24 million has been requested through the Tracker, and the recovery of the remaining $3 million will be requested in PSI’s next retail rate case.

The transfer of the Henry County, Indiana and Butler County, Ohio peaking plants to PSI will decrease PSI’s need for purchased power by a like amount.  However, PSI will continue to have purchased power requirements and will continue to seek IURC approval to utilize its Tracker to recover the costs of such purchases.

Termination of Operating Agreement

Upon consummation of the merger between CG&E and PSI Resources, Inc. in 1994, an operating agreement entered into between CG&E, PSI, and Services was filed with and approved by the FERC.  This agreement was established to provide for the coordinated planning and operation of the two regulated entities’ generation and transmission systems.

In October 2000, CG&E, PSI, and Services filed a notice of termination of the operating agreement with the FERC.  The reason for the termination filing was that, with the introduction of deregulation in the State of Ohio, the companies no longer share the common characteristics that formed the basis for the operating agreement.  In December 2000, the FERC ruled that the companies have the contractual right to terminate the operating agreement.  Additionally, the FERC established a termination effective date of May 22, 2001, and set a May 1, 2001, hearing date on the issue of the reasonableness of termination.

Certain parties appealed the FERC’s December 2000 decision.  In March 2001, the IURC initiated an investigation proceeding into the termination of the operating agreement.  In May 2001, the parties to the FERC proceeding reached a settlement resolving termination issues and certain compensation and damage issues.  The settlement agreement was approved by the FERC in June 2001 and delayed the termination of the existing operating agreement until a new successor agreement has been approved by the FERC.

In August 2001, the parties to both the IURC investigation proceeding and the previous FERC proceeding entered into two complementary settlement agreements.  Both agreements addressed, among other things, the terms and conditions of a proposed new joint generation operating agreement and a proposed new joint transmission operating agreement.  The IURC settlement agreement was approved by the IURC in September 2001.  Both the IURC and the FERC settlement agreements were conditioned upon FERC acceptance of the proposed successor agreements.  Cinergy filed the successor agreements with the FERC in October 2001 and in March 2002, the FERC approved the successor agreements.  The successor agreements allow Cinergy to jointly dispatch the regulated generating assets of PSI in conjunction with the deregulated generating assets of CG&E.  Under these agreements, transfers of power between PSI and CG&E are generally priced at market rates.  The successor agreements were implemented effective in April 2002.

PSI Fuel Adjustment Charge

PSI defers fuel costs that are recoverable in future periods subject to IURC approval under a fuel recovery mechanism.  In June 2001, the IURC issued an order in a PSI fuel recovery proceeding,

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disallowing approximately $14 million of deferred costs.  On June 26, 2001, PSI formally requested that the IURC reconsider its disallowance decision.  In August 2001, the IURC indicated that it would reconsider its decision.  In August 2002, the IURC issued its final ruling allowing PSI to fully recover the $14 million.

In June 2001, PSI filed a petition with the IURC requesting authority to recover $16 million in under billed deferred fuel costs incurred from March 2001 through May 2001.  The IURC approved recovery of these costs subject to refund pending the findings of an investigative sub-docket.  The sub-docket was opened to investigate the reasonableness of, and underlying reasons for, the under billed deferred fuel costs.  A hearing was held in July 2002, and we anticipate a decision in the first quarter of 2003.

CWIP Ratemaking Treatment for NO_X Equipment

During the third quarter of 2001, PSI filed an application with the IURC requesting CWIP ratemaking treatment for costs related to NO_X equipment currently being installed at certain PSI generation facilities.  CWIP ratemaking treatment allows for the recovery of carrying costs on the equipment during the construction period.  PSI filed its case-in-chief testimony in January 2002.  In July 2002, the IURC approved the application allowing PSI to commence CWIP ratemaking treatment for its NO_X equipment investments made through December 31, 2001.  Initially this rate adjustment will result in approximately a one percent increase in customer rates.  Under the IURC’s CWIP rules, PSI may update its CWIP tracker at six-month intervals.  The IURC’s July order also authorized PSI to defer, for subsequent recovery, post-in-service depreciation and to continue the accrual for AFUDC.  Pursuant to Statement 92, the equity component of AFUDC will not be deferred for financial reporting.

In October 2002, PSI filed its first six-month CWIP tracker update with the IURC requesting approximately $11 million of additional revenue associated with investments made January 1, 2002, through June 30, 2002, for NO_X emission reduction equipment.  The IURC authorized the recovery of these incremental expenditures in an order issued on January 29, 2003.  The cumulative annual revenue to be recovered under this tracker is $28 million.

GAS INDUSTRY

ULH&P Gas Rate Case

In the second quarter of 2001, ULH&P filed a retail gas rate case with the KPSC seeking to increase base rates for natural gas distribution services and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $112 million over the next 10 years.  A hearing on this matter was held in November 2001 and an order was issued in January 2002.  In the order, the KPSC authorized a base rate increase of $2.7 million, or 2.8 percent overall, to be effective on January 31, 2002.  In addition, the KPSC authorized ULH&P to implement the tracking mechanism to recover the costs of the accelerated gas main replacement program for an initial period of three years, with the possibility of renewal for the full 10 years.  Per the terms of the order, the tracking mechanism will be set annually.  The first filing was made in March 2002 and was approved by the KPSC in an order issued in August 2002.  ULH&P filed an application for a certificate for public convenience and necessity with the KPSC in November 2002, to do cast iron and bare steel main replacement

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work in 2003 at an estimated cost of $14.1 million.  The Kentucky Attorney General (Attorney General) has appealed the KPSC’s approval of the tracking mechanism to the Franklin Circuit Court (Court) and has also appealed the KPSC’s August 2002 order approving the new tracking mechanism rates.  The KPSC’s August 2002 order requires ULH&P to maintain records of the revenues collected under the tracking mechanism to enable ULH&P to refund such revenues, in case the Attorney General’s appeal is upheld and the KPSC orders a refund.  Amounts collected to date under this tracking mechanism are not material.  ULH&P filed an application for rehearing with the KPSC in September 2002, in which ULH&P requested that the KPSC eliminate this requirement.  In October 2002, the KPSC issued an order granting ULH&P’s application for rehearing in part.  The KPSC’s order clarified that ULH&P must maintain its records of the revenues collected under the tracking mechanism in case a refund is ordered at a later date; however, the KPSC’s order stated that it will not address the issue of whether to order a refund unless the Court rules that the KPSC lacked the requisite authority to approve the tracking mechanism.  As a result, ULH&P will not record these revenues as subject to refund unless the Court so rules.  At the present time, ULH&P cannot predict the outcome of this litigation.

CG&E Gas Rate Case

In the third quarter of 2001, CG&E filed a retail gas rate case with the PUCO seeking to increase base rates for natural gas distribution service and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $716 million over the next 10 years.  CG&E entered into a settlement agreement with most of the parties and a hearing on this matter was held in April 2002.  An order was issued in May 2002, in which the PUCO approved the settlement agreement and authorized a base rate increase of approximately $15 million, or 3.3 percent overall, to be effective on May 30, 2002.  In addition, the PUCO authorized CG&E to implement the tracking mechanism to recover the costs of the accelerated gas main replacement program, subject to certain rate caps that increase in amount annually through May 2007, through the effective date of new rates in CG&E’s next retail gas rate case.  The PUCO’s order was not appealed.  In the fourth quarter of 2002, CG&E filed an application to increase its rates under the tracking mechanism by approximately $8 million or 2.4 percent.  The PUCO is investigating the application and CG&E expects that the increase will become effective in May 2003.

Gas Prices

While natural gas prices remained moderate for most of 2002, prices began to escalate during the fourth quarter.  We expectprices to continue to rise throughout the 2002/2003 winter season.  Price movement will be driven by the effects of weather conditions, availability of supply, and changes in demand and storage inventories.Currently, neither CG&E nor ULH&P profit from changes in the cost of gas.  Natural gas purchase costs are passed directly to the customer dollar-for-dollar under the gas cost recovery mechanism that is mandated under state law.

In March 2002, ULH&P filed an application with the KPSC requesting approval of a gas procurement-hedging program designed to mitigate the effects of gas price volatility on customers.  In June 2002, the KPSC approved the pilot program for the 2002/2003 heating season, subject to certain restrictions.  The approved hedging program allows the pre-arranging of between 0-65 percent of winter heating season base load gas requirements.  ULH&P made

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advance arrangements for approximately 23 percent of its winter 2002/2003 base load requirements under the program.

In July 2001, CG&E filed an application with the PUCO requesting approval of its gas procurement-hedging program.  This request was subsequently denied.  However, in denying CG&E’s request for pre-approval of a hedging program, the PUCO order provided clarification that prudently incurred hedging costs are a valid component of CG&E’s gas purchasing strategy.  As a result, CG&E has hedged approximately 30 percent of its winter 2002/2003 base load requirements.  CG&E will seek PUCO approval for its hedging program on an after the fact basis.  At this time, we cannot predict the outcome of this request.

CG&E and ULH&P use primarily fixed price forward contracts and contracts with a ceiling and floor on the price.  These contracts employ the normal purchases and sales exemption, and do not involve Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activity (Statement 133), hedges.

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

Energy Commodities Sensitivity

The transactions associated with Energy Merchant’s energy marketing and trading activities give rise to various risks, including market risk.  Market risk represents the potential risk of loss from adverse changes in market price of electricity or other energy commodities.  As Energy Merchant continues to develop its energy marketing and trading business (and due to its substantial investment in generation assets), its exposure to movements in the price of electricity and other energy commodities may become greater.  As a result, we may be subject to increased future earnings volatility.

The energy marketing and trading activities of Energy Merchant principally consist of Marketing & Trading’s natural gas marketing and trading operations, Cinergy Global Trading Limited’s (Global Trading) European natural gas and power trading operations, and CG&E’s and PSI’s power marketing and trading operations.  In April 2002, CG&E and PSI executed a new joint operating agreement whereby new power marketing and trading contracts of the participants since April 2002 are originated on behalf of CG&E.  See the “Termination of Operating Agreement” section for additional information.

Our domestic operations market and trade over-the-counter (an informal market where the buying/selling of commodities occurs) contracts for the purchase and sale of electricity (primarily in the Midwest region of the U.S.), natural gas, and other energy-related products.  In addition, our domestic operations also market and trade natural gas and other energy-related products on the New York Mercantile Exchange.  Global Trading’s operations trade over-the-counter contracts for the purchase and sale of natural gas and electricity (both primarily in the United Kingdom).  Global Trading also trades natural gas on the International Petroleum Exchange.

Many of the contracts in both the accrual and trading portfolios commit us to purchase or sell electricity, natural gas, and other energy-related products at fixed prices in the future.  The majority of the contracts in the natural gas and other energy-related product portfolios are

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financially settled contracts (i.e., there is no physical delivery related with these items).  In addition, Energy Merchant also markets and trades over-the-counter option contracts.  The use of these types of commodity instruments is designed to allow Energy Merchant to:

•    manage and economically hedge contractual commitments;

•    reduce exposure relative to the volatility of cash market prices;

•    take advantage of selected arbitrage opportunities; and

•    originate customized transactions with municipalities and end-use customers.

Energy Merchant structures and modifies its net position to capture the following:

•    expected changes in future demand;

•    seasonal market pricing characteristics;

•    overall market sentiment; and

•    price relationships between different time periods and trading regions.

At times, a net open position is created or is allowed to continue when Energy Merchant believes future changes in prices and market conditions may possibly result in profitable positions.  Position imbalances can also occur due to the basic lack of liquidity in the wholesale power market.  The existence of net open positions can potentially result in an adverse impact on our financial condition or results of operations.  This potential adverse impact could be realized if the market price of electric power does not react in the manner or direction expected.  Cinergy’s Risk Management Control Policy contains limits associated with the overall size of net open positions for each trading operation and for Cinergy in total.

Value at Risk (VaR)

Energy Merchant measures the market risk inherent in the trading portfolio employing VaR analysis and other methodologies, which utilize forward price curves in electric power and natural gas markets to quantify estimates of the magnitude and probability of future value changes related to open contract positions.  VaR is a statistical measure used to quantify the potential change in fair value of the trading portfolio over a particular period of time, with a specified likelihood of occurrence, due to market movement.  Energy Merchant, through some of our non-regulated subsidiaries, markets physical natural gas and electricity and trades derivative commodity instruments which are usually settled in cash including: forwards, futures, swaps, and options.  Any transaction, whether settled physically or financially, that is included in our fair value power and gas accounting results is included in the VaR calculation.

Our VaR is reported based on a 95 percent confidence interval, utilizing a one-day holding period.  This means that on a given day (one-day holding period) there is a 95 percent chance (confidence level) that our trading portfolio will not change more than the stated amount.  Our VaR model uses the variance-covariance statistical modeling technique and historical volatilities and correlations over the past 21-trading day period.  During 2002, Cinergy revised the sample horizon used for calculating historical volatility and correlation for power prices from 200 trading days to 21 trading days.  This revision was made to be consistent with the calculation methodology used for natural gas and to comply with the common practice in the industry of using a 21-trading day sample period for power.  The 2001 VaR information included in the chart below has not been restated to reflect this change.  The average VaR for 2001 was

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calculated using a simple quarterly average.  The 2002 average VaR was calculated using an average of trading days over the entire year.  The high and low VaR for 2001 were based on quarterly VaR calculations.  The high and low VaR for 2002 were based on an entire year of trading day calculations.  The market prices used to calculate VaR are obtained from exchanges and over-the-counter markets when available, established pricing models and other factors including market volatility, the time value of money, and location differentials.  The VaR for Cinergy’s trading portfolio is presented in the table below:

VaR Associated with Energy Trading Contracts

	2002		2001
	(dollars in millions)
	Trading VaR	Percentage of Operating Income	Trading VaR	Percentage of Operating Income
95% confidence level, one-day holding period, one-tailed December 31	$1.6	0.2%	$ 6.0	0.6%
Average for the twelve months ended December 31	2.1	0.3	7.8	0.8
High for the twelve months ended December 31	3.7	0.5	11.9	1.3
Low for the twelve months ended December 31	0.5	0.1	4.9	0.5

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Changes in Fair Value

The changes in fair value of the energy risk management assets and liabilities for Cinergy, CG&E, and PSI for the years ended December 31, 2002 and 2001 are presented in the table below:

	Change in Fair Value
	2002									2001
	Cinergy(1)			CG&E			PSI			Cinergy(1)			CG&E			PSI
	(in millions)
Fair value of contracts outstanding at the beginning of period:	$	18		$	28		$	(7	)	$	(78	)	$	(40	)	$	(40	)
Inception value of new contracts when entered(2)	6			5			1			29			18			11
Changes in fair value attributable to changes in valuation techniques and assumptions(3)	14			6			9			10			—			—
Other changes in fair value(4)	89			26			5			53			17			(11		)
Option premiums paid/(received)	20			1			—			15			—			—
Contract reclassifications(5)	14			18			5			—			—			—
Contract acquisition(6)	(16		)	—			—			—			—			—
Contracts settled	(70		)	(42		)	(13		)	(11		)	33			33
Fair value of contracts outstanding at end of period	$	75		$	42		$	—		$	18		$	28		$	(7	)

(1)The results of Cinergy also include amounts related to non-registrants.

(2)Represents fair value, recognized in income, attributable to long-term, structured contracts, primarily in power, which is recorded on the date a deal is signed.  These contracts are primarily with end-use customers or municipalities that seek to limit their risk to power price volatility.  While caps and floors often exist in such contracts, the amount of power supplied can vary from hour to hour to mirror the customers’ load volatility.  See “Accounting Changes” for additional information regarding inception gains.

(3)Represents changes in fair value recognized in income, caused by changes in assumptions used in calculating fair value or changes in modeling techniques.

(4)Represents changes in fair value, recognized in income, primarily attributable to fluctuations in price.  This amount includes both realized and unrealized gains on energy trading contracts.

(5)Includes reclassifications of the settlement value of contracts that have been terminated as a result of counterparty non-performance to Non-Current Liabilities-Other.  These contracts no longer have price risk and are therefore not considered energy trading contracts.

(6)Capital & Trading acquired a portfolio of gas contracts and inventory in July 2002.  This amount represents the fair value of net Energy risk management liabilities assumed.  There was no inception gain or loss recognized at the date of acquisition.

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The following table presents the expected maturity of the Energy risk management assets and Energy risk management liabilities as of December 31, 2002 for Cinergy, CG&E, and PSI:

	Fair Value of Contracts at December 31, 2002
	Maturing										Total Fair Value
Source of Fair Value(1)	2003			2004-2005			2006-2007		Thereafter
	(in millions)
Cinergy(2)
Prices actively quoted	$	33		$	(23	)	$	—	$	—	$	10
Prices based on models and other valuation methods	23			26			7		9		65
Total	$	56		$	3		$	7	$	9	$	75
CG&E
Prices actively quoted	$	(3	)	$	(13	)	$	—	$	—	$	(16	)
Prices based on models and other valuation methods	12			23			6		17		58
Total	$	9		$	10		$	6	$	17	$	42
PSI
Prices actively quoted	$	(4	)	$	(10	)	$	—	$	—	$	(14	)
Prices based on models and other valuation methods	5			6			3		—		14
Total	$	1		$	(4	)	$	3	$	—	$	—

(1)Active quotes are considered to be available for two years for standard electricity transactions and three years for standard gas transactions.  Non-standard transactions are classified based on the extent, if any, of modeling used in determining fair value.  Long-term transactions can have portions in both categories depending on the tenor.

(2)The results of Cinergy also include amounts related to non-registrants.

Concentrations of Credit Risk

Credit risk is the exposure to economic loss that would occur as a result of nonperformance by counterparties, pursuant to the terms of their contractual obligations.  Specific components of credit risk include counterparty default risk, collateral risk, concentration risk, and settlement risk.

Trade Receivables and Physical Power Portfolio

Our concentration of credit risk with respect to trade accounts receivable from electric and gas retail customers is limited.  The large number of customers and diversified customer base of residential, commercial, and industrial customers significantly reduces our credit risk.  Contracts within the physical portfolio of power marketing and trading operations are primarily with the traditional electric cooperatives and municipalities and other investor-owned utilities.  At December 31, 2002, we believe the likelihood of significant losses associated with credit risk in our trade accounts receivable or our physical power portfolio is remote.

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Energy Trading Credit Risk

Cinergy’s extension of credit for energy marketing and trading is governed by a Corporate Credit Policy.  Written guidelines document the management approval levels for credit limits, evaluation of creditworthiness, and credit risk mitigation procedures.  Exposures to credit risks are monitored daily by the Corporate Credit Risk function.  As of December 31, 2002, approximately 96 percent of the credit exposure related to energy trading and marketing activity was with counterparties rated Investment Grade or the counterparties’ obligations were guaranteed by a parent company or other entity rated Investment Grade.  No single non-investment grade counterparty accounts for more than one percent of our total credit exposure.  Energy commodity prices can be extremely volatile and the market can, at times, lack liquidity.  Because of these issues, credit risk is generally greater than with other commodity trading.

In December 2001, Enron filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York.  We decreased our trading activities with Enron in the months prior to its bankruptcy filing.  We intend to resolve any contract differences pursuant to the terms of those contracts, business practices, and the applicable provisions of the Bankruptcy Code, as approved by the court.  While we cannot predict the resolution of these matters, we do not believe that any exposure relating to those contracts would have a material impact on our financial position or results of operations.

We continually review and monitor our credit exposure to all counterparties and secondary counterparties.  If appropriate, we may adjust our credit reserves to attempt to compensate for increased credit risk within the industry.  Counterparty credit limits may be adjusted on a daily basis in response to changes in a counterparty’s financial status, or public debt ratings.

Financial Derivatives

Potential exposure to credit risk also exists from our use of financial derivatives such as currency swaps, foreign exchange forward contracts, interest rate swaps, and treasury locks.  Because these financial instruments are transacted with highly rated financial institutions, we do not anticipate nonperformance by any of the counterparties.

Risk Management

We manage, on a portfolio basis, the market risks in our energy marketing and trading transactions subject to parameters established by our Risk Policy Committee.  Our market and credit risks are monitored by the Global Risk Management function to ensure compliance with stated risk management policies and procedures.  The Global Risk Management function operates independently from the business units and other corporate functions, which originate and actively manage the market risk exposures.  Policies and procedures are periodically reviewed to ensure their responsiveness to changing market and business conditions.  Credit risk mitigation practices include requiring parent company guarantees, various forms of collateral, and the use of mutual netting/closeout agreements.

Exchange Rate Sensitivity

Cinergy has exposure to fluctuations in exchange rates between the U.S. dollar and the currencies of foreign countries where we have investments.  When it is appropriate we will

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hedge our exposure to cash flow transactions, such as a dividend payment by one of our foreign subsidiaries.

Interest Rate Sensitivity

Our net exposure to changes in interest rates primarily consists of short-term debt instruments (including net money pool borrowings) and certain pollution control debt.  The following table reflects the different instruments used and the method of benchmarking interest rates, as of December 31, 2002:

	Interest Benchmark			2002
				(in millions)
Short-term Bank Loans/Commercial Paper/Money Pool	•	Short-term Money Market	Cinergy	$	521
	•	Commercial Paper	CG&E and subsidiaries	—
		Composite Rate(2)	PSI	138
	•	LIBOR(1)	ULH&P	14
Pollution Control Debt	•	Daily Market	Cinergy	147
	•	Auction Rate	CG&E and subsidiaries	112
			PSI	35

(1)London Inter-Bank Offered Rate (LIBOR)

(2)30-day Federal Reserve “AA” Industrial Commercial Paper Composite Rate

The weighted-average interest rates on the above instruments at December 31, were as follows:

	2002
Short-term Bank Loans/Commercial Paper	1.9	%
Money Pool	1.3	%
Pollution Control Debt	1.8	%

At December 31, 2002, forward yield curves project an increase in applicable short-term interest rates over the next five years.

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The following table presents principal cash repayments, by maturity date and other selected information, for each registrant’s long-term fixed-rate debt, other debt, and capital lease obligations as of December 31, 2002:

	Expected Maturity Date
Liabilities	2003			2004			2005			2006			2007			There- after			Total			Fair Value
	(in millions)
Cinergy
Long-term Debt(1)	$	176		$	812		$	201	(4)(5)	$	328		$	367		$	2,088		$	3,972		$	4,166
Weighted-average interest rate(2)	6.2		%	5.6		%	6.8		%	6.7		%	7.6		%	6.2		%	6.3		%
Other(3)	$	15		$	3		$	3		$	7		$	7		$	263		$	298		$	315
Weighted-average interest rate(2)	6.7		%	5.9		%	6.0		%	5.3		%	5.4		%	6.3		%	6.3		%
Capital Leases
Fixed-rate leases	$	4		$	4		$	4		$	4		$	5		$	22		$	43		$	43
Interest rate(2)	5.8		%	5.8		%	5.8		%	5.7		%	5.7		%	5.2		%	5.5		%
CG&E and subsidiaries
Long-term Debt(1)	$	120		$	110		$	150	(5)	$	—		$	100		$	1,212		$	1,692		$	1,745
Weighted-average interest rate(2)	6.3		%	6.5		%	6.9		%				6.9		%	6.1		%	6.2		%
Capital Leases
Fixed-rate leases	$	2		$	2		$	2		$	3		$	3		$	13		$	25		$	25
Interest rate(2)	5.7		%	5.7		%	5.7		%	5.7		%	5.6		%	5.1		%	5.4		%
PSI
Long-term Debt(1)	$	56		$	2		$	51	(4)	$	328		$	267		$	676		$	1,380		$	1,481
Weighted-average interest rate(2)	5.9		%	6.0		%	6.5		%	6.7		%	7.8		%	6.4		%	6.7		%
Capital Leases
Fixed-rate leases	$	1		$	2		$	2		$	2		$	2		$	9		$	18		$	18
Interest rate(2)	5.9		%	5.9		%	5.9		%	5.8		%	5.8		%	5.2		%	5.6		%
ULH&P
Long-term Debt(1)	$	20		$	—		$	—		$	—		$	—		$	55		$	75		$	79
Weighted-average interest rate(2)	6.1		%													7.3		%	7.0		%
Capital Leases
Fixed-rate leases	$	—		$	—		$	1		$	1		$	1		$	3		$	6		$	6
Interest rate(2)							5.9		%	5.8		%	5.8		%	5.3		%	5.6		%

(1)Long-term Debt includes amounts reflected as long-term debt due within one year.

(2) The weighted-average interest rate is calculated as follows:  (1) for Long-term Debt and Other, the weighted-average interest rate is based on the interest rates at December 31, 2002 of the debt that is maturing in the year reported; and (2) for Capital Leases, the weighted-average interest rate is based on the average interest rate of the lease payments made during the year reported.

(3)Long-term Debt related to investments under Global Resources.

(4)Includes 6.50% Debentures due August 1, 2026, reflected as maturing in 2005, as the interest rate resets on August 1, 2005.

(5)Includes 6.90% Debentures due June 1, 2025, reflected as maturing in 2005, as the debentures are putable to CG&E at the option of the holders on June 1, 2005.

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Our current policy in managing exposure to fluctuations in interest rates is to maintain approximately 30 percent of the total amount of outstanding debt in floating interest rate debt instruments.  In maintaining this level of exposure, we use interest rate swaps.  Under the swaps, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed upon notional amount.  CG&E has an outstanding interest rate swap agreement that decreased the percentage of floating-rate debt.  Under the provisions of the swap, which has a notional amount of $100 million, CG&E pays a fixed-rate and receives a floating-rate through October 2007.  This swap qualifies as a cash flow hedge under the provisions of Statement 133.  As the terms of the swap agreement mirror the terms of the debt agreement that it is hedging, we anticipate that this swap will continue to be effective as a hedge.  Changes in fair value of this swap are recorded in Accumulated other comprehensive income (loss), beginning with our adoption of Statement 133 on January 1, 2001.  Cinergy Corp. has three outstanding interest rate swaps with a combined notional amount of $250 million.  Under the provisions of the swaps, Cinergy Corp. will receive fixed-rate interest payments and pay floating-rate interest payments through September 2004.  These swaps qualify as fair value hedges under the provisions of Statement 133.  We anticipate that these swaps will continue to be effective as hedges.  See Note 1(l) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional information on financial derivatives.  In the future, we will continually monitor market conditions to evaluate whether to modify our level of exposure to fluctuations in interest rates.

INFLATION

We believe that the recent inflation rates do not materially impact our financial condition.  However, under existing regulatory practice for all of PSI, ULH&P, and the non-generating portion of CG&E, only the historical cost of plant is recoverable from customers.  As a result, cash flows designed to provide recovery of historical plant costs may not be adequate to replace plant in future years.

ACCOUNTING MATTERS

Critical Accounting Policies

Preparation of financial statements and related disclosures in compliance with GAAP requires the use of assumptions and estimates.  In certain instances, the application of GAAP requires judgments regarding future events, including the likelihood of success of particular initiatives, legal and regulatory challenges, and anticipated recovery of costs.  Therefore, the possibility exists for materially different reported amounts under different conditions or assumptions.  The following discusses relevant accounting policies and should be read in conjunction with the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data”.

Fair Value Accounting for Energy Marketing and Trading

We use fair value accounting for energy trading contracts, which is required, with certain exceptions, by Statement 133.  Short-term contracts used in our trading activities are generally priced using exchange based or over-the-counter price quotes.  Long-term contracts typically must be valued using model pricing due to the lack of actively quoted prices.  The period for which actively quoted prices are available varies by commodity and pricing point, but is generally shorter for electricity than gas.  Use of model pricing requires estimation surrounding

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factors such as volatility and future price expectations beyond the actively quoted portion of the price curve.  In addition, some contracts do not have fixed notional amounts and therefore must be valued using estimates of volumes to be consumed by the counterparty.  See “Changes in Fair Value” for additional information.

We measure these risks by using complex valuation tools, both external and proprietary, which allow us to model prices for periods for which active quotes are unavailable.  These models are dynamic and are continuously updated with the most recent data to improve estimates of future expectations.  We measure risks for contracts that do not contain fixed notional amounts by obtaining historical data and projecting expected consumption.  These models incorporate expectations surrounding the impacts that weather may play in future consumption.  The results of these measures assist us in managing such risks within our portfolio.  We also have a Corporate Risk Management function within Cinergy that is independent of the marketing and trading function and is under the oversight of a risk policy committee comprised primarily of senior company executives.  This group provides an independent evaluation of both forward price curves and the valuation of energy contracts.  See “Value at Risk” for additional information.

There is inherent risk in valuation modeling given the complexity and volatility of energy markets.  Fair value accounting has risk, including its application to short-term contracts, as gains and losses recorded through its use are not yet realized.  Therefore, it is possible that results in future periods may be materially different as contracts are ultimately settled.

For financial reporting purposes, assets and liabilities associated with energy trading transactions accounted for using fair value are reflected on the Balance Sheets as Energy risk management assets current and non-current and Energy risk management liabilities current and non-current, classified as current or non-current pursuant to each contract’s tenor.  Net gains and losses resulting from revaluation of contracts during the period are recognized currently in the Statements of Income.

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Retail Customer Revenue Recognition

Our retail revenues include amounts that are not yet billed to customers.  Customers are billed throughout the month as both gas and electric meters are read.  We recognize revenues for retail energy sales that have not yet been billed, but where gas or electricity has been consumed.  This is termed “unbilled revenue” and is a widely recognized and accepted practice for utilities.  In making our estimates of unbilled revenue we use complex systems that consider various factors, including weather, in our calculation of retail customer consumption at the end of each month.  Given the use of these systems and the fact that customers are billed monthly, we believe it is unlikely that materially different results will occur in future periods when revenue is billed.  Related receivables are sold under the accounts receivable sales agreement and therefore are not reflected on our Balance Sheets.  See Note 6 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional information.

The amount of unbilled revenues for Cinergy, CG&E, PSI, and ULH&P as of December 31, 2002, 2001, and 2000 were as follows:

	2002		2001		2000
	(in millions)
Cinergy	$	153	$	172	$	231
CG&E and subsidiaries	89		104		153
PSI	64		68		78
ULH&P	15		18		26

Regulatory Accounting

PSI, CG&E, and ULH&P are regulated utility companies.  Except with respect to the electric generation-related assets and liabilities of CG&E, the companies apply the provisions of Statement 71.  In accordance with Statement 71, regulatory actions may result in accounting treatment different from that of non-rate regulated companies.  The deferral of costs (as regulatory assets) or accrual of refund obligations (as regulatory liabilities) may be appropriate when the future recovery of such costs or making of refunds is probable.  In assessing probability, we consider such factors as regulatory precedent and the current regulatory environment.  To the extent recovery of costs is no longer deemed probable, related regulatory assets would be required to be recognized in current period earnings.

At December 31, 2002, regulatory assets totaled $605 million for CG&E (including $5 million for ULH&P) and $418 million for PSI.  Current rates include the recovery of $598 million for CG&E and $360 million for PSI.  Of the $58 million not yet approved for recovery by PSI, $42 million relates to reorganization costs incurred in connection with the merger with CG&E.  Deferral of these costs for subsequent recovery was previously authorized by the IURC.  PSI will request recovery of these costs in its rate testimony expected to be filed in March 2003.  Should the IURC deny recovery of those costs, a charge to current period earnings would be required.  See Note 1(c) of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional detail regarding regulatory assets.

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Pension and Other Postretirement Benefits

Cinergy’s reported costs of providing pension and other postretirement benefits (as described in Note 9 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data”) are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience.

Pension costs associated with Cinergy’s defined benefit pension plans, for example, are impacted by employee demographics (including age, compensation levels, and employment periods), the level of contributions we make to the plan, and earnings on plan assets.  Changes made to the provisions of the plan may impact current and future pension costs.  Pension costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and pension costs.

In accordance with Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (Statement 87), changes in pension obligations associated with the above factors may not be immediately recognized as pension costs on the income statement, but may be deferred and amortized in the future over the average remaining service period of active plan participants to the extent that Statement 87 recognition provisions are triggered.  For the years ended December 31, 2002, 2001, and 2000, we recorded pension costs for our defined benefit pension plans (including early retirement program costs recognized in accordance with Statement of Financial Accounting Standards No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (Statement 88)) of approximately $68 million, $32 million, and $44 million, respectively.

Cinergy’s pension plan assets are principally comprised of equity and fixed income investments.  Differences between actual portfolio returns and expected returns may result in increased or decreased pension costs in future periods.  Likewise, changes in assumptions regarding current discount rates and expected rates of return on plan assets could also increase or decrease recorded pension costs.

In selecting our discount rate assumption we considered rates of return on high-quality fixed-income investments that are expected to be available through the maturity dates of the pension benefits.  In establishing our expected long-term rate of return assumption, we utilize analysis prepared by our investment advisor.  Our expected long-term rate of return on pension plan assets is based on our targeted asset allocation assumption of 60 percent equity investments and 40 percent fixed income investments.  Our 60 percent equity investment target includes allocations to domestic, international, and emerging markets managers.  Our asset allocation is designed to achieve a moderate level of overall portfolio risk in keeping with Cinergy’s desired risk objective.  We regularly review our asset allocation and periodically rebalance our investments to our targeted allocation as appropriate.

We base our determination of pension cost on a market-related valuation of assets that reduces year-to-year volatility.  This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur.  Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual fair value of assets.

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Based on our assumed long-term rate of return of 9 percent, discount rate of 6.75 percent, and various other assumptions, we estimate that our pension costs associated with our defined benefit pension plans will increase from $29 million (excluding Statement 88 costs) in 2002 to approximately $53 million in 2003.  Modifying the expected long-term rate of return on our pension plan assets by .25 percent would change pension costs for 2003 by approximately $2 million.  Modifying the discount rate assumption by .25 percent would change 2003 pension costs by approximately $3 million.

Other postretirement benefit costs are impacted by employee demographics, per capita claims costs, and health care cost trend rates.  Other postretirement benefit costs may also be significantly affected by changes in key actuarial assumptions, including the discount rates used in determining the accumulated postretirement benefit obligation and the postretirement benefit costs.  In accordance with Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (Statement 106), changes in postretirement benefit obligations associated with these factors may not be immediately recognized as postretirement benefit costs but may be deferred and amortized in the future over the average remaining service period of active plan participants to the extent that Statement 106 recognition provisions are triggered.  For the years ended December 31, 2002, 2001, and 2000, we recorded other postretirement benefit costs of approximately $29 million, $27 million, and $25 million, respectively, in accordance with the provisions of Statement 106.  Based upon a discount rate of 6.75 percent and various other assumptions, we estimate that our other postretirement benefit costs will increase from $29 million in 2002 to approximately $35 million in 2003.

Impairment of Long-lived Assets

Current accounting standards require long-lived assets be measured for impairment whenever indicators of impairment exist.  If deemed impaired under the standards, assets are written down to fair value with a charge to current period earnings.  As a producer of electricity, Cinergy, CG&E, and PSI are owners of generating plants, which are largely coal-fired.  At December 31, 2002, the carrying value of these generating plants is $4 billion for Cinergy, $2 billion for CG&E and $2 billion for PSI.  As a result of the various emissions and by-products of coal consumption, the companies are subject to extensive environmental regulations and are currently subject to a number of environmental contingencies.  See Note 11 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” for additional information.  While we cannot predict the potential affect the resolution of these matters will have on our financial position or results of operations, we believe that these assets are not impaired.  In making this assessment, we consider such factors as the expected ability to recover additional investment in environmental compliance expenditures, the relative pricing of wholesale electricity in the region, the anticipated demand, and the cost of fuel.  We will continue to evaluate these assets for impairment when events or circumstances indicate the carrying value may not be recoverable.

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Accounting Changes

Energy Trading

The Emerging Issues Task Force (EITF) has been discussing several issues related to the accounting and disclosure of energy trading activities under EITF 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (EITF 98-10).  In October 2002, the EITF reached consensus in EITF Issue 02-3, Accounting for Contracts Involved in Energy Trading and Risk Management Activities to (a) rescind EITF 98-10, (b) generally preclude the recognition of gains at the inception of new derivatives, and (c) require all realized and unrealized gains and losses on energy trading derivatives to be presented net in the Statements of Income, whether or not settled physically.

The consensus to rescind EITF 98-10 will require all energy trading contracts that do not qualify as derivatives to be accounted for on an accrual basis, rather than at fair value.  The consensus was immediately effective for all new contracts executed after October 25, 2002, and will require a cumulative effect adjustment to income, net of tax, on January 1, 2003, for all contracts executed on or prior to October 25, 2002.  The cumulative effect adjustment, on a net of tax basis, will be a loss of approximately $13 million, which includes primarily the impact of coal contracts accounted for at fair value, gas inventory accounted for at fair value, and certain gas contracts.  We expect the value of these items to be realized when the contracts settle.  The general restriction on recognition of inception gains is not expected to have a material impact on our future financial position or results of operations.

The consensus to require all gains and losses on energy trading derivatives to be presented net in the Statements of Income is effective beginning January 1, 2003 and will require restatement for all periods presented.  This will result in substantial reductions in reported Operating Revenues, Fuel and purchased and exchanged power expense, and Gas purchased expense.  However, Operating Income and Net Income will not be affected by this change.  Pro-forma Operating Revenues for Cinergy, CG&E, and PSI for the year ended December 31, 2002, under this requirement would have been as follows:

	2002
	(in millions)
Cinergy(1)	$	4,028
CG&E and subsidiaries	2,154
PSI	1,623

(1)    The results of Cinergy also include amounts related to non-registrants.

Business Combinations and Intangible Assets

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), and Statement 142.  Statement 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method.  With the adoption of Statement 142, goodwill and other intangibles with indefinite lives will no longer be subject to amortization.  Statement 142 requires that goodwill be assessed for impairment upon adoption and at least annually thereafter by applying a fair-value-based test, as opposed to

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the undiscounted cash flow test applied under prior accounting standards.  This test must be applied at the “reporting unit” level, which is not permitted to be broader than the current business segments discussed in Note 16 of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data”.  Under Statement 142, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer’s intent to do so.

We began applying Statement 141 in the third quarter of 2001 and Statement 142 in the first quarter of 2002.  The discontinuance of amortization of goodwill, which began in the first quarter of 2002, was not material to our financial position or results of operations.  We finalized our transition impairment test in the fourth quarter of 2002 and have recognized a non-cash impairment charge of approximately $11 million (net of tax) for goodwill related to certain of our international assets.  This charge reflects a general decline in value of international assets.  Additionally, Cinergy’s combined heat and power plants located in the Czech Republic faced downward pressure in their selling prices for electricity due to the continued restructuring of the market in that country.  In calculating this impairment charge, the fair value of the reporting unit was determined through both discounted cash flow analysis and offers being considered on certain businesses within the reporting unit.  This amount is reflected in Cinergy’s Statements of Income as a Cumulative effect of a change in accounting principle.  While Statement 142 did not require the initial transition impairment test to be completed until December 31, 2002, it requires any transition impairment charge to be reflected as of January 1, 2002.  As such, Note 14 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data” reconciles Net Income and Earnings Per Share from the amounts originally presented in the first quarter of 2002 to the amounts revised for this change.  We will continue to perform goodwill impairment tests annually, as required by Statement 142, or when circumstances indicate that the fair value of a reporting unit has declined significantly.

Asset Retirement Obligations

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143), which requires fair value recognition of legal obligations associated with the retirement or removal of long-lived assets at the time the obligations are incurred.  The initial recognition of this liability will be accompanied by a corresponding increase in property, plant, and equipment.  Subsequent to the initial recognition, the liability will be adjusted for any revisions to the expected cash flows of the retirement obligation (with corresponding adjustments to property, plant, and equipment), and for accretion of the liability due to the passage of time (recognized as an operating expense).  Additional depreciation expense will be recorded prospectively for any property, plant, and equipment increases.  We adopted Statement 143 on January 1, 2003.  The impact of adoption on our results of operations will be reflected as a cumulative effect adjustment to income, net of tax.

We currently accrue costs of removal on many long-lived assets through depreciation expense if we believe removal of the assets at the end of their useful life is likely.  The SEC staff has interpreted Statement 143 to disallow the accrual of cost of removal when no obligation exists under Statement 143, even if removal of the asset is likely.  Any amounts currently recorded in Accumulated depreciation must be removed through the cumulative effect adjustment on January 1, 2003.  However, if accruing cost of removal is allowed for ratemaking purposes and Statement

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71 is applicable, accumulated cost of removal will not be reversed upon adoption of Statement 143.  Rather, the amount of accrued cost of removal will remain, but will be disclosed in all future periods.  PSI, CG&E, except for its generation assets, and ULH&P expect to continue to accrue costs of removal under Statement 71.

We are finalizing our evaluation of the impact of adopting Statement 143.  However, we have not determined whether its impact will be material pending (a) resolution of certain legal conclusions and (b) final calculations on the amount of accumulated cost of removal to be reversed upon adoption for CG&E’s generation assets.

Derivatives

During 1998, the FASB issued Statement 133.  This standard was effective for Cinergy beginning in 2001, and requires us to record derivative instruments, which are not exempt under certain provisions of Statement 133, as assets or liabilities, measured at fair value (i.e., mark-to-market).  Our financial statements reflect the adoption of Statement 133 in the first quarter of 2001.  Since many of our derivatives were previously required to use fair value accounting, the effects of implementation were not material.

Our adoption did not reflect the potential impact of applying fair value accounting to selected electricity options and capacity contracts.  We had not historically accounted for these instruments at fair value because they were intended as either hedges of peak period exposure or sales contracts served with physical generation, neither of which were considered trading activities.  At adoption, we classified these contracts as normal purchases or sales based on our interpretation of Statement 133 and in the absence of definitive guidance on such contracts.  In June 2001, the FASB staff issued guidance on the application of the normal purchases and sales exemption to electricity contracts containing characteristics of options.  While many of the criteria in this guidance are consistent with the existing guidance in Statement 133, some criteria were added.  We adopted the new guidance in the third quarter of 2001, and the effects of implementation for these contracts were not material to our financial position or results of operations.  We will continue to apply this guidance to any new electricity contracts that meet the definition of a derivative.

In December 2001, the FASB staff revised the current guidance to make the evaluation of whether electricity contracts qualify as normal purchases and sales more qualitative than quantitative.  This new guidance uses several factors to distinguish between capacity contracts, which qualify for the normal purchases and sales exemption, and options, which do not.  These factors include deal tenor, pricing structure, specification of the source of power, and various other factors.  We adopted this guidance in the third quarter of 2002, and its impact was not material to our financial position or results of operations.

In October 2001, the FASB staff released final guidance on the applicability of the normal purchases and sales exemption to contracts that contain a minimum quantity (a forward component) and flexibility to take additional quantity at a fixed price (an option component).  While this guidance was issued primarily to address optionality in fuel supply contracts, it applies to all derivatives (subject to certain exceptions for capacity contracts in electricity discussed in the previous paragraphs).  This guidance concludes that such contracts are not eligible for the normal purchases and sales exemption due to the existence of optionality in the

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contract.  We adopted this guidance in the second quarter of 2002, consistent with the transition provisions.  Cinergy has certain contracts that contain fixed-price optionality, primarily coal contracts, which we reviewed to determine the impact of this new guidance.  Due to a lack of liquidity with respect to coal markets in our region, we determined that our coal contracts do not meet the net settlement criteria of Statement 133 and thus do not qualify as derivatives.  Given these conclusions, the results of applying this new guidance were not material to our financial position or results of operations.

In May 2002, the FASB issued an exposure draft that would amend Statement 133 to incorporate certain implementation conclusions reached by the FASB staff.  We do not believe the amendments, as currently drafted, will have a material effect on our financial position or results of operations.

Asset Impairment

In August 2001, the FASB issued Statement 144, which addresses accounting and reporting for the impairment or disposal of long-lived assets.  Statement 144 was effective beginning with the first quarter of 2002.  The impact of implementation on our financial position or results of operations was not material.

Exit Activities

In August 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (Statement 146).  Statement 146 addresses accounting and reporting for the recognition of exit costs, including, but not limited to, one-time employee benefit terminations, contract cancellations, and facility consolidations.  This statement requires that such costs be recognized only when they meet the definition of a liability under GAAP.  However, Statement 146 applies only to exit activities initiated in 2003 and after.  All costs recorded through December 31, 2002, are unaffected by this pronouncement.  The impact of implementation on our financial position or results of operations is not expected to be material.

Accounting for Stock-Based Compensation

We have historically accounted for our stock-based compensation plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).  In July 2002, Cinergy announced that it would adopt Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement 123) for all employee awards granted or modified after January 1, 2003, and would begin measuring the compensation cost of stock-based awards under the fair value method.  In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (Statement 148), which amends Statement 123 and APB Opinion No. 28, Interim Financial Reporting.  Statement 148 provides alternative methods of transition to Statement 123 and more expanded disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results in both annual and interim financial statements.  Cinergy adopted Statement 148 on January 1, 2003, and has adopted the transition provisions that require expensing options prospectively in the year of adoption, consistent with the original pronouncement.  Existing awards will continue to follow

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the intrinsic value method prescribed by APB 25.  The impact of adoption on our financial position and results of operations, assuming award levels and fair values similar to past years, is not material.  This change will primarily impact the accounting for stock options and other performance based awards related to the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan and Cinergy Corp. Employee Stock Purchase and Savings Plan.  See Note 2 of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data” for additional information.

Guarantees

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (Interpretation 45).  Interpretation 45 addresses accounting and reporting obligations under certain guarantees.  It requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The initial recognition and measurement provisions of Interpretation 45 are applicable to guarantees issued or modified after December 31, 2002.  However, the incremental disclosure requirements in Interpretation 45 are effective for this annual report.  The impact of implementation on our financial position or results of operations is not expected to be material.  For a further discussion of guarantees, see Note 11(b) of the “Notes to Financial Statements” in “Item 8. Financial Statements and Supplementary Data”.

Consolidation of Special Purpose Entities

The FASB issued Interpretation 46 in January 2003.  This interpretation will significantly change the consolidation requirements for SPEs.  We have begun reviewing the impact of this interpretation but have not yet concluded whether consolidation of certain SPEs will be required.  There are two SPEs for which consolidation may be required.  These SPEs have individual power sale agreements to an unrelated third party for approximately 45 MW, ending in 2009, and 35 MW, ending in 2016.  In addition, the SPEs have individual power purchase agreements with Capital & Trading to supply the power.  Capital & Trading also provides various services, including certain credit support facilities.

Cinergy’s quantifiable exposure to loss as a result of involvement with these two SPEs is $28 million, which includes investments in these entities of $3 million and exposure under the capped credit facilities of approximately $25 million.  There is also a non-capped facility, but it can only be called upon in the event the SPE breaches representations, violates covenants, or other unlikely events.

If appropriate, consolidation of all assets and liabilities of these two SPEs, at their carrying values, will be required in the third quarter of 2003.  Approximately $225 million of non-recourse debt would be included in Cinergy’s Balance Sheets upon initial consolidation.  However, the impact on our results of operations would be expected to be immaterial.

Cinergy believes that its accounts receivable sale facility, as discussed in Note 6 of the “Notes to Financial Statements” in “Item 8.  Financial Statements and Supplementary Data”, would remain unconsolidated since it involves transfers of financial assets to a qualifying SPE, which is exempted from consolidation by Statement 140 and this interpretation.

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Other Matters

Voluntary Early Retirement Programs (VERP)

Throughout 2002, Cinergy offered various VERP to the following employee groups:

Employee Group	Number of Employees Offered VERP	Number of Employees Elected VERP
Non-union	279	213
Utility Workers Union of America(1)	70	41
International Brotherhood of Electrical Workers #1393 and #1347	75	48
Total	424	302

(1)    Union was formerly named the Independent Utilities Union.

As a result of the employees accepting a VERP in 2002, Cinergy, CG&E, and PSI recorded expenses of approximately $43 million, $19 million (including $3 million related to ULH&P), and $21 million, respectively.

New Business Initiatives

In the third quarter of 2002, Capital & Trading completed an acquisition of a coal-based synthetic fuel production facility which converts coal feedstock into synthetic fuel for sale to a third party.  The cost of this acquisition was approximately $60 million.  The synthetic fuel produced at this facility qualifies for tax credits in accordance with Section 29 of the Internal Revenue Code.  Eligibility for these tax credits expires in 2007.  We anticipate these tax credits will benefit our net income.

Federal Tax Law Changes

In March 2002, President Bush signed into law the Job Creation and Worker Assistance Act of 2002, also known as the Economic Stimulus Package.  The primary benefit to Cinergy is the allowance of additional first-year depreciation deductions for tax purposes, equal to 30 percent of the adjusted tax basis of qualified property.  This provision applies to qualifying additions after September 11, 2001.  The provisions of this bill will not have a material impact on our financial position or results of operations.

Indiana Tax Law Changes

In June 2002, the Indiana Legislature passed a bill, which was signed by the Governor, containing new tax law provisions in Indiana that apply to both utility and non-utility companies with operations in the state.  After review of the new provisions, we do not believe that these changes will materially impact Cinergy or PSI.

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PUCO Review of Financial Condition of Ohio Regulated Utilities

In October 2002, as the result of recent financial problems experienced by certain public utility companies and the current state of the economy, the PUCO issued an order initiating a review of the financial condition of the 19 large public utilities (gas, electric, and telecommunication) serving Ohio customers, including CG&E.  The PUCO intends to identify available measures to ensure that the regulated operations of the Ohio public utilities are not adversely impacted by the parent or affiliate companies’ unregulated operations.  The PUCO requested initial comments and reply comments by November 12, 2002, and November 22, 2002, respectively, regarding how the review should be conducted and on the potential measures the PUCO could take to protect the financial condition of the regulated utilities.  CG&E filed comments; however, we cannot predict the outcome of this review at this time.

Shareholder Rights Plan

In July 2000, Cinergy Corp.’s board of directors approved a Shareholder Rights Plan.  Under the plan, each shareholder of record on October 30, 2000, received, as a dividend, a right to purchase from Cinergy Corp. one share of common stock at a price of $100.  The rights were scheduled to expire in October 2010.

As part of its dedication to ensure a leadership position in adopting corporate governance practices that are considered best in class, in August 2002 Cinergy Corp.’s board of directors approved a resolution to accelerate the termination date of the company’s Shareholder Rights Plan.  Under the resolution, the company terminated the plan, effective September 16, 2002.  The company also amended the contract with the plan’s agent and notified the SEC and the New York Stock Exchange of the change.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Reference is made to the “Market Risk Sensitive Instruments and Positions” section of “Item 7. Management’s Discussion and analysis of Financial Condition and Results of Operations”.

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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS

FINANCIAL STATEMENT SCHEDULES

The information required to be submitted in schedules other than those indicated above has been included in the Balance Sheets, the Statements of Income, related schedules, the notes thereto, or omitted as not required by the Rules of Regulation S-X.

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc. and The Union Light, Heat & Power Company:

We have audited the accompanying consolidated balance sheets and statements of capitalization of Cinergy Corp. and subsidiaries and the separate consolidated balance sheets and statements of capitalization of The Cincinnati Gas & Electric Company and subsidiaries and PSI Energy, Inc. and subsidiary and the separate balance sheets and statements of capitalization of The Union Light, Heat and Power Company as of December 31, 2002 and 2001 and the related consolidated statements of income, changes in common stock equity and cash flows for each of the three years in the period ended December 31, 2002.  Our audits also included the financial statement schedules listed in the Table of Contents at Item 15.  These financial statements and financial statement schedules are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Cinergy Corp. and subsidiaries and the financial position of The Cincinnati Gas & Electric Company and subsidiaries and PSI Energy, Inc. and subsidiary and the financial position of The Union Light, Heat & Power Company as of December 31, 2002 and 2001, and the respective results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedules, when considered in relation to the respective basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 14 to the financial statements, in 2002 Cinergy Corp. changed its method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

DELOITTE & TOUCHE LLP

Cincinnati, Ohio

February 12, 2003

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CINERGY CORP.
AND SUBSIDIARY COMPANIES

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CINERGY CORP.

CONSOLIDATED STATEMENTS OF INCOME

	2002			2001			2000
	(dollars in thousands, except per share amounts)
Operating Revenues (Note 1(q)(i))
Electric	$	6,912,349		$	8,255,847		$	5,359,358
Gas	4,916,919			4,662,916			2,941,753
Other	130,813			78,246			95,969
Total Operating Revenues	11,960,081			12,997,009			8,397,080
Operating Expenses
Fuel and purchased and exchanged power (Note 1(q)(i))	4,511,891			6,005,803			3,139,274
Gas purchased (Note 1(q)(i))	4,668,941			4,431,899			2,674,449
Operation and maintenance	1,298,398			1,013,326			1,112,255
Depreciation	414,004			374,399			341,927
Taxes other than income taxes	263,002			227,652			268,346
Total Operating Expenses	11,156,236			12,053,079			7,536,251
Operating Income	803,845			943,930			860,829
Equity in Earnings (Losses) of Unconsolidated Subsidiaries	15,261			1,494			6,231
Miscellaneous - Net	12,288			39,672			13,282
Interest	249,906			265,792			223,615
Preferred Dividend Requirement of Subsidiary Trust (Note 3)	23,832			1,067			—
Income Before Taxes	557,656			718,237			656,727
Income Taxes (Note 10)	157,320			255,978			251,607
Preferred Dividend Requirements of Subsidiaries	3,433			3,433			4,585
Income Before Discontinued Operations and Cumulative Effect of a Change in Accounting Principle	396,903			458,826			400,535
Discontinued operations, net of tax (Note 15)	(25,428		)	(16,547		)	(1,069		)
Cumulative effect of a change in accounting principle, net of tax (Note 14)	(10,899		)	—			—
Net Income	$	360,576		$	442,279		$	399,466
Average Common Shares Outstanding	167,047			159,110			158,938
Earnings Per Common Share (Note 17)
Income Before Discontinued Operations and Cumulative Effect of a Change in Accounting Principle	$	2.37		$	2.88		$	2.52
Discontinued operations, net of tax	(0.15		)	(0.10		)	(0.01		)
Cumulative effect of a change in accounting principle, net of tax	(0.06		)	—			—
Net Income	$	2.16		$	2.78		$	2.51
Earnings Per Common Share - Assuming Dilution (Note 17)
Income Before Discontinued Operations and Cumulative Effect of a Change in Accounting Principle	$	2.34		$	2.85		$	2.51
Discontinued operations, net of tax	(0.15		)	(0.10		)	(0.01		)
Cumulative effect of a change in accounting principle, net of tax	(0.06		)	—			—
Net Income	$	2.13		$	2.75		$	2.50
Dividends Declared Per Common Share	$	1.80		$	1.80		$	1.80

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.

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CINERGY CORP.
CONSOLIDATED BALANCE SHEETS

ASSETS

	December 31
	2002		2001
	(dollars in thousands)
Current Assets
Cash and cash equivalents	$	221,083	$	111,067
Restricted deposits	8,116		8,055
Notes receivable (Note 6)	135,873		31,173
Accounts receivable less accumulated provision for doubtful accounts of $16,374 at December 31, 2002, and $34,110 at December 31, 2001 (Note 6)	1,292,410		1,116,225
Materials, supplies, and fuel (Note 1(f))	319,456		239,648
Energy risk management current assets (Note 1(m))	464,028		449,397
Prepayments and other	118,208		110,102
Total Current Assets	2,559,174		2,065,667
Property, Plant, and Equipment - at Cost
Utility plant in service	8,641,351		8,089,961
Construction work in progress	469,300		464,560
Total Utility Plant	9,110,651		8,554,521
Non-regulated property, plant, and equipment	4,704,904		4,478,087
Accumulated depreciation	5,166,881		4,840,757
Net Property, Plant, and Equipment	8,648,674		8,191,851
Other Assets
Regulatory assets (Note 1(c))	1,022,696		1,015,863
Investments in unconsolidated subsidiaries	417,188		332,027
Energy risk management non-current assets (Note 1(m))	162,773		134,445
Other investments	163,851		164,155
Goodwill	43,717		53,587
Other intangible assets	14,736		22,144
Other	273,099		258,120
Total Other Assets	2,098,060		1,980,341
Assets of Discontinued Operations (Note 15)	1,120		61,954
Total Assets	$	13,307,028	$	12,299,813

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.

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CINERGY CORP.
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

	December 31
	2002			2001
	(dollars in thousands)
Current Liabilities
Accounts payable	$	1,321,968		$	1,024,412
Accrued taxes	254,823			195,976
Accrued interest	64,340			56,216
Notes payable and other short-term obligations (Note 5)	667,973			1,144,955
Long-term debt due within one year (Note 4)	191,454			148,431
Energy risk management current liabilities (Note 1(m))	407,710			429,794
Other	108,056			125,436
Total Current Liabilities	3,016,324			3,125,220
Non-Current Liabilities
Long-term debt (Note 4)	4,080,768			3,596,730
Deferred income taxes (Note 10)	1,471,872			1,302,042
Unamortized investment tax credits	118,095			127,385
Accrued pension and other postretirement benefit costs (Note 9)	626,167			498,801
Energy risk management non-current liabilities (Note 1(m))	143,991			135,619
Other	183,613			187,760
Total Non-Current Liabilities	6,624,506			5,848,337
Liabilities of Discontinued Operations (Note 15)	1,707			15,637
Total Liabilities	9,642,537			8,989,194
Preferred Trust Securities (Note 3)
Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company	308,187			306,327
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption	62,828			62,833
Common Stock Equity (Note 2)
Common Stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 168,663,115 at December 31, 2002, and 159,402,839 at December 31, 2001	1,687			1,594
Paid-in capital	1,918,136			1,619,659
Retained earnings	1,403,453			1,337,135
Accumulated other comprehensive income (loss) (Note 19)	(29,800		)	(16,929		)
Total Common Stock Equity	3,293,476			2,941,459
Commitments and Contingencies (Note 11)
Total Liabilities and Shareholders’ Equity	$	13,307,028		$	12,299,813

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.

99

CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

	Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
	(dollars in thousands)
2000
Beginning balance (158,923,399 shares)	$	1,589	$	1,597,554		$	1,064,319		$	(9,741	)	$	2,653,721
Comprehensive income:
Net income	—		—			399,466			—			399,466
Other comprehensive income (loss), net of tax effect of $2,755 (Note 19)
Foreign currency translation adjustment (Note 1(r))	—		—			—			2,074			2,074
Minimum pension liability adjustment	—		—			—			(1,099		)	(1,099		)
Unrealized gain (loss) on investment trusts	—		—			—			(2,129		)	(2,129		)
Total comprehensive income	—		—			—			—			398,312
Issuance of common stock - net (44,262 shares)	1		1,769			—			—			1,770
Treasury shares purchased (1,764,758 shares)	—		(3,969		)	—			—			(3,969		)
Treasury shares reissued (1,764,758 shares)	—		11,008			—			—			11,008
Dividends on common stock ($1.80 per share)	—		—			(285,242		)	—			(285,242		)
Other	—		12,791			570			—			13,361
Ending balance (158,967,661 shares)	$	1,590	$	1,619,153		$	1,179,113		$	(10,895	)	$	2,788,961
2001
Comprehensive income:
Net income	—		—			442,279			—			442,279
Other comprehensive income (loss), net of tax effect of $1,454 (Note 19)
Foreign currency translation adjustment (Note 1(r))	—		—			—			1,641			1,641
Minimum pension liability adjustment	—		—			—			(1,555		)	(1,555		)
Unrealized gain (loss) on investment trusts	—		—			—			(841		)	(841		)
Cumulative effect of change in accounting principle (Note 14)	—		—			—			(2,500		)	(2,500		)
Cash flow hedges (Note 1(l))	—		—			—			(2,779		)	(2,779		)
Total comprehensive income	—		—			—			—			436,245
Issuance of common stock - net (435,178 shares)	4		9,896			—			—			9,900
Treasury shares purchased (344,034 shares)	—		(10,015		)	—			—			(10,015		)
Treasury shares reissued (344,034 shares)	—		9,157			—			—			9,157
Dividends on common stock ($1.80 per share)	—		—			(286,289		)	—			(286,289		)
Stock purchase contracts (Note 2(e))	—		(23,200		)	—			—			(23,200		)
Other	—		14,668			2,032			—			16,700
Ending balance (159,402,839 shares)	$	1,594	$	1,619,659		$	1,337,135		$	(16,929	)	$	2,941,459
2002
Comprehensive income:
Net income	—		—			360,576			—			360,576
Other comprehensive income (loss), net of tax effect of $13,575 (Note 19)
Foreign currency translation adjustment, net of reclassification adjustments (Note 1(r))	—		—			—			25,917			25,917
Minimum pension liability adjustment	—		—			—			(13,763		)	(13,763		)
Unrealized gain (loss) on investment trusts	—		—			—			(5,277		)	(5,277		)
Cash flow hedges (Note 1(l))	—		—			—			(19,748		)	(19,748		)
Total comprehensive income	—		—			—			—			347,705
Issuance of common stock - net (9,260,276 shares)	93		267,768			—			—			267,861
Dividends on common stock ($1.80 per share)	—		—			(298,292		)	—			(298,292		)
Other	—		30,709			4,034			—			34,743
Ending balance (168,663,115 shares)	$	1,687	$	1,918,136		$	1,403,453		$	(29,800	)	$	3,293,476

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.

100

CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	2002			2001			2000
	(dollars in thousands)
Operating Activities
Net income	$	360,576		$	442,279		$	399,466
Items providing or (using) cash currently:
Depreciation	414,004			374,399			341,927
Loss on discontinued operations, net of tax	25,428			16,547			1,069
Cumulative effect of a change in accounting principle	10,899			—			—
Change in net position of energy risk management activities	(43,202		)	(96,850		)	(22,533		)
Deferred income taxes and investment tax credits - net	148,467			123,806			47,404
Gain on sale of investment in unconsolidated subsidiaries	(16,518		)	—			—
Equity in earnings of unconsolidated subsidiaries	(15,261		)	(1,494		)	(6,231		)
Allowance for equity funds used during construction	(12,861		)	(8,628		)	(5,813		)
Regulatory assets deferrals	(110,867		)	(141,324		)	(99,661		)
Regulatory assets amortization	116,512			119,344			92,856
Accrued pension and other postretirement benefit costs	127,366			34,246			58,549
Changes in current assets and current liabilities:
Restricted deposits	(61		)	(1,409		)	(3,567		)
Accounts and notes receivable, net of reserves on receivables sold	(236,226		)	502,902			(960,048		)
Materials, supplies, and fuel	(83,458		)	(81,398		)	46,269
Prepayments	(10,041		)	(14,385		)	(16,046		)
Accounts payable	307,860			(466,973		)	761,708
Accrued taxes and interest	66,971			(42,165		)	25,737
Other assets	(15,793		)	(21,675		)	(24,364		)
Other liabilities	(37,596		)	(19,373		)	(4,677		)
Net cash provided by (used in) operating activities	996,199			717,849			632,045
Financing Activities
Change in short-term debt	(476,982		)	27,954			582,122
Issuance of long-term debt	649,020			940,785			126,420
Issuance of preferred trust securities	—			306,327			—
Redemption of long-term debt	(138,379		)	(131,413		)	(234,247		)
Retirement of preferred stock of subsidiaries	(3		)	(1		)	(29,393		)
Issuance of common stock	267,861			9,900			1,770
Dividends on common stock	(298,292		)	(286,289		)	(285,242		)
Net cash provided by (used in) financing activities	3,225			867,263			161,430
Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(857,104		)	(858,870		)	(531,896		)
Acquisitions and other investments	(118,375		)	(708,229		)	(250,444		)
Proceeds from sale of subsidiaries and equity investments	86,071			—			—
Net cash provided by (used in) investing activities	(889,408		)	(1,567,099		)	(782,340		)
Net increase (decrease) in cash and cash equivalents	110,016			18,013			11,135
Cash and cash equivalents at beginning of period	111,067			93,054			81,919
Cash and cash equivalents at end of period	$	221,083		$	111,067		$	93,054
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	253,266		$	271,323		$	236,104
Income taxes	$	57,739		$	153,092		$	216,556

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.

101

CINERGY CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION

	December 31
	2002			2001
	(dollars in thousands)
Long-term Debt (excludes current portion)
Cinergy Corp.
Other Long-term Debt:
6.53% Debentures due December 16, 2008	$	200,000		$	200,000
6.125% Debentures due April 15, 2004	200,000			200,000
6.25% Debentures due September 1, 2004 (Executed interest rate swaps of $250 million set at London Inter-Bank Offered Rate (LIBOR) plus 2.44%)	512,554			500,341
Total Other Long-term Debt	912,554			900,341
Unamortized Premium and Discount - Net	(165		)	(255		)
Total - Cinergy Corp.	912,389			900,086
Cinergy Global Resources, Inc.
Other Long-term Debt:
6.20% Debentures due November 3, 2008	150,000			150,000
Variable interest rate of LIBOR plus 1.75%, due July 2012	12,792			14,042
Variable interest rate of LIBOR plus 2.5%, due July 2009	5,281			5,840
Variable interest rates ranging between the 3 month Prague Inter-Bank Offered Rate plus 0.55% to the 3 month Euro Inter-Bank Offered Rate (EURIBOR) plus 4.12%, maturing March 2004 to March 2005	—			2,752
Fixed interest rates 6.1% - 7.4%, maturing March 2003 to May 2003	—			10,271
Fixed interest rates ranging between 6.35% and 9.911%, maturing September 2010 to September 2019	33,277			13,420
Fixed interest rate of 11.5%, maturing November 2023 to November 2024	17,850			17,850
Variable interest rate of EURIBOR plus 1.2%, maturing November 2016	63,675			52,274
Total Other Long-term Debt	282,875			266,449
Unamortized Premium and Discount - Net	(193		)	(227		)
Total - Cinergy Global Resources, Inc.	282,682			266,222
Operating Companies (See operating companies’ Consolidated Statements of Capitalization for details)
The Cincinnati Gas & Electric Company (CG&E) and subsidiaries
First Mortgage Bonds	470,200			470,200
Other Long-term Debt	1,101,721			637,721
Unamortized Premium and Discount - Net	(2,208		)	(2,588		)
Total Long-term Debt	1,569,713			1,105,333
PSI Energy, Inc. (PSI)
First Mortgage Bonds	620,720			620,720
Secured Medium-term Notes	104,300			160,300
Other Long-term Debt	598,700			552,079
Unamortized Premium and Discount - Net	(7,736		)	(8,010		)
Total Long-term Debt	1,315,984			1,325,089
Total Consolidated Long-term Debt	$	4,080,768		$	3,596,730
Preferred Trust Securities
Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company (Note 3)	$	308,187		$	306,327
Cumulative Preferred Stock of Subsidiaries (See operating companies’ Consolidated Statements of Capitalization for details)
CG&E and subsidiaries	$	20,485		$	20,486
PSI	42,343			42,347
Total Cumulative Preferred Stock of Subsidiaries	$	62,828		$	62,833
Common Stock Equity
Common Stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 168,663,115 at December 31, 2002, and 159,402,839  at December 31, 2001	$	1,687		$	1,594
Paid-in capital	1,918,136			1,619,659
Retained earnings	1,403,453			1,337,135
Accumulated other comprehensive income (loss) (Note 19)	(29,800		)	(16,929		)
Total Common Stock Equity	3,293,476			2,941,459
Total Consolidated Capitalization	$	7,745,259		$	6,907,349

The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.

102

THE CINCINNATI GAS & ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES

103

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME

	2002		2001		2000
	(dollars in thousands)
Operating Revenues (Note 1(q)(i))
Electric	$	4,514,283	$	4,155,827	$	2,745,852
Gas	437,092		596,429		490,972
Total Operating Revenues	4,951,375		4,752,256		3,236,824
Operating Expenses
Fuel and purchased and exchanged power (Note 1(q)(i))	3,286,278		2,940,442		1,562,036
Gas purchased (Note 1(q)(i))	232,558		396,764		266,339
Operation and maintenance	533,255		442,173		491,545
Depreciation	196,539		186,986		180,978
Taxes other than income taxes	197,827		174,320		208,385
Total Operating Expenses	4,446,457		4,140,685		2,709,283
Operating Income	504,918		611,571		527,541
Miscellaneous - Net	9,742		4,657		(2,119		)
Interest	95,623		103,047		99,204
Income Before Taxes	419,037		513,181		426,218
Income Taxes (Note 10)	155,341		186,527		159,398
Net Income	$	263,696	$	326,654	$	266,820
Preferred Dividend Requirement	846		846		847
Net Income Applicable to Common Stock	$	262,850	$	325,808	$	265,973

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.

104

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS

ASSETS

	December 31
	2002		2001
	(dollars in thousands)
Current Assets
Cash and cash equivalents	$	45,336	$	9,074
Restricted deposits	3,071		3,540
Notes receivable from affiliated companies (Note 6)	148,823		—
Accounts receivable less accumulated provision for doubtful accounts of $5,942 at December 31, 2002, and $25,874 at December 31, 2001 (Note 6)	117,269		332,970
Accounts receivable from affiliated companies	97,584		12,112
Materials, supplies, and fuel	121,881		138,119
Energy risk management current assets (Note 1(m))	57,912		44,360
Prepayments and other	8,560		13,087
Total Current Assets	600,436		553,262
Property, Plant, and Equipment - at Cost
Utility plant in service
Electric	2,073,133		2,000,595
Gas	1,003,870		926,381
Common	248,938		253,978
Total Utility Plant In Service	3,325,941		3,180,954
Construction work in progress	84,249		96,247
Total Utility Plant	3,410,190		3,277,201
Non-regulated property, plant, and equipment	3,445,056		3,314,285
Accumulated depreciation	2,712,105		2,555,639
Net Property, Plant, and Equipment	4,143,141		4,035,847
Other Assets
Regulatory assets (Note 1(c))	604,776		592,491
Energy risk management non-current assets (Note 1(m))	64,762		48,982
Other Investments	1,082		1,080
Other	127,550		128,082
Total Other Assets	798,170		770,635
Total Assets	$	5,541,747	$	5,359,744

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.

105

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S EQUITY

	December 31
	2002			2001
	(dollars in thousands)
Current Liabilities
Accounts payable	$	195,812		$	350,589
Accounts payable to affiliated companies	146,558			30,419
Accrued taxes	159,199			116,616
Accrued interest	22,872			16,570
Notes payable and other short-term obligations (Note 5)	112,100			196,100
Notes payable to affiliated companies (Note 5)	8,947			444,801
Long-term debt due within one year (Note 4)	120,000			100,000
Energy risk management current liabilities (Note 1(m))	49,288			23,341
Other	37,160			33,217
Total Current Liabilities	851,936			1,311,653
Non-Current Liabilities
Long-term debt (Note 4)	1,569,713			1,105,333
Deferred income taxes (Note 10)	882,628			779,295
Unamortized investment tax credits	85,198			91,246
Accrued pension and other postretirement benefit costs (Note 9)	201,284			180,725
Energy risk management non-current liabilities (Note 1(m))	31,326			41,773
Other	88,843			92,143
Total Non-Current Liabilities	2,858,992			2,290,515
Total Liabilities	3,710,928			3,602,168
Cumulative Preferred Stock
Not subject to mandatory redemption	20,485			20,486
Common Stock Equity (Note 2)
Common Stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at December 31, 2002, and December 31, 2001	762,136			762,136
Paid-in capital	586,292			571,926
Retained earnings	487,652			408,706
Accumulated other comprehensive income (loss) (Note 19)	(25,746		)	(5,678		)
Total Common Stock Equity	1,810,334			1,737,090
Commitments and Contingencies (Note 11)
Total Liabilities and Shareholder’s Equity	$	5,541,747		$	5,359,744

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.

106

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
	(dollars in thousands)
2000
Beginning balance	$	762,136	$	562,851	$	335,144		$	(966	)	$	1,659,165
Comprehensive income:
Net income	—		—		266,820			—			266,820
Other comprehensive income (loss), net of tax effect of $15 (Note 19)
Minimum pension liability adjustment	—		—		—			(28		)	(28		)
Total comprehensive income	—		—		—			—			266,792
Dividends on preferred stock	—		—		(847		)	—			(847		)
Dividends on common stock	—		—		(232,334		)	—			(232,334		)
Contribution from parent company for reallocation of taxes	—		2,894		—			—			2,894
Other	—		32		128			—			160
Ending balance	$	762,136	$	565,777	$	368,911		$	(994	)	$	1,695,830
2001
Comprehensive income:
Net income	—		—		326,654			—			326,654
Other comprehensive income (loss), net of tax effect of $2,970 (Note 19)	—		—		—			134			134
Minimum pension liability adjustment
Unrealized gain (loss) on investment trust	—		—		—			461			461
Cumulative effect of change in accounting principle	—		—		—			(2,500		)	(2,500		)
Cash flow hedges (Note 1(l))	—		—		—			(2,779		)	(2,779		)
Total comprehensive income	—		—		—			—			321,970
Dividends on preferred stock	—		—		(846		)	—			(846		)
Dividends on common stock	—		—		(286,269		)	—			(286,269		)
Contribution from parent company for reallocation of taxes	—		6,149		—			—			6,149
Other	—		—		256			—			256
Ending balance	$	762,136	$	571,926	$	408,706		$	(5,678	)	$	1,737,090
2002
Comprehensive income:
Net income	—		—		263,696			—			263,696
Other comprehensive income (loss), net of tax effect of $13,060 (Note 19)	—		—		—			—
Minimum pension liability adjustment	—		—		—			(872		)	(872		)
Unrealized gain (loss) on investment trusts	—		—		—			(462		)	(462		)
Cash flow hedges (Note 1(l))	—		—		—			(18,734		)	(18,734		)
Total comprehensive income	—		—		—			—			243,628
Dividends on preferred stock	—		—		(846		)	—			(846		)
Dividends on common stock	—		—		(185,909		)	—			(185,909		)
Contribution from parent company for reallocation of taxes	—		14,366		—			—			14,366
Other	—		—		2,005			—			2,005
Ending balance	$	762,136	$	586,292	$	487,652		$	(25,746	)	$	1,810,334

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.

107

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

	2002			2001			2000
	(dollars in thousands)
Operating Activities
Net income	$	263,696		$	326,654		$	266,820
Items providing or (using) cash currently:
Depreciation	196,539			186,986			180,978
Deferred income taxes and investment tax credits - net	104,103			43,834			36,238
Change in net position of energy risk management activities	(7,061		)	(67,979		)	(7,077		)
Allowance for equity funds used during construction	(356		)	(2,672		)	(4,459		)
Regulatory assets deferrals	(61,321		)	(116,365		)	(35,777		)
Regulatory assets amortization	44,339			56,703			18,154
Accrued pension and other postretirement benefit costs	20,559			(632		)	4,972
Changes in current assets and current liabilities:
Restricted deposits	469			(3,380		)	(28		)
Accounts and notes receivable, net of reserves on receivables sold	84,193			174,385			(235,094		)
Materials, supplies, and fuel	16,238			(39,058		)	(62		)
Prepayments	1,750			19,192			(3,281		)
Accounts payable	(38,441		)	(183,982		)	248,630
Accrued taxes and interest	48,885			(37,209		)	16,902
Other assets	5,020			8,516			11,648
Other liabilities	(25,583		)	(21,875		)	(28,394		)
Net cash provided by (used in) operating activities	653,029			343,118			470,170
Financing Activities
Change in short-term debt, including net affiliate notes	(587,259		)	305,155			40,684
Issuance of long-term debt	580,570			—			—
Redemption of long-term debt	(100,000		)	(1,200		)	—
Retirement of preferred stock	(1		)	—			(168		)
Dividends on preferred stock	(846		)	(845		)	(847		)
Dividends on common stock	(185,909		)	(286,269		)	(232,334		)
Net cash provided by (used in) financing activities	(293,445		)	16,841			(192,665		)
Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(323,320		)	(371,885		)	(266,455		)
Other investments	(2		)	363			33
Net cash provided by (used in) investing activities	(323,322		)	(371,522		)	(266,422		)
Net increase (decrease) in cash and cash equivalents	36,262			(11,563		)	11,083
Cash and cash equivalents at beginning of period	9,074			20,637			9,554
Cash and cash equivalents at end of period	$	45,336		$	9,074		$	20,637
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	86,895		$	101,579		$	94,018
Income taxes	$	28,687		$	147,471		$	121,158

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.

108

THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION

	December 31
	2002			2001
	(dollars in thousands)
Long-term Debt (excludes current portion)
CG&E
First Mortgage Bonds:
6.45% Series due February 15, 2004	$	110,000		$	110,000
7.20% Series due October 1, 2023	265,500			265,500
5.45% Series due January 1, 2024 (Pollution Control)	46,700			46,700
5 ½% Series due January 1, 2024 (Pollution Control)	48,000			48,000
Total First Mortgage Bonds	470,200			470,200
Other Long-term Debt:
Liquid Asset Notes with Coupon Exchange due October 1, 2007 (Executed interest rate swap set at 6.87% through maturity commencing at October 19, 2000)	100,000			100,000
6.40% Debentures due April 1, 2008	100,000			100,000
6.90% Debentures due June 1, 2025 (Redeemable at the option of the holders on June 1, 2005)	150,000			150,000
8.28% Junior Subordinated Debentures due July 1, 2025	100,000			100,000
6.35% Debentures due June 15, 2038 (Interest rate resets June 15, 2003)	—			100,000
5.70% Debentures due September 15, 2012	500,000			—
Series 2002A, Ohio Air Quality Development Revenue Refunding Bonds, due September 1, 2037 (Pollution Control)	42,000			—
Series 2002B, Ohio Air Quality Development Revenue Refunding Bonds, due September 1, 2037 (Pollution Control)	42,000			—
Series 1992A, 6.50% Collateralized Pollution Control Revenue Refunding Bonds, due November 15, 2022	12,721			12,721
Total Other Long-term Debt	1,046,721			562,721
Unamortized Premium and Discount - Net	(1,861		)	(2,209		)
Total Long-term Debt	1,515,060			1,030,712
The Union Light, Heat and Power Company (ULH&P)
Other Long-term Debt:
6.11% Debentures due December 8, 2003	—			20,000
6.50% Debentures due April 30, 2008	20,000			20,000
7.65% Debentures due July 15, 2025	15,000			15,000
7.875% Debentures due September 15, 2009	20,000			20,000
Total Other Long-term Debt	55,000			75,000
Unamortized Premium and Discount - Net	(347		)	(379		)
Total Long-term Debt	54,653			74,621
Total Consolidated Long-term Debt	$	1,569,713		$	1,105,333

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.

109

							December 31
							2002			2001
							(dollars in thousands)
Cumulative Preferred Stock
Par/Stated Value		Authorized Shares	Shares Outstanding at December 31, 2002	Series		Mandatory Redemption
$	100	6,000,000	204,849	4% - 4 ¾	%	No	$	20,485		$	20,486
Common Stock Equity
Common Stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at December 31, 2002, and December 31, 2001							$	762,136		$	762,136
Paid-in capital							586,292			571,926
Retained earnings							487,652			408,706
Accumulated other comprehensive income (loss)							(25,746		)	(5,678		)
Total Common Stock Equity							1,810,334			1,737,090
Total Consolidated Capitalization							$	3,400,532		$	2,862,909

The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.

110

PSI ENERGY, INC.
AND SUBSIDIARY COMPANY

111

PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME

	2002		2001		2000
	(dollars in thousands)
Operating Revenues (Note 1(q)(i))
Electric	$	2,359,178	$	4,108,182	$	2,691,274
Operating Expenses
Fuel and purchased and exchanged power (Note 1(q)(i))	1,275,960		3,165,652		1,731,733
Operation and maintenance	488,903		413,275		463,649
Depreciation	156,102		149,467		141,512
Taxes other than income taxes	56,695		49,955		56,908
Total Operating Expenses	1,977,660		3,778,349		2,393,802
Operating Income	381,518		329,833		297,472
Miscellaneous - Net	20,582		19,541		4,723
Interest	73,142		80,955		78,250
Income Before Taxes	328,958		268,419		223,945
Income Taxes (Note 10)	114,709		106,086		88,547
Net Income	$	214,249	$	162,333	$	135,398
Preferred Dividend Requirement	2,587		2,587		3,738
Net Income Applicable to Common Stock	$	211,662	$	159,746	$	131,660

The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.

112

PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS

ASSETS

	December 31
	2002		2001
	(dollars in thousands)
Current Assets
Cash and cash equivalents	$	2,007	$	1,587
Restricted deposits	20		519
Notes receivable from affiliated companies (Note 6)	53,755		444,801
Accounts receivable less accumulated provision for doubtful accounts of $5,656 at December 31, 2002, and $6,773 at December 31, 2001 (Note 6)	84,819		336,994
Accounts receivable from affiliated companies	437		10,470
Materials, supplies, and fuel	137,292		87,661
Energy risk management current assets (Note 1(m))	8,701		28,201
Prepayments and other	44,725		41,041
Total Current Assets	331,756		951,274
Property, Plant, and Equipment - at Cost
Utility plant in service	5,315,410		4,909,007
Construction work in progress	385,051		368,313
Total Utility Plant	5,700,461		5,277,320
Accumulated depreciation	2,334,157		2,216,908
Net Property, Plant, and Equipment	3,366,304		3,060,412
Other Assets
Regulatory assets (Note 1(c))	417,920		423,372
Energy risk management non-current assets (Note 1(m))	16,590		30,164
Other investments	54,683		57,633
Other	35,703		47,927
Total Other Assets	524,896		559,096
Total Assets	$	4,222,956	$	4,570,782

The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.

113

PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S EQUITY

	December 31
	2002			2001
	(dollars in thousands)
Current Liabilities
Accounts payable	$	113,563		$	312,707
Accounts payable to affiliated companies	107,364			27,370
Accrued taxes	105,960			102,317
Accrued interest	23,078			23,760
Notes payable and other short-term obligations (Note 5)	35,000			148,600
Notes payable to affiliated companies (Note 5)	138,055			422,263
Long-term debt due within one year (Note 4)	56,000			23,000
Energy risk management current liabilities (Note 1(m))	8,000			23,185
Other	22,335			41,695
Total Current Liabilities	609,355			1,124,897
Non-Current Liabilities
Long-term debt (Note 4)	1,315,984			1,325,089
Deferred income taxes (Note 10)	538,745			486,694
Unamortized investment tax credits	32,897			36,139
Accrued pension and other postretirement benefit costs (Note 9)	184,299			160,169
Energy risk management non-current liabilities (Note 1(m))	17,157			41,773
Other	80,879			58,187
Total Non-Current Liabilities	2,169,961			2,108,051
Total Liabilities	2,779,316			3,232,948
Cumulative Preferred Stock
Not subject to mandatory redemption	42,343			42,347
Common Stock Equity (Note 2)
Common Stock - without par value; $0.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at December 31, 2002, and December 31, 2001	539			539
Paid-in capital	426,931			416,414
Retained earnings	981,946			880,129
Accumulated other comprehensive income (loss) (Note 19)	(8,119		)	(1,595		)
Total Common Stock Equity	1,401,297			1,295,487
Commitments and Contingencies (Note 11)
Total Liabilities and Shareholder’s Equity	$	4,222,956		$	4,570,782

The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.

114

PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

	Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
	(dollars in thousands)
2000
Beginning balance	$	539	$	411,198		$	642,569		$	1,391		$	1,055,697
Comprehensive income:
Net income	—		—			135,398			—			135,398
Other comprehensive income (loss), net of tax effect of $584 (Note 19)
Minimum pension liability adjustment	—		—			—			(47		)	(47		)
Unrealized gain (loss) on investment trust	—		—			—			(1,864		)	(1,864		)
Total comprehensive income	—		—			—			—			133,487
Dividends on preferred stock	—		—			(3,738		)	—			(3,738		)
Dividends on common stock	—		—			(54,000		)	—			(54,000		)
Contribution from parent company for reallocation of taxes	—		1,989			—			—			1,989
Other	—		336			(76		)	—			260
Ending balance	$	539	$	413,523		$	720,153		$	(520	)	$	1,133,695
2001
Comprehensive income:
Net income	—		—			162,333			—			162,333
Other comprehensive income (loss), net of tax effect of $538 (Note 19)
Minimum pension liability adjustment	—		—			—			(49		)	(49		)
Unrealized gain (loss) on investment trusts	—		—			—			(1,026		)	(1,026		)
Total comprehensive income	—		—			—			—			161,258
Dividends on preferred stock	—		—			(2,587		)	—			(2,587		)
Contribution from parent company for reallocation of taxes	—		2,894			—			—			2,894
Other	—		(3		)	230			—			227
Ending balance	$	539	$	416,414		$	880,129		$	(1,595	)	$	1,295,487
2002
Comprehensive income:
Net income	—		—			214,249			—			214,249
Other comprehensive income (loss), net of tax effect of $4,189 (Note 19)
Minimum pension liability adjustment	—		—			—			(2,138		)	(2,138		)
Unrealized gain (loss) on investment trusts	—		—			—			(4,386		)	(4,386		)
Total comprehensive income	—		—			—			—			207,725
Dividends on preferred stock	—		—			(2,587		)	—			(2,587		)
Dividends on common stock	—		—			(111,842		)	—			(111,842		)
Contribution from parent company for reallocation of taxes	—		10,519			—			—			10,519
Other	—		(2		)	1,997			—			1,995
Ending balance	$	539	$	426,931		$	981,946		$	(8,119	)	$	1,401,297

The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.

115

PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	2002			2001			2000
	(dollars in thousands)
Operating Activities
Net income	$	214,249		$	162,333		$	135,398
Items providing or (using) cash currently:
Depreciation	156,102			149,467			141,512
Deferred income taxes and investment tax credits - net	33,908			41,543			(6,582		)
Change in net position of energy risk management activities	9,544			(33,158		)	(7,077		)
Allowance for equity funds used during construction	(12,505		)	(5,956		)	(1,354		)
Regulatory assets deferrals	(49,546		)	(24,959		)	(63,884		)
Regulatory assets amortization	72,173			62,641			74,702
Accrued pension and other postretirement benefit costs	24,130			10,597			11,794
Changes in current assets and current liabilities:
Restricted deposits	499			(178		)	(341		)
Accounts and notes receivable, net of reserves on receivables sold	233,040			119,311			(178,453		)
Materials, supplies, and fuel	(49,631		)	(33,823		)	49,652
Prepayments	(2,908		)	(120		)	(677		)
Accounts payable	(119,032		)	(84,577		)	176,820
Accrued taxes and interest	2,961			21,374			(15,342		)
Other assets	(22,161		)	17,074			(4,322		)
Other liabilities	8,224			342			31,192
Net cash provided by (used in) operating activities	499,047			401,911			343,038
Financing Activities
Change in short-term debt, including net affiliate notes	46,993			(195,912		)	143,030
Issuance of long-term debt	47,600			322,471			53,075
Redemption of long-term debt	(23,979		)	(89,248		)	(187,097		)
Retirement of preferred stock	(2		)	(1		)	(29,225		)
Dividends on preferred stock	(2,587		)	(2,587		)	(3,738		)
Dividends on common stock	(111,842		)	—			(54,000		)
Net cash provided by (used in) financing activities	(43,817		)	34,723			(77,955		)
Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(451,326		)	(427,787		)	(263,317		)
Other investments	(3,484		)	(8,571		)	(9,297		)
Net cash provided by (used in) investing activities	(454,810		)	(436,358		)	(272,614		)
Net increase (decrease) in cash and cash equivalents	420			276			(7,531		)
Cash and cash equivalents at beginning of period	1,587			1,311			8,842
Cash and cash equivalents at end of period	$	2,007		$	1,587		$	1,311
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	89,865		$	97,917		$	98,283
Income taxes	$	27,401		$	41,419		$	112,210

The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.

116

PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION

						December 31
						2002			2001
						(dollars in thousands)
Long-term Debt (excludes current portion)
First Mortgage Bonds:
Series ZZ, 53/4% due February 15, 2028 (Pollution Control)						$	50,000		$	50,000
Series AAA, 71/8% due February 1, 2024						30,000			30,000
Series BBB, 8.0% due July 15, 2009						124,665			124,665
Series CCC, 8.85% due January 15, 2022						53,055			53,055
Series DDD, 8.31% due September 1, 2032						38,000			38,000
Series EEE, 6.65% due June 15, 2006						325,000			325,000
Total First Mortgage Bonds						620,720			620,720
Secured Medium-term Notes:
Series A, 8.37% to 8.81%, due November 8, 2006 to June 1, 2022						34,300			34,300
Series B, 6.37% to 8.24%, due August 15, 2008 to August 22, 2022						70,000			126,000
(Series A and B, 7.623% weighted average interest rate and 13.9 year weighted average remaining life)
Total Secured Medium-term Notes						104,300			160,300
Other Long-term Debt:
Series 2000A, Indiana Development Finance Authority Environmental Refunding Revenue Bonds, due May 1, 2035						44,025			44,025
Series 2000B, Indiana Development Finance Authority Environmental Refunding Revenue Bonds, due April 1, 2022						10,000			10,000
6.35% Debentures due November 15, 2006						50			50
6.50% Synthetic Putable Yield Securities due August 1, 2026 (Interest rate resets August 1, 2005)						50,000			50,000
7.25% Junior Maturing Principal Securities due March 15, 2028						2,658			2,658
6.00% Rural Utilities Service Obligation payable in annual installments						82,025			83,004
6.52% Senior Notes due March 15, 2009						97,342			97,342
7.85% Debentures due October 15, 2007						265,000			265,000
Series 2002A, Indiana Development Finance Authority Environmental Refunding Revenue Bonds, due March 1, 2031						23,000			—
Series 2002B, Indiana Development Finance Authority Environmental Refunding Revenue Bonds, due March 1, 2019						24,600			—
Total Other Long-term Debt						598,700			552,079
Unamortized Premium and Discount - Net						(7,736		)	(8,010		)
Total Long-term Debt						1,315,984			1,325,089
Cumulative Preferred Stock
Par/Stated Value		Authorized Shares	Shares Outstanding at December 31, 2002	Series	Mandatory Redemption
$	100	5,000,000	347,545	31/2% - 67/8%	No	$	34,754		$	34,758
$	25	5,000,000	303,544	4.16% - 4.32%	No	7,589			7,589
Total Preferred Stock						42,343			42,347
Common Stock Equity
Common Stock - without par value; $0.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at December 31, 2002, and December 31, 2001						$	539		$	539
Paid-in capital						426,931			416,414
Retained earnings						981,946			880,129
Accumulated other comprehensive income (loss)						(8,119		)	(1,595		)
Total Common Stock Equity						1,401,297			1,295,487
Total Consolidated Capitalization						$	2,759,624		$	2,662,923

The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.

117

THE UNION LIGHT, HEAT AND POWER COMPANY

118

THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME

	2002		2001		2000
	(dollars in thousands)
Operating Revenues
Electric	$	226,856	$	230,960	$	225,601
Gas	81,706		109,333		91,950
Total Operating Revenues	308,562		340,293		317,551
Operating Expenses
Electricity purchased from parent company for resale (Note 1(s)(ii))	159,734		151,562		159,915
Gas purchased	46,886		72,593		51,591
Operation and maintenance	50,223		39,501		40,699
Depreciation	17,350		17,039		15,685
Taxes other than income taxes	4,598		3,901		3,938
Total Operating Expenses	278,791		284,596		271,828
Operating Income	29,771		55,697		45,723
Miscellaneous - Net	666		239		(982		)
Interest	5,938		6,313		6,308
Income Before Taxes	24,499		49,623		38,433
Income Taxes (Note 10)	12,349		13,699		13,801
Net Income	$	12,150	$	35,924	$	24,632

The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.

119

THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS

ASSETS

	December 31
	2002		2001
	(dollars in thousands)
Current Assets
Cash and cash equivalents	$	3,926	$	4,099
Notes receivable from affiliated companies (Note 6)	13,337		—
Accounts receivable less accumulated provision for doubtful accounts of $84 at December 31, 2002, and $1,196 at December 31, 2001 (Note 6)	703		16,785
Accounts receivable from affiliated companies	1,671		2,401
Materials, supplies, and fuel	8,182		10,835
Prepayments and other	316		300
Total Current Assets	28,135		34,420
Property, Plant, and Equipment - at Cost
Utility plant in service
Electric	258,094		248,223
Gas	215,505		197,301
Common	31,679		50,289
Total Utility Plant In Service	505,278		495,813
Construction work in progress	14,745		11,004
Total Utility Plant	520,023		506,817
Accumulated depreciation	187,876		178,567
Net Property, Plant, and Equipment	332,147		328,250
Other Assets
Regulatory assets (Note 1(c))	5,134		7,838
Other	16,811		6,582
Total Other Assets	21,945		14,420
Total Assets	$	382,227	$	377,090

The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.

120

THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S EQUITY

	December 31
	2002			2001
	(dollars in thousands)
Current Liabilities
Accounts payable	$	8,816		$	7,960
Accounts payable to affiliated companies	22,297			16,156
Accrued taxes	1,487			7,051
Accrued interest	1,226			643
Long-term debt due within one year (Note 4)	20,000			—
Notes payable to affiliated companies (Note 5)	14,076			26,432
Other	6,368			5,322
Total Current Liabilities	74,270			63,564
Non-Current Liabilities
Long-term debt (Note 4)	54,653			74,621
Deferred income taxes (Note 10)	43,360			28,323
Unamortized investment tax credits	3,143			3,411
Accrued pension and other postretirement benefit costs (Note 9)	15,620			13,277
Other	14,017			21,691
Total Non-Current Liabilities	130,793			141,323
Total Liabilities	205,063			204,887
Common Stock Equity (Note 2)
Common Stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at December 31, 2002, and December 31, 2001	8,780			8,780
Paid-in capital	23,644			21,111
Retained earnings	144,800			142,320
Accumulated other comprehensive income (loss)	(60		)	(8		)
Total Common Stock Equity	177,164			172,203
Commitments and Contingencies (Note 11)
Total Liabilities and Shareholder’s Equity	$	382,227		$	377,090

The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.

121

THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY

	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
	(dollars in thousands)
2000
Beginning balance	$	8,780	$	20,142	$	103,128		$	—		$	132,050
Net income	—		—		24,632			—			24,632
Dividends on common stock	—		—		(9,657		)	—			(9,657		)
Contribution from parent company for reallocation of taxes	—		163		—			—			163
Ending balance	$	8,780	$	20,305	$	118,103		$	—		$	147,188
2001
Comprehensive income:
Net income	—		—		35,924			—			35,924
Other comprehensive income (loss), net of tax effect of $5 Minimum pension liability adjustment	—		—		—			(8		)	(8		)
Total comprehensive income (loss)	—		—		—			—			35,916
Dividends on common stock	—		—		(11,707		)	—			(11,707		)
Contribution from parent company for reallocation of taxes	—		806		—			—			806
Ending balance	$	8,780	$	21,111	$	142,320		$	(8	)	$	172,203
2002
Comprehensive income:
Net income	—		—		12,150			—			12,150
Other comprehensive income (loss), net of tax effect of $36 Minimum pension liability adjustment	—		—		—			(52		)	(52		)
Total comprehensive income (loss)	—		—		—			—			12,098
Dividends on common stock	—		—		(9,670		)	—			(9,670		)
Contribution from parent company for reallocation of taxes	—		2,533		—			—			2,533
Ending balance	$	8,780	$	23,644	$	144,800		$	(60	)	$	177,164

The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.

122

THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS

	2002			2001			2000
	(dollars in thousands)
Operating Activities
Net income	$	12,150		$	35,924		$	24,632
Items providing or (using) cash currently:
Depreciation	17,350			17,039			15,685
Deferred income taxes and investment tax credits - net	3,116			(7,116		)	8,926
Allowance for equity funds used during construction	(794		)	(143		)	(61		)
Regulatory assets deferrals	3,954			1,098			(12		)
Regulatory assets amortization	(1,452		)	1,038			271
Accrued pension and other postretirement benefit costs	2,343			154			790
Changes in current assets and current liabilities:
Accounts and notes receivable, net of reserves on receivables sold	8,997			12,112			(14,269		)
Materials, supplies, and fuel	2,653			(4,535		)	1,354
Prepayments	(16		)	(26		)	(55		)
Accounts payable	6,997			(20,325		)	15,832
Accrued taxes and interest	(4,981		)	12,239			(6,582		)
Other assets	2,852			(1,838		)	2,158
Other liabilities	7,538			2,145			890
Net cash provided by (used in) operating activities	60,707			47,766			49,559
Financing Activities
Change in short-term debt	(12,356		)	(2,971		)	(8,349		)
Dividends on common stock	(9,670		)	(11,707		)	(9,657		)
Net cash provided by (used in) financing activities	(22,026		)	(14,678		)	(18,006		)
Investing Activities
Construction expenditures (less allowance for equity funds used during construction)	(38,854		)	(35,449		)	(28,734		)
Net cash provided by (used in) investing activities	(38,854		)	(35,449		)	(28,734		)
Net increase (decrease) in cash and cash equivalents	(173		)	(2,361		)	2,819
Cash and cash equivalents at beginning of period	4,099			6,460			3,641
Cash and cash equivalents at end of period	$	3,926		$	4,099		$	6,460
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	5,067		$	6,594		$	6,103
Income taxes	$	2,398		$	10,848		$	11,760

The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.

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THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CAPITALIZATION

	December 31
	2002			2001
	(dollars in thousands)
Long-term Debt (excludes current portion)
Other Long-term Debt:
6.11% Debentures due December 8, 2003	$	—		$	20,000
6.50% Debentures due April 30, 2008	20,000			20,000
7.65% Debentures due July 15, 2025	15,000			15,000
7.875% Debentures due September 15, 2009	20,000			20,000
Total Other Long-term Debt	55,000			75,000
Unamortized Premium and Discount - Net	(347		)	(379		)
Total Long-term Debt	54,653			74,621
Common Stock Equity
Common Stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at December 31, 2002, and December 31, 2001	$	8,780		$	8,780
Paid-in capital	23,644			21,111
Retained earnings	144,800			142,320
Accumulated other comprehensive income (loss)	(60		)	(8		)
Total Common Stock Equity	177,164			172,203
Total Capitalization	$	231,817		$	246,824

The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.

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NOTES TO FINANCIAL STATEMENTS

In this report Cinergy (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) is, at times, referred to in the first person as “we”, “our”, or “us”.

1.Summary of Significant Accounting Policies

(a)Nature of Operations

Cinergy Corp., a Delaware corporation created in October 1994, owns all outstanding common stock of The Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc. (PSI), both of which are public utility subsidiaries.  As a result of this ownership, we are considered a utility holding company.  Because we are a holding company with material utility subsidiaries operating in multiple states, we are registered with and are subject to regulation by the Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935, as amended (PUHCA).  Our other principal subsidiaries are:

•Cinergy Services, Inc. (Services);

•Cinergy Investments, Inc. (Investments);

•Cinergy Global Resources, Inc. (Global Resources); and

•      Cinergy Wholesale Energy, Inc. (Wholesale Energy).

CG&E, an Ohio corporation, is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and, through its subsidiaries, in nearby areas of Kentucky and Indiana.  CG&E’s principal subsidiary, The Union Light, Heat and Power Company (ULH&P), is a Kentucky corporation that provides electric and gas service in northern Kentucky.  CG&E’s other subsidiaries are insignificant to its results of operations.

In 2001, CG&E began a transition to electric deregulation and customer choice.  Currently, the competitive retail electric market in Ohio is in the development stage.  CG&E is recovering its Public Utilities Commission of Ohio (PUCO) approved costs and retail electric rates are frozen during this market development period.  See Note 18 for a discussion of key elements of Ohio deregulation.

PSI, an Indiana corporation, is a vertically integrated and regulated electric utility that provides service in north central, central, and southern Indiana.

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The following table presents further information related to the operations of our domestic utility companies (our operating companies):

Principal Line(s) of Business
CG&E and subsidiaries	•	Generation, transmission, distribution, and sale of electricity
	•	Sale and/or transportation of natural gas
PSI	•	Generation, transmission, distribution, and sale of electricity
ULH&P	•	Transmission, distribution, and sale of electricity
	•	Sale and transportation of natural gas

Services is a service company that provides our subsidiaries with a variety of centralized administrative, management, and support services.  Investments holds most of our domestic non-regulated, energy-related businesses and investments, including gas marketing and trading operations.  Global Resources holds most of our international businesses and investments.

Wholesale Energy, through a wholly-owned subsidiary, Cinergy Power Generation Services, LLC (Generation Services), provides electric production-related construction, operation, and maintenance services to certain affiliates and non-affiliated third parties.

We conduct operations through our subsidiaries and manage through the following three business units:

•Energy Merchant Business Unit (Energy Merchant);

•Regulated Businesses Business Unit (Regulated Businesses); and

•Power Technology and Infrastructure Services Business Unit (Power Technology).

For further discussion of business units see Note 16.

(b)Presentation

Management makes estimates and assumptions when preparing financial statements under generally accepted accounting principles (GAAP).  Actual results could differ, as these estimates and assumptions involve judgment.  These estimates and assumptions affect various matters, including:

•the reported amounts of assets and liabilities in our Balance Sheets at the dates of the financial statements;

•the disclosure of contingent assets and liabilities at the dates of the financial statements; and

•the reported amounts of revenues and expenses in our Statements of Income during the reporting periods.

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Additionally, we have reclassified certain prior-year amounts in the financial statements of Cinergy, CG&E, PSI, and ULH&P to conform to current presentation.

We use three different methods to report investments in subsidiaries or other companies: the consolidation method, the equity method, and the cost method.

(i)Consolidation Method

We use the consolidation method when we own a majority of the voting stock of or have the ability to control a subsidiary.  We eliminate all significant intercompany transactions when we consolidate these accounts.  Our consolidated financial statements include the accounts of Cinergy, CG&E, and PSI, and their wholly-owned subsidiaries.

(ii)Equity Method

We use the equity method to report investments, joint ventures, partnerships, subsidiaries, and affiliated companies in which we do not have control, but have the ability to exercise influence over operating and financial policies (generally, 20 percent to 50 percent ownership).  Under the equity method we report:

•our investment in the entity as Investments in unconsolidated subsidiaries in our Consolidated Balance Sheets; and

•our percentage share of the earnings from the entity as Equity in earnings (losses) of unconsolidated subsidiaries in our Consolidated Statements of Income.

(iii)Cost Method

We use the cost method to report investments, joint ventures, partnerships, subsidiaries, and affiliated companies in which we do not have control and are unable to exercise significant influence over operating and financial policies (generally, up to 20 percent ownership).  Under the cost method we report our investments in the entity as Other investments in our Balance Sheets.

(c)Regulation

Our operating companies and certain of our non-utility subsidiaries must comply with the rules prescribed by the SEC under the PUHCA.  Our operating companies must also comply with the rules prescribed by the Federal Energy Regulatory Commission (FERC) and the state utility commissions of Ohio, Indiana, and Kentucky.

Our operating companies use the same accounting policies and practices for financial reporting purposes as non-regulated companies under GAAP.  However, sometimes actions by the FERC and the state utility commissions result in accounting treatment different from that used by non-regulated companies.  When this occurs, we apply the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71).  In accordance with Statement 71, we record regulatory assets and liabilities (expenses deferred for future recovery from customers or obligations to be refunded to customers) on our Balance Sheets.

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Comprehensive electric deregulation legislation was passed in Ohio on July 6, 1999.  As required by the legislation, CG&E filed its Proposed Transition Plan for approval by the PUCO on December 28, 1999.  On August 31, 2000, the PUCO approved a stipulation agreement relating to CG&E’s transition plan.  This plan created a Regulatory Transition Charge (RTC), designed to recover CG&E’s generation-related regulatory assets and transition costs over a ten-year period which began January 1, 2001.  Accordingly, Statement 71 was discontinued for the generation portion of CG&E’s business and Statement of Financial Accounting Standards No. 101, Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71 was applied.  The effect of this change on the financial statements was immaterial.  Except with respect to the generation-related assets and liabilities of CG&E, as of December 31, 2002, PSI, CG&E, and ULH&P continue to meet the criteria of Statement 71.  However, to the extent other states implement deregulation legislation, the application of Statement 71 will need to be reviewed.  Based on our operating companies’ current regulatory orders and the regulatory environment in which they currently operate, the recovery of regulatory assets recognized in the accompanying Balance Sheets as of December 31, 2002, is probable.  For a further discussion of Ohio deregulation see Note 18.

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Our regulatory assets and amounts authorized for recovery through regulatory orders at December 31, 2002, and 2001, are as follows:

	2002						2001
	CG&E(1)		PSI		Cinergy		CG&E(1)		PSI		Cinergy
	(in millions)
Amounts due from customers - income taxes(2)	$	53	$	25	$	78	$	57	$	5	$	62
Gasification services agreement buyout costs(3)(7)	—		240		240		—		244		244
Post-in-service carrying costs and deferred operating expenses(7)(8)	1		42		43		—		39		39
Coal contract buyout costs(4)(7)	—		10		10		—		26		26
Deferred demand-side management costs	—		3		3		—		9		9
Deferred merger costs	1		51		52		6		56		62
Unamortized costs of reacquiring debt	9		30		39		10		33		43
Coal gasification services expenses(7)	—		4		4		—		8		8
RTC recoverable assets(5)(7)	537		—		537		511		—		511
Other	4		13		17		9		3		12
Total regulatory assets	$	605	$	418	$	1,023	$	593	$	423	$	1,016
Authorized for recovery(6)	$	598	$	360	$	958	$	573	$	379	$	952

(1)	Includes $5 million at December 31, 2002, and $8 million at December 31, 2001, related to ULH&P.  Of these amounts, $3.6 million at December 31, 2002, and $.6 million at December 31, 2001, have been authorized for recovery.
(2)	The various regulatory commissions overseeing the regulated business operations of our operating companies regulate income tax provisions reflected in customer rates.  In accordance with the provisions of Statement 71, we have recorded net regulatory assets for CG&E and PSI.
(3)	PSI reached an agreement with Dynegy, Inc. to purchase the remainder of its 25-year contract for coal gasification services.  In accordance with an order from the Indiana Utility Regulatory Commission (IURC), PSI began recovering this asset over an 18-year period that commenced upon the termination of the gas services agreement in 2000.
(4)	In August 1996, PSI entered into a coal supply agreement, which expired December 31, 2000.  The agreement provided for a buyout charge, which is being recovered through the fuel adjustment clause.
(5)	In August 2000, CG&E’s deregulation transition plan was approved.  Effective January 1, 2001, a RTC went into effect and provides for recovery of all then existing generation-related regulatory assets and various transition costs over a ten-year period.  Because a separate charge provides for recovery, these assets were aggregated and are included as a single amount in this presentation.  The classification of all transmission and distribution related regulatory assets has remained the same.
(6)	At December 31, 2002, these amounts were being recovered through rates charged to customers over a period ranging from 1 to 50 years for CG&E, 1 to 31 years for PSI, and 1 to 18 years for ULH&P.
(7)	Regulatory assets earning a return at December 31, 2002.
(8)	For PSI amount includes $10 million that is not yet authorized for recovery and currently is not earning a return at December 31, 2002.

(d)Cash and Cash Equivalents

We define Cash equivalents on our Balance Sheets and Statements of Cash Flows as investments with maturities of three months or less when acquired.

(e)Operating Revenues, Energy Purchases, and Fuel Costs

Our operating companies record Operating Revenues and associated expenses for electric and gas service when they provide the service to customers.  Customers are billed throughout the month as both gas and electric meters are read.  We recognize revenues for retail energy sales that have not yet been billed, but where gas or electricity has been consumed.  This is termed

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“unbilled revenue” and is a widely recognized and accepted practice for utilities.  In making our estimates of unbilled revenue we use complex systems that consider various factors, including weather, in our calculation of retail customer consumption at the end of each month.  Given the use of these systems and the fact that customers are billed monthly, we believe it is unlikely that materially different results will occur in future periods when revenue is billed.  Related receivables are sold under the accounts receivable sales agreement and therefore are not reflected on our Balance Sheets.  See Note 6 for additional information.

The amount of unbilled revenues for Cinergy, CG&E, PSI, and ULH&P as of December 31, 2002, 2001, and 2000, were as follows:

	2002		2001		2000
	(in millions)
Cinergy	$	153	$	172	$	231
CG&E and subsidiaries	89		104		153
PSI	64		68		78
ULH&P	15		18		26

The expenses associated with these electric and gas services include:

•fuel used to generate electricity;

•electricity purchased from others;

•natural gas purchased from others; and

•transportation costs associated with the purchase of fuel, electricity, and natural gas.

These expenses are shown in the Statements of Income of Cinergy, CG&E, and PSI as Fuel and purchased and exchanged power expense and Gas purchased expense.  These expenses are shown in ULH&P’s Statements of Income as Electricity purchased from parent for resale expense and Gas purchased expense.  Any portion of these costs that are recoverable or refundable to customers in future periods is deferred in either Accounts receivable or Accounts payable in our Balance Sheets.

Indiana law limits the amount of fuel costs that PSI can recover to an amount that will not result in earning a return in excess of that allowed by the IURC.  Due to deregulation in the state of Ohio, the recovery of fuel costs in retail electric rates has been frozen.

PSI utilizes a purchased power tracking mechanism (Tracker) approved by the IURC for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not recovered through the existing fuel adjustment clause.  See Note 11(m) for additional information.

(f)Inventory

Natural gas inventory for Cinergy Marketing & Trading, LP (Marketing & Trading) is accounted for at fair value.  All other inventory is accounted for at the lower of cost or market, cost being determined through the weighted average method.  Effective January 1, 2003,

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Marketing & Trading’s gas inventory will be adjusted to the cost method with a cumulative effect adjustment, as required by Emerging Issues Task Force (EITF) Issue 02-3, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (EITF 02-3).  See 1(q)(i) below for additional discussion of the impacts of EITF 02-3.

(g)Property, Plant, and Equipment

Property, Plant, and Equipment includes the utility and non-regulated business property and equipment that is in use, being held for future use, or under construction.  We report our Property, Plant, and Equipment at its original cost, which includes:

•materials;

•salaries;

•payroll taxes;

•fringe benefits;

•financing costs of funds used during construction (described below in (i) and (j)); and

•other miscellaneous amounts.

We capitalize costs for regulated property, plant, and equipment that are associated with the replacement or the addition of equipment that is considered a property unit.  Property units are intended to describe an item or group of items.  The cost of normal repairs and maintenance is expensed as incurred.  When regulated property, plant, and equipment is retired, Cinergy charges the original cost plus the cost of retirement, less salvage, to accumulated depreciation.  A gain or loss is recorded on the sale of regulated property, plant, and equipment if an entire operating unit, as defined by the FERC, is sold.  A gain or loss is recorded on non-regulated property, plant, and equipment whenever there is a related sale or retirement.

In August 2000, the generation assets of CG&E were released from the first mortgage indenture lien.  CG&E’s transmission and distribution assets, and any generating assets added after August 2000, remain subject to the lien of the first mortgage bond indenture.  The utility property of PSI is also subject to the lien of its first mortgage bond indenture.

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(h)Depreciation

We determine the provisions for depreciation expense using the straight-line method.  The depreciation rates are based on periodic studies of the estimated useful lives and the net cost to remove the properties.  Inclusion of cost of removal in depreciation rates will be discontinued for all non-regulated property beginning in 2003 as a result of adopting Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143).  See (q)(iii) below for additional discussion of this change.  Our operating companies use composite depreciation rates, which are approved by the respective state commissions.  The average depreciation rates for Property, Plant, and Equipment, excluding software, are presented in the table below.

	2002		2001		2000
Cinergy(1)	3.0	%	3.0	%	3.0	%
CG&E and subsidiaries	2.9		2.9		2.9
PSI	3.0		3.0		3.0
ULH&P	3.2		3.3		3.3

(1) The results of Cinergy also include amounts related to non-registrants.

(i)Allowance for Funds Used During Construction (AFUDC)

Our operating companies finance construction projects with borrowed funds and equity funds.  Regulatory authorities allow us to record the costs of these funds as part of the cost of construction projects.  AFUDC is calculated using a methodology authorized by the regulatory authorities.  The borrowed funds component of AFUDC, which is recorded on a pre-tax basis, for the years ended December 31, 2002, 2001, and 2000, were as follows:

	2002		2001		2000
	(in millions)
Cinergy	$	10.1	$	8.4	$	8.2
CG&E and subsidiaries	1.0		1.0		5.0
PSI	9.1		7.4		3.2
ULH&P	0.2		0.2		0.4

With the deregulation of CG&E’s generation assets, the AFUDC method is no longer used to capitalize the cost of funds used during generation-related construction at CG&E.  See (j) below for a discussion of capitalized interest.

(j)Capitalized Interest

Cinergy capitalizes interest costs for non-regulated construction projects in accordance with Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost (Statement 34).

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The primary differences from AFUDC are that Statement 34 methodology does not include a component for equity funds and does not emphasize short-term borrowings over long-term borrowings.  Capitalized interest costs, which are recorded on a pre-tax basis, for the years ended December 31, 2002, 2001, and 2000, were as follows:

	2002		2001		2000(1)
	(in millions)
Cinergy(2)	$	7.2	$	7.1	$	—
CG&E and subsidiaries	7.2		5.5		—

(1)	Amounts for 2000 were immaterial.
(2)	The results of Cinergy also include amounts related to non-registrants.

(k)Federal and State Income Taxes

Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, requires an asset and liability approach for financial accounting and reporting of income taxes.  The tax effects of differences between the financial reporting and tax basis of accounting are reported as Deferred income tax assets or liabilities in our Balance Sheets and are based on currently enacted income tax rates.

Investment tax credits, which have been used to reduce our federal income taxes payable, have been deferred for financial reporting purposes.  These deferred investment tax credits are being amortized over the useful lives of the property to which they are related.  For a further discussion of income taxes see Note 10.

(l)Financial Derivatives

We use derivative financial instruments to manage:

•funding costs;

•exposure to fluctuations in interest rates; and

•exposure to foreign currency exchange rates.

We account for derivatives under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133), which requires all derivatives that are not exempted to be accounted for at fair value.  Changes in the derivative’s fair value must be recognized currently in earnings unless specific hedge accounting criteria are met.  Gains and losses on derivatives that qualify as hedges can (a) offset related fair value changes on the hedged item in the income statement for fair value hedges; or (b) be recorded in other comprehensive income for cash flow hedges.  To qualify for hedge accounting, financial instruments must be designated as a hedge (for example, an offset of foreign exchange or interest rate risks) at the inception of the contract and must be effective at reducing the risk associated with the hedged item.  Accordingly, changes in the fair values or cash flows of instruments designated as hedges must be highly correlated with changes in the fair values or cash flows of the related hedged items.

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From time to time, we may use foreign currency contracts (for example, a contract obligating one party to buy, and the other to sell, a specified quantity of a foreign currency for a fixed price at a future date) and currency swaps (for example, a contract whereby two parties exchange principal and interest cash flows denominated in different currencies) to hedge foreign currency denominated purchase and sale commitments (cash flow hedges) and certain of our net investments in foreign operations (net investment hedges) against currency exchange rate fluctuations.  Reclassification of unrealized gains or losses on foreign currency cash flow hedges from other comprehensive income occurs when the underlying hedged item is recorded in income.

We also use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for floating-interest rate cash flows) and treasury locks (an agreement that fixes the yield or price on a specific treasury security for a specific period, which we sometimes use in connection with the issuance of fixed rate debt).  Through December 31, 2000, we utilized the accrual method to account for these interest rate swaps and treasury locks.  Accordingly, gains and losses were calculated based on the current period difference between the fixed-rate and the floating-rate interest amounts, using agreed upon notional amounts.  These gains and losses were recognized in our Statements of Income as a component of Interest over the life of the agreement.  Effective with our adoption of Statement 133 in the first quarter of 2001, we began accounting for all derivatives (including interest rate swaps and treasury locks) using fair value accounting, and we assess the effectiveness of any interest rate swaps and/or treasury locks used in hedging activities.

At December 31, 2002, the ineffectiveness of instruments that we have classified as cash flow hedges of variable-rate debt instruments was not material.  Reclassification of unrealized gains or losses on cash flow hedges of debt instruments from Accumulated other comprehensive income (loss) occurs as interest is accrued on the debt instrument.  We currently estimate that on an after-tax basis, $5 million of unrealized losses will be reclassified as a charge to Interest during the twelve-month period ending December 31, 2003.  See (q)(iv) below for further discussion of Statement 133.

(m)Energy Marketing and Trading

We market and trade electricity, natural gas, coal, and other energy-related products.  We designate transactions as accrual or trading at the time they are originated.  Contracts are classified as accrual only when we (a) have the intent and projected ability to fulfill substantially all obligations from company-owned assets, and (b) meet the requirements to consider the contract a normal purchase or sale under Statement 133 (if a derivative), or meet the requirements to consider the contract non-trading under EITF Issue 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (EITF 98-10) (if not a derivative under Statement 133).  Such classification is generally limited to the sale of generation to third parties when it is not required to meet native load requirements (end-use customers within our public utility companies’ franchise service territory).  All other energy contracts (excluding electric, coal, and gas purchase contracts for use in serving our native load requirements) are classified as trading.  Gas trading is comprised of transactions for which gas is physically delivered to a customer (physical gas trading), as well as transactions that are financial in nature for which delivery rarely occurs (financial gas trading).  Since Cinergy owns no gas production and has limited transmission capabilities, all gas transactions (other than

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procurement and sale of gas to CG&E and ULH&P retail customers) are considered trading whether physical or financial.

We account for accrual transactions by recognizing revenues and costs when the underlying commodity is delivered and trading transactions using the fair value method of accounting.  Under the fair value method of accounting, unrealized trading transactions are shown at fair value in our Balance Sheets as Energy risk management assets and Energy risk management liabilities.  In October 2002, the EITF reached a consensus in EITF 02-3 to rescind EITF 98-10.  This decision will require that non-derivative contracts currently accounted for at fair value be accounted for on an accrual basis in the future.  See (q)(i) below for further discussion.

We reflect unrealized gains and losses, resulting from changes in fair value, on a net basis in Operating Revenues.  For physical gas trading and for all power trading, we recognize both revenues and costs on a gross basis in Operating Revenues and in Fuel and purchased and exchanged power expense and Gas purchased expense, respectively, when transactions are settled.  For financial gas trading, realized gains and losses are recorded on a net basis in Operating Revenues when transactions are settled.  EITF 02-3 will also require realized and unrealized gains and losses on all energy trading derivatives to be presented net in Operating Revenues, beginning in 2003.  See (q)(i) below for further discussion.

Although we intend to settle accrual contracts with company-owned assets, occasionally we settle these contracts with purchases on the open trading markets.  The cost of these purchases could be in excess of the associated revenues.  We recognize the gains or losses on these transactions as delivery occurs.  Due to the infrequency of such settlements, both historical and projected, and the fact that physical settlement to the customer still occurs, we continue to apply the normal purchases and sales exemption to such physical contracts that constitute derivatives.  Open market purchases may occur for the following reasons:

•generating station outages;

•least-cost alternative;

•native load requirements; and

•extreme weather.

We anticipate that some of the electricity obligations, even though considered trading contracts, will ultimately be settled using company-owned generation.  The cost of this generation is usually below the market price at which the trading portfolio has been valued.  The potential for earnings volatility from period to period is increased due to the risks associated with marketing and trading electricity, natural gas, and other energy-related products.

We value contracts in the trading portfolio using end-of-the-period fair values, utilizing the following factors (as applicable):

•closing exchange prices (that is, closing prices for standardized electricity and natural gas products traded on an organized exchange, such as the New York Mercantile Exchange);

•broker-dealer and over-the-counter price quotations; and

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•model pricing (which considers time value and historical volatility factors of electricity and natural gas).

(n)Business Combinations and Intangible Assets

We account for business combinations using the purchase method.  Goodwill and other intangibles with indefinite lives are no longer amortized.  Prior to January 1, 2002, we amortized goodwill on a straight-line basis over its estimated useful life, not to exceed 40 years.  The discontinuance of this amortization was not material to our financial position or results of operations.  Goodwill is assessed for impairment annually, or when circumstances indicate that the fair value of a reporting unit has declined significantly, by applying a fair-value-based test.  This test is applied at the “reporting unit” level, which is not broader than the current business segments discussed in Note 16.  Acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of intent to do so.

(o)Impairment of Long-Lived Assets

We evaluate long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.  The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets.  If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a provision for an impairment loss if the carrying value is greater than the fair value.  Until the assets are disposed of, their estimated fair value is reevaluated when circumstances or events change.

In 2002, Cinergy sold and/or classified as held for sale, certain non-core investments.  Pursuant to Statement of Financial Accounting Standards No. 144, Accounting for Impairment of Long-Lived Assets (Statement 144), these investments have been classified as Discontinued operations, net of tax in our financial statements.  See Note 15 for further information.

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(p)Stock-Based Compensation

We have historically accounted for our stock-based compensation plans using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) (see Note 2 for further information on our stock-based compensation plans).  In July 2002, we announced that we would prospectively adopt the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement 123), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (Statement 148), for all employee awards granted or modified after January 1, 2003.  The following table illustrates the effect on our Net income and Earnings per share (EPS) if the fair value based method had been applied to all outstanding and unvested awards in each period.

		Year Ended December 31
		(dollars in millions, except per share amounts)
		2002		2001		2000
Net income, as reported		$	361	$	442	$	399
Add:	Stock-based employee compensation expense included in reported net income, net of related tax effects.	24		13		9
Deduct:	Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects.	23		13		9
Pro-forma net income		$	362	$	442	$	399
EPS - as reported		$	2.16	$	2.78	$	2.51
EPS - pro-forma		$	2.17	$	2.78	$	2.51
EPS assuming dilution - as reported		$	2.13	$	2.75	$	2.50
EPS assuming dilution - pro-forma		$	2.14	$	2.75	$	2.50

In estimating the pro-forma amounts, the fair value method of accounting was not applied to options granted prior to January 1, 1995.  This is in accordance with the provisions of Statement 123, as amended by Statement 148.  As a result, the pro-forma effect on Net Income and EPS may not be representative of future years.  In addition, the pro-forma amounts reflect certain assumptions used in estimating fair values.  These fair value assumptions are described in Note 2.

(q)Accounting Changes

(i)Energy Trading

The EITF has been discussing several issues related to the accounting and disclosure of energy trading activities under EITF 98-10.  In October 2002, the EITF reached consensus in EITF 02-3, to (a) rescind EITF 98-10, (b) generally preclude the recognition of gains at the inception of new derivatives, and (c) require all realized and unrealized gains and losses on energy trading derivatives to be presented net in the Statements of Income, whether or not settled physically.

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The consensus to rescind EITF 98-10 will require all energy trading contracts that do not qualify as derivatives to be accounted for on an accrual basis, rather than at fair value.  The consensus was immediately effective for all new contracts executed after October 25, 2002, and will require a cumulative effect adjustment to income, net of tax, on January 1, 2003, for all contracts executed on or prior to October 25, 2002.  The cumulative effect adjustment, on a net of tax basis, will be a loss of approximately $13 million, which includes primarily the impact of coal contracts accounted for at fair value, gas inventory accounted for at fair value, and certain gas contracts.  We expect the value of these items to be realized when the contracts settle.  The general restriction on recognition of inception gains is not expected to have a material impact on our future financial position or results of operations.

The consensus to require all gains and losses on energy trading derivatives to be presented net in the Statements of Income is effective beginning January 1, 2003, and will require restatement for all periods presented.  This will result in substantial reductions in reported Operating Revenues, Fuel and purchased and exchanged power expense, and Gas purchased expense.  However, Operating Income and Net Income will not be affected by this change.  Pro-forma Operating Revenues for Cinergy, CG&E, and PSI for the year ended December 31, 2002, under this requirement would have been as follows:

	2002
	(in millions)
Cinergy(1)	$	4,028
CG&E and subsidiaries	2,154
PSI	1,623

(1) The results of Cinergy also include amounts related to non-registrants.

(ii)Business Combinations and Intangible Assets

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), and No. 142, Goodwill and Other Intangible Assets (Statement 142).  Statement 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method.  With the adoption of Statement 142, goodwill and other intangibles with indefinite lives will no longer be subject to amortization.  Statement 142 requires that goodwill be assessed for impairment upon adoption and at least annually thereafter by applying a fair-value-based test, as opposed to the undiscounted cash flow test applied under prior accounting standards.  This test must be applied at the “reporting unit” level, which is not permitted to be broader than the current business segments discussed in Note 16.  Under Statement 142, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer’s intent to do so.

We began applying Statement 141 in the third quarter of 2001 and Statement 142 in the first quarter of 2002.  The discontinuance of amortization of goodwill, which began in the first quarter of 2002, was not material to our financial position or results of operations.  We finalized our transition impairment test in the fourth quarter of 2002 and have recognized a non-cash impairment charge of approximately $11 million (net of tax) for goodwill related to certain of

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our international assets.  This charge reflects a general decline in value of international assets.  Additionally, Cinergy’s combined heat and power plants located in the Czech Republic faced downward pressure in their selling prices for electricity due to the continued restructuring of the market in that country.  In calculating this impairment charge, the fair value of the reporting unit was determined through both discounted cash flow analysis and offers being considered on certain businesses within the reporting unit.  This amount is reflected in Cinergy’s Statements of Income as a Cumulative effect of a change in accounting principle.  While Statement 142 did not require the initial transition impairment test to be completed until December 31, 2002, it requires any transition impairment charge to be reflected as of January 1, 2002.  As such, Note 14 reconciles Net Income and EPS from the amounts originally presented in the first quarter of 2002 to the amounts revised for this change.  We will continue to perform goodwill impairment tests annually, as required by Statement 142, or when circumstances indicate that the fair value of a reporting unit has declined significantly.

(iii)Asset Retirement Obligations

In July 2001, the FASB issued Statement 143, which requires fair value recognition of legal obligations associated with the retirement or removal of long-lived assets at the time the obligations are incurred.  The initial recognition of this liability will be accompanied by a corresponding increase in property, plant, and equipment.  Subsequent to the initial recognition, the liability will be adjusted for any revisions to the expected cash flows of the retirement obligation (with corresponding adjustments to property, plant, and equipment), and for accretion of the liability due to the passage of time (recognized as an operating expense).  Additional depreciation expense will be recorded prospectively for any property, plant, and equipment increases.  We adopted Statement 143 on January 1, 2003.  The impact of adoption on our results of operations will be reflected as a cumulative effect adjustment to income, net of tax.

We currently accrue costs of removal on many long-lived assets through depreciation expense if we believe removal of the assets at the end of their useful life is likely.  The SEC staff has interpreted Statement 143 to disallow the accrual of cost of removal when no obligation exists under Statement 143, even if removal of the asset is likely.  Any amounts currently recorded in Accumulated depreciation must be removed through the cumulative effect adjustment on January 1, 2003.  However, if accruing cost of removal is allowed for ratemaking purposes and Statement 71 is applicable, accumulated cost of removal will not be reversed upon adoption of Statement 143.  Rather, the amount of accrued cost of removal will remain, but will be disclosed in all future periods.  PSI, CG&E, except for its generation assets, and ULH&P expect to continue to accrue costs of removal under Statement 71.

We are finalizing our evaluation of the impact of adopting Statement 143.  However, we have not determined whether its impact will be material pending (a) resolution of certain legal conclusions and (b) final calculations on the amount of accumulated cost of removal to be reversed upon adoption for CG&E’s generation assets.

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(iv)Derivatives

During 1998, the FASB issued Statement 133.  This standard was effective for Cinergy beginning in 2001, and requires us to record derivative instruments, which are not exempt under certain provisions of Statement 133, as assets or liabilities, measured at fair value (i.e., mark-to-market).  Our financial statements reflect the adoption of Statement 133 in the first quarter of 2001.  Since many of our derivatives were previously required to use fair value accounting, the effects of implementation were not material.

Our adoption did not reflect the potential impact of applying fair value accounting to selected electricity options and capacity contracts.  We had not historically accounted for these instruments at fair value because they were intended as either hedges of peak period exposure or sales contracts served with physical generation, neither of which were considered trading activities.  At adoption, we classified these contracts as normal purchases or sales based on our interpretation of Statement 133 and in the absence of definitive guidance on such contracts.  In June 2001, the FASB staff issued guidance on the application of the normal purchases and sales exemption to electricity contracts containing characteristics of options.  While many of the criteria in this guidance are consistent with the existing guidance in Statement 133, some criteria were added.  We adopted the new guidance in the third quarter of 2001, and the effects of implementation for these contracts were not material to our financial position or results of operations.  We will continue to apply this guidance to any new electricity contracts that meet the definition of a derivative.

In December 2001, the FASB staff revised the current guidance to make the evaluation of whether electricity contracts qualify as normal purchases and sales more qualitative than quantitative.  This new guidance uses several factors to distinguish between capacity contracts, which qualify for the normal purchases and sales exemption, and options, which do not.  These factors include deal tenor, pricing structure, specification of the source of power, and various other factors.  We adopted this guidance in the third quarter of 2002, and its impact was not material to our financial position or results of operations.

In October 2001, the FASB staff released final guidance on the applicability of the normal purchases and sales exemption to contracts that contain a minimum quantity (a forward component) and flexibility to take additional quantity at a fixed price (an option component).  While this guidance was issued primarily to address optionality in fuel supply contracts, it applies to all derivatives (subject to certain exceptions for capacity contracts in electricity discussed in the previous paragraphs).  This guidance concludes that such contracts are not eligible for the normal purchases and sales exemption due to the existence of optionality in the contract.  We adopted this guidance in the second quarter of 2002, consistent with the transition provisions.  Cinergy has certain contracts that contain fixed-price optionality, primarily coal contracts, which we reviewed to determine the impact of this new guidance.  Due to a lack of liquidity with respect to coal markets in our region, we determined that our coal contracts do not meet the net settlement criteria of Statement 133 and thus do not qualify as derivatives.  Given these conclusions, the results of applying this new guidance were not material to our financial position or results of operations.

In May 2002, the FASB issued an exposure draft that would amend Statement 133 to incorporate certain implementation conclusions reached by the FASB staff.  We do not believe the

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amendments, as currently drafted, will have a material effect on our financial position or results of operations.

(v)Asset Impairment

In August 2001, the FASB issued Statement 144, which addresses accounting and reporting for the impairment or disposal of long-lived assets.  Statement 144 was effective beginning with the first quarter of 2002.  The impact of implementation on our financial position or results of operations was not material.

(vi)Exit Activities

In August 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (Statement 146).  Statement 146 addresses accounting and reporting for the recognition of exit costs, including, but not limited to, one-time employee benefit terminations, contract cancellations, and facility consolidations.  This statement requires that such costs be recognized only when they meet the definition of a liability under GAAP.  However, Statement 146 applies only to exit activities initiated in 2003 and after.  All costs recorded through December 31, 2002, are unaffected by this pronouncement.  The impact of implementation on our financial position or results of operations is not expected to be material.

(vii)Accounting for Stock-Based Compensation

We have historically accounted for our stock-based compensation plans under APB 25.  In July 2002, Cinergy announced that it would adopt Statement 123 for all employee awards granted or modified after January 1, 2003, and would begin measuring the compensation cost of stock-based awards under the fair value method.  In December 2002, the FASB issued Statement 148, which amends Statement 123 and APB Opinion No. 28, Interim Financial Reporting.  Statement 148 provides alternative methods of transition to Statement 123 and more expanded disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results in both annual and interim financial statements.  Cinergy adopted Statement 148 on January 1, 2003, and has adopted the transition provisions that require expensing options prospectively in the year of adoption, consistent with the original pronouncement.  Existing awards will continue to follow the intrinsic value method prescribed by APB 25.  The impact of adoption on our financial position and results of operations, assuming award levels and fair values similar to past years, is not material.  This change will primarily impact the accounting for stock options and other performance based awards related to the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan (LTIP) and Cinergy Corp. Employee Stock Purchase and Savings Plan.  See Note 2 for additional information.

(viii)Guarantees

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (Interpretation 45).  Interpretation 45 addresses accounting and reporting obligations under certain guarantees.  It requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The initial

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recognition and measurement provisions of Interpretation 45 are applicable to guarantees issued or modified after December 31, 2002.  However, the incremental disclosure requirements in Interpretation 45 are effective for this annual report.  The impact of implementation on our financial position or results of operations is not expected to be material.  For a further discussion of guarantees, see Note 11(b).

(ix)Consolidation of Special Purpose Entities

The FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities in January 2003.  This interpretation will significantly change the consolidation requirements for special purpose entities (SPE).  We have begun reviewing the impact of this interpretation but have not yet concluded whether consolidation of certain SPEs will be required.  There are two SPEs for which consolidation may be required.  These SPEs have individual power sale agreements to an unrelated third party for approximately 45 megawatts (MW), ending in 2009, and 35 MW, ending in 2016.  In addition, the SPEs have individual power purchase agreements with Cinergy Capital & Trading, Inc. (Capital & Trading) to supply the power.   Capital & Trading also provides various services, including certain credit support facilities.

Cinergy’s quantifiable exposure to loss as a result of involvement with these two SPEs is $28 million, which includes investments in these entities of $3 million and exposure under the capped credit facilities of approximately $25 million.  There is also a non-capped facility, but it can only be called upon in the event the SPE breaches representations, violates covenants, or other unlikely events.

If appropriate, consolidation of all assets and liabilities of these two SPEs, at their carrying values, will be required in the third quarter of 2003.  Approximately $225 million of non-recourse debt would be included in Cinergy’s Balance Sheets upon initial consolidation.  However, the impact on results of operations would be expected to be immaterial.

Cinergy believes that its accounts receivable sale facility, as discussed in Note 6, would remain unconsolidated since it involves transfers of financial assets to a qualifying SPE, which is exempted from consolidation by Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (Statement 140) and this interpretation.

(r)Translation of Foreign Currency

We translate the assets and liabilities of foreign subsidiaries, whose functional currency (generally, the local currency of the country in which the subsidiary is located) is not the United States (U.S.) dollar, using the appropriate exchange rate as of the end of the year.  We translate income and expense items using the average exchange rate prevailing during the month the respective transaction occurs.  We record translation gains and losses in Accumulated other comprehensive income (loss), which is a component of common stock equity.  When a foreign subsidiary is sold, the cumulative translation gain or loss as of the date of sale is removed from Accumulated other comprehensive income (loss) and is recognized as a component of the gain or loss on the sale of the subsidiary in our Statements of Income.

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(s)Related Party Transactions

Cinergy and its subsidiaries engage in related party transactions.  These transactions, which are eliminated upon consolidation, are generally performed at cost and in accordance with the SEC regulations under the PUHCA and the applicable state and federal commission regulations.  The Balance Sheets of our operating companies reflect amounts payable to and/or receivable from related parties as Accounts payable to affiliated companies and Accounts receivable from affiliated companies.  The significant related party transactions are disclosed below.

(i)Services

Services provides our regulated and non-regulated subsidiaries with a variety of centralized administrative, management, and support services in accordance with agreements approved by the SEC under the PUHCA.  The cost of these services are charged to our operating companies on a direct basis, or for general costs which cannot be directly attributed, based on predetermined allocation factors, including the following ratios:

•sales;

•electric peak load;

•number of employees;

•number of customers;

•construction expenditures; and

•other statistical information.

These costs were as follows for the years ended December 31, 2002, 2001, and 2000:

	2002		2001		2000
	(in millions)
Cinergy(1)	$	472	$	483	$	479
CG&E and subsidiaries	206		240		250
PSI	190		196		187
ULH&P	23		24		25

(1) The results of Cinergy also include amounts related to non-registrants.

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Generation Services, which began operations on January 1, 2001, supplies electric production-related construction, operation and maintenance services to certain of our subsidiaries pursuant to agreements approved by the SEC under the PUHCA.  The cost of these services were as follows for the years ended December 31, 2002 and 2001:

	2002(2)		2001
	(in millions)
Cinergy(1)	$	179	$	92
CG&E	104		67
PSI	58		21

(1)	The results of Cinergy also include amounts related to non-registrants.
(2)	Increase reflects movement of Services’ employees to Generation Services.

(ii)Purchased Energy

ULH&P purchases energy from CG&E pursuant to a new contract effective January 1, 2002, which was approved by the FERC and the Kentucky Public Service Commission (KPSC).  This five-year agreement is a negotiated fixed-rate contract with CG&E and replaces the previous cost-of-service based contract, which expired on December 31, 2001.  ULH&P purchased energy from CG&E for resale in the amounts of $160 million, $152 million, and $160 million for the years ended 2002, 2001, and 2000, respectively.  These amounts are reflected in the Statements of Income for ULH&P as Electricity purchased from parent company for resale.

PSI and CG&E purchase energy from each other under various federal and state approved joint operating agreements.  These sales and purchases are reflected in the Statements of Income of PSI and CG&E as Electric operating revenues and Fuel and purchased and exchanged power expense and were as follows for the years ended December 31, 2002, 2001, and 2000:

	2002		2001		2000
	(in millions)
CG&E
Electric operating revenues	$	59	$	90	$	111
Fuel and purchased and exchanged power	43		92		94
PSI
Electric operating revenues	43		92		94
Fuel and purchased and exchanged power	59		90		111

To supplement native load requirements for 2002, CG&E and PSI agreed to purchase peaking power from Capital & Trading, an indirect wholly-owned subsidiary of Cinergy Corp., pursuant to the terms of a wholesale market-based tariff.  For the year ended December 31, 2002, payments under these contracts totaled approximately $27 million for CG&E and $28 million for PSI.  To the extent these payments were deferred for future recovery, the amounts are included in Regulatory assets on the Balance Sheets of CG&E and PSI.  The remaining

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payments are reflected as Fuel and purchased and exchanged power expense on the Statements of Income for CG&E and PSI.

CG&E and PSI have an agreement with Marketing & Trading to purchase gas for certain gas-fired peaking plants pursuant to the terms of the wholesale market-based agreements.  CG&E purchased natural gas from Marketing & Trading in the amount of $9 million and $12 million for the years ended December 31, 2002 and 2001, respectively.  PSI purchased natural gas from Marketing & Trading in the amount of $5 million and $4 million for the years ended December 31, 2002 and 2001, respectively.  The amounts are reflected in the Statements of Income of CG&E and PSI as Fuel and purchased and exchanged power expense.

(iii)Other

In December 2001, CG&E and ULH&P entered into agreements with Mirant Americas Energy Marketing, LP (Mirant) in which CG&E and ULH&P assigned Mirant the rights to CG&E’s and ULH&P’s gas supply contracts, interstate pipeline transportation contracts and gas in storage, and Mirant agreed to deliver gas to meet CG&E’s and ULH&P’s firm gas requirements, and to pay CG&E and ULH&P monthly fees.  Mirant assigned these contracts and the agreements to Marketing & Trading in November 2002, and CG&E and ULH&P consented to such assignments.  The agreements will expire in October 2003.  Payments under these agreements were approximately $33 million and $7 million for CG&E and ULH&P, respectively.  These amounts are recorded in the Statements of Income for CG&E and ULH&P as Gas purchased expense.  The assignment of the Mirant/ULH&P agreements are subject to the approval of the KPSC, and ULH&P has filed an application with the KPSC seeking such approval.  No other regulatory approvals are required.

Cinergy Corp. and our operating companies participate in a money pool arrangement by which those companies with surplus cash provide short-term loans to others.   For a further discussion on the money pool agreement see Note 5.

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2.Common Stock

(a)Changes In Common Stock Outstanding

The following table reflects information related to shares of common stock issued for stock-based plans.

	Shares
	Authorized for		Shares Used to Grant or
	Issuance under		Settle Awards
	Plan		2002	2001	2000
LTIP	14,500,000		674,005	72,225	93,855
Cinergy Corp. Stock Option Plan (SOP)	5,000,000		870,867	263,070	108,941
Cinergy Corp. Employee Stock Purchase and Savings Plan	2,000,000		4,912	227,847	2,718
Cinergy Corp. UK Sharesave Scheme	75,000		8,878	121	—
Cinergy Corp. Retirement Plan for Directors	175,000	(1)	1,768	29,135	9,435
Cinergy Corp. Directors’ Equity Compensation Plan	75,000		196	1,858	150
Cinergy Corp. Directors’ Deferred Compensation Plan	200,000		—	14,211	—
Cinergy Corp. 401(k) Plans	6,469,373	(1)	964,615	69,500	—
Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan (2)	3,000,000	(1)	657,943	649,834	533,932
Cinergy Corp. 401(k) Excess Plan	100,000	(1)	—	—	—
Director, Officer, and Key Employee Stock Purchase Program	2,110,817	(3)	—	—	1,627,788
Cinergy Corp. Long-Term Incentive Compensation Sub-Scheme	7,000,000		—	—	—

(1)Plan does not contain an authorization limit.  The number of shares presented reflects amounts registered with the SEC as of December 31, 2002.

(2)Shares issued prior to April 2001 were for the previous Cinergy Corp. Dividend Reinvestment and Stock Purchase Plan, which is no longer active.

(3)Plan authorized a maximum amount of $50 million of Cinergy Corp. common stock to be purchased.  The number of shares presented reflects amounts registered with the SEC as of December 31, 2002.  See Note 2(d) for additional information.

We retired 422,908 shares of common stock in 2002, 72,739 shares in 2001, and 32,988 shares in 2000, mainly representing shares tendered as payment for the exercise of previously granted stock options.

In April 2001, Cinergy adopted the Direct Stock Purchase and Dividend Reinvestment Plan, a plan designed to provide investors with a convenient method to purchase shares of Cinergy Corp. common stock and to reinvest cash dividends in the purchase of additional shares.  This plan replaced the Dividend Reinvestment and Stock Purchase Plan.

In November 2001, Cinergy chose to reinstitute the practice of issuing new Cinergy Corp. common shares to satisfy obligations under its various employee stock plans and the Cinergy

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Corp. Direct Stock Purchase and Dividend Reinvestment Plan.  This replaces our previous practice of purchasing shares in the open market to fulfill certain plan obligations.

In January 2002, Cinergy registered 100,000 shares of common stock under the Cinergy Corp. 401(k) Excess Plan.

In February 2002, Cinergy sold 6.5 million shares of Cinergy Corp. common stock with net proceeds of approximately $200 million.

Cinergy Corp. owns all of the common stock of CG&E and PSI.  All of ULH&P’s common stock is held by CG&E.

(b)           Dividend Restrictions

Cinergy Corp.’s ability to pay dividends to holders of its common stock is principally dependent on the ability of CG&E and PSI to pay Cinergy Corp. common stock dividends.  Cinergy Corp., CG&E, and PSI cannot pay dividends on their common stock if their respective preferred stock dividends or preferred trust dividends are in arrears.  The amount of common stock dividends that each company can pay is also limited by certain capitalization and earnings requirements under CG&E’s and PSI’s credit instruments.  Currently, these requirements do not impact the ability of either company to pay dividends on its common stock.

(c)           Stock-based Compensation Plans

We currently have the following stock-based compensation plans:

•LTIP;

•SOP;

•Employee Stock Purchase and Savings Plan;

•UK Sharesave Scheme;

•Retirement Plan for Directors;

•Directors’ Equity Compensation Plan;

•Directors’ Deferred Compensation Plan;

•401(k) Excess Plan; and

•2001 Long-Term Incentive Compensation Sub-Scheme.

The LTIP, the SOP, and the Employee Stock Purchase and Savings Plan are discussed below.  The activity in 2002, 2001, and 2000 for the remaining stock-based compensation plans was not significant.

We have historically accounted for our stock-based compensation plans in accordance with APB 25.  However, we will prospectively adopt the fair value recognition provisions of Statement 123, as amended by Statement 148, effective with all employee awards granted or modified after January 1, 2003.  See “Stock-Based Compensation” in Note 1(p) for additional information on costs we recognized in 2002, 2001, and 2000, related to stock-based compensation plans, and for our pro-forma disclosure assuming compensation costs for these plans had been determined at fair value, consistent with Statement 123, as amended by Statement 148.

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(i)LTIP

The LTIP was originally adopted in 1996 and was subsequently amended effective January 2002.  Under this plan, certain key employees may be granted incentive and non-qualified stock options, stock appreciation rights (SAR), restricted stock, dividend equivalents, the opportunity to earn performance-based shares and certain other stock-based awards.  Stock options are granted to participants with an option price equal to or greater than the fair market value on the grant date, and generally with a vesting period of either three or five years.  The vesting period begins on the grant date and all options expire within 10 years from that date.  The number of shares of common stock issuable under the LTIP is limited to a total of 14.5 million shares.

Entitlement to performance-based shares is based on Cinergy’s total shareholder return (TSR) over designated Cycles as measured against a pre-defined peer group.  Target grants of performance-based shares were made for the following Cycles:

Cycle	Grant Date	Performance Period	Target Grant of Shares
			(in thousands)
V	1/2001	2001-2003	301
VI	1/2002	2002-2004	343
VII	1/2003	2003-2005	371

Participants may earn additional performance shares if Cinergy’s TSR exceeds that of the peer group.  For the three-year performance period ended December 31, 2002 (Cycle IV), approximately 817,000 shares were earned, based on our relative TSR.

(ii)SOP

The SOP is designed to align executive compensation with shareholder interests.  Under the SOP, incentive and non-qualified stock options, SARs, and SARs in tandem with stock options may be granted to key employees, officers, and outside directors.  The activity under this plan has predominantly consisted of the issuance of stock options.  Options are granted with an option price equal to the fair market value of the shares on the grant date.  Options generally vest over five years at a rate of 20 percent per year, beginning on the grant date, and expire 10 years from the grant date.  The total number of shares of common stock issuable under the SOP may not exceed 5,000,000 shares.  No stock options may be granted under the plan after October 24, 2004.

(iii)Employee Stock Purchase and Savings Plan

The Employee Stock Purchase and Savings Plan allows essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature.  Under the Employee Stock Purchase and Savings Plan, after-tax funds are withheld from a participant’s compensation during a 26-month offering period and are deposited in an interest-bearing account.  At the end of the offering period, participants may apply amounts deposited in the account, plus interest, toward the purchase of shares of common stock.  The purchase price is equal to 95 percent of the fair market value of a share of common stock on the first date of the

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offering period.  Any funds not applied toward the purchase of shares are returned to the participant.  A participant may elect to terminate participation in the plan at any time.  Participation also will terminate if the participant’s employment ceases.  Upon termination of participation, all funds, including interest, are returned to the participant without penalty.  The sixth (current) offering period began May 1, 2001, and ends June 30, 2003.  The purchase price for all shares under this offering is $32.78.  The fifth offering period ended April 30, 2001, with 227,968 shares purchased and the remaining cash distributed to the respective participants.  The total number of shares of common stock issuable under the Employee Stock Purchase and Savings Plan may not exceed 2,000,000.

Activity for 2002, 2001, and 2000 for the LTIP, SOP, and Employee Stock Purchase and Savings Plan is summarized as follows:

	LTIP and SOP				Employee Stock Purchase and Savings Plan
	Shares Subject to Option		Weighted Average Exercise Price		Shares Subject to Option		Weighted Average Exercise Price
Balance at December 31, 1999	6,187,249		$	27.17	359,305		$	27.73
Options granted	1,329,800		24.59		—		—
Options exercised	(123,978	)	23.50		(2,718	)	27.73
Options forfeited	(402,200	)	26.68		(76,261	)	27.73
Balance at December 31, 2000	6,990,871		26.77		280,326		27.73
Options granted	811,700		33.90		299,793		32.78
Options exercised	(275,393	)	24.39		(227,968	)	27.73
Options forfeited	(79,400	)	27.29		(73,826	)	29.20
Balance at December 31, 2001	7,447,778		27.63		278,325		32.78
Options granted	1,241,200	(2)	32.27		—		—
Options exercised	(1,308,738	)	23.96		(4,912	)	32.78
Options forfeited	(18,540	)	31.57		(55,243	)	32.78
Balance at December 31, 2002	7,361,700		$	29.06	218,170		$	32.78
Options Exercisable(1):
At December 31, 2000	3,195,191		$	26.20
At December 31, 2001	3,763,558		$	27.32
At December 31, 2002	3,744,420		$	28.98

(1)The options under the Employee Stock Purchase and Savings Plan are only exercisable at the end of the offering period.

(2)Options were not granted under the SOP during 2002.

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The weighted average fair value of options granted under the combined LTIP and the SOP plans was $4.95 in 2002, $5.42 in 2001, and $2.75 in 2000.  The weighted average fair value of options granted under the Employee Stock Purchase and Savings Plan was $5.85 in 2001 (no options were granted in 2002 or 2000).  The fair values of options granted were estimated as of the grant date using the Black-Scholes option-pricing model and the following assumptions:

	LTIP and SOP(1)						Employee Stock Purchase and Savings Plan(2)
	2002		2001		2000		2001
Risk-free interest rate	3.92	%	4.78	%	6.57	%	4.22	%
Expected dividend yield	5.66	%	5.42	%	7.32	%	5.26	%
Expected lives	5.42	yrs.	5.37	yrs.	4.86	yrs.	2.17	yrs.
Expected volatility	26.45	%	25.01	%	20.18	%	30.67	%

(1)	Options were not granted under the SOP in 2002.
(2)	Options were not granted under the Employee Stock Purchase and Savings Plan in 2002 or 2000.

Price ranges, along with certain other information, for options outstanding under the combined LTIP and SOP plans at December 31, 2002, were as follows:

					Outstanding				Exercisable
Exercise Price Range					Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Number of Shares	Weighted Average Exercise Price
$	22.88	-	$	23.81	2,100,970	$	23.69	6.33 yrs.	1,433,890	$	23.64
$	23.88	-	$	32.65	2,492,830	$	26.82	6.70 yrs.	768,330	$	25.63
$	33.31	-	$	38.59	2,767,900	$	35.15	6.69 yrs.	1,542,200	$	35.62

(d)           Director, Officer, and Key Employee Stock Purchase Program

In December 1999, Cinergy Corp. adopted the Director, Officer, and Key Employee Stock Purchase Program (Stock Purchase Program).  The purpose of the Stock Purchase Program is to facilitate the purchase and ownership of Cinergy Corp.’s common stock by its directors, officers, and key employees, thereby further aligning their interests with those of its shareholders.

In February 2000, Cinergy Corp. purchased approximately 1.6 million shares of common stock on behalf of the participants at an average price of $24.82 per share.

Participants had the option of financing the purchases through a five-year credit facility arranged by Cinergy Corp. with a bank.  Each participant is obligated to repay the bank any loan principal, interest, and prepayment fees, and each has assigned his or her dividend rights on the purchased shares to the bank to be applied to interest payments as due on the loan.

Services, and in part, Cinergy Corp., have guaranteed repayment to the bank of 100 percent of each participant’s loan obligations and the associated interest, and each participant has agreed to indemnify the guarantor for any payments made by it under the guaranty on the participant’s

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behalf.  A participant’s obligations to the bank are unsecured and no restrictions are placed on the participant’s ability to sell, pledge, or otherwise encumber or dispose of his or her purchased shares.

(e)Stock Purchase Contracts

In December 2001, Cinergy Corp. issued approximately $316 million notional amount of combined securities, a component of which was stock purchase contracts.  These contracts obligate the holder to purchase common shares of Cinergy Corp. stock in, and/or before, February 2005.  The number of shares to be issued is contingent upon the market price of Cinergy Corp. stock, but subject to predetermined ceiling and floor prices.  See Note 3 for further discussion of these combined securities.

3.Preferred Trust Securities

In December 2001, Cinergy Corp. issued approximately $316 million notional amount of combined securities consisting of (a) 6.9 percent preferred trust securities, due February 2007, and (b) stock purchase contracts obligating the holders to purchase between 9.2 and 10.8 million shares of Cinergy Corp. common stock in, and/or before, February 2005.  A $50 preferred trust security and stock purchase contract were sold together as a single security unit (Unit).  The proceeds of $306 million, which is net of approximately $10 million of issuance costs, were used to pay down Cinergy Corp.’s short-term indebtedness.  In February 2005, the preferred trust securities will be remarketed and the dividend rate reset, no lower than 6.9 percent, to yield $316 million in the remarketing.  The holders will use the proceeds from this remarketing to fund their obligation to purchase shares of Cinergy Corp. common stock under the stock purchase contract.  The holders will pay the market price for the stock at that time, subject to a ceiling of $34.40 per share and a floor of $29.15 per share.  The number of shares to be issued will vary according to the stock price, subject to the total proceeds equaling $316 million.  These preferred trust securities were issued through a wholly-owned trust of Cinergy Corp. and are recorded on Cinergy Corp.’s Balance Sheets, net of discount and expense, as Company obligated, mandatorily redeemable, preferred trust securities of subsidiary, holding solely debt securities of the company.  The fair value of the stock purchase contracts was charged to Paid-in capital with a corresponding credit to Non-Current Liabilities-Other.

Each Unit will receive quarterly cash payments of 9.5 percent per annum of the notional amount, which includes the preferred trust security dividend of 6.9 percent and payment of 2.6 percent, which represents principal and interest on the stock purchase contracts.  Upon delivery of the shares, these stock purchase contract payments will cease.

4.Long-Term Debt

Refer to the Statements of Capitalization for detailed information for Cinergy’s, CG&E’s, PSI’s, and ULH&P’s long-term debt.

In January 2002, PSI repaid at maturity $23 million principal amount of its Medium-Term Notes, Series A.  The securities were not replaced by new issues of long-term debt.

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In May 2002, an indirect, wholly-owned subsidiary of Global Resources entered into a senior term loan and a junior term loan, borrowing $13.8 million and $7.1 million, respectively.  Each of the loans have periodic principal reduction payments, with the senior loan having a final maturity of March 15, 2019, and the junior loan having a final maturity of March 15, 2012.  The annual interest rate on the senior loan is fixed at 6.97 percent and the junior loan is fixed at 6.35 percent.

On September 1, 2002, CG&E repaid at maturity $100 million principal amount of its First Mortgage Bonds, 7 ¼% Series.

On September 10, 2002, CG&E borrowed the proceeds from the issuance by the Ohio Air Quality Development Authority of $84 million principal amount of its State of Ohio Air Quality Development Revenue Refunding Bonds 2002 Series A, due September 1, 2037.  The issuance consists of two $42 million tranches, with the interest rate on one tranche being reset every 35 days by auction and the interest rate on the other tranche being reset every 7 days by auction.  The initial interest rates for the 35-day and 7-day tranches were 1.40 percent and 1.35 percent, respectively.  Proceeds from the borrowing were used on October 7, 2002 to redeem, at par, two $42 million Series 1985 A&B Air Quality Development Authority State of Ohio Customized Purchase Revenue Bonds, due December 1, 2015.  The redeemed bonds had been classified in Notes payable and other short-term obligations.

On September 12, 2002, PSI borrowed the proceeds from the issuance by the Indiana Development Finance Authority of $23 million principal amount of its Environmental Refunding Revenue Bonds Series 2002A, due March 1, 2031.  The initial interest rate for the bonds was 1.40 percent.  The interest rate resets every 35 days by auction.  Proceeds from the borrowing were used on October 1, 2002 to redeem, at par, the $23 million principal amount of Indiana Development Finance Authority Environmental Refunding Revenue Bonds Series 1998, due August 1, 2028.  The redeemed bonds had been classified in Notes payable and other short-term obligations.

On September 12, 2002, PSI borrowed the proceeds from the issuance by the Indiana Development Finance Authority of $24.6 million principal amount of its Environmental Refunding Revenue Bonds Series 2002B, due March 1, 2019.  The initial interest rate for the bonds was 1.35 percent.  The interest rate resets every 7 days by auction.  Proceeds from the issuance were used on October 1, 2002 to redeem, at par, the $24.6 million principal amount of City of Princeton, Indiana Pollution Control Revenue Refunding Bonds 1996 Series, due March 1, 2019.  The redeemed bonds had been classified in Notes payable and other short-term obligations.

The holders of the newly issued Ohio Air Quality Development Authority and Indiana Development Finance Authority bonds mentioned above have the benefit of a financial guaranty insurance policy that insures the payment of principal of, and interest on, the bonds when due.  CG&E and PSI have each entered into an insurance agreement with the bond insurer and have pledged first mortgage bonds to secure their respective reimbursement obligations under such agreements.

On September 23, 2002, CG&E issued $500 million principal amount of its 5.70 percent Debentures due September 15, 2012.  Proceeds from the offering were used to repay short-term

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indebtedness incurred in connection with general corporate purposes including capital expenditures related to environmental compliance construction, and the repayment at maturity of $100 million principal amount of CG&E’s First Mortgage Bonds, 7 ¼% Series.  In July 2002, CG&E executed a treasury lock with a notional amount of $250 million, which was designated as a cash flow hedge of 50 percent of the forecasted interest payments on this debt offering.  With the issuance of the debt, the treasury lock was settled.  See Note 8(a) for additional information on this treasury lock.

The following table reflects the long-term debt maturities excluding any redemptions due to the exercise of call provisions or capital lease obligations.  Callable means the issuer has the right to buy back a given security from the holder at a specified price before maturity.  Putable means the holder has the right to sell a given security back to the issuer at a specified price before maturity.

Long-term Debt Maturities

	Cinergy(1)		CG&E and subsidiaries			PSI
			(in millions)
2003	$	191	$	120	(2)	$	56
2004	815		110			2
2005(3)	204		150			51
2006	335		—			328
2007	374		100			267
Thereafter	2,351		1,212		(4)	676
	$	4,270	$	1,692		$	1,380

(1)	The results of Cinergy also include amounts related to non-registrants.
(2)	Includes $100 million of CG&E’s long-term debt with a periodic put provision beginning in June 2003, and ULH&P’s $20 million maturing in 2003.
(3)	CG&E and subsidiaries includes long-term debt with put provisions of $150 million in 2005.  PSI includes long-term debt with put provisions of $50 million in 2005.
(4)	Includes ULH&P’s $55 million of long-term debt.

Maintenance and replacement fund provisions contained in PSI’s first mortgage bond indenture require:  (1) cash payments, (2) bond retirements, or (3) pledges of unfunded property additions each year based on an amount related to PSI’s net revenues.

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5.Notes Payable and Other Short-term Obligations

Short-term obligations may include:

•short-term notes;

•commercial paper;

•variable rate pollution control notes; and

•money pool.

Short-term Notes

Short-term borrowings mature within one year from the date of issuance.  We primarily use unsecured revolving lines of credit and the sale of commercial paper for short-term borrowings.  A portion of each company’s revolving lines is used to provide credit support for commercial paper.  When revolving lines are reserved for commercial paper or backing letters of credit, they are not available for additional borrowings.  The fees we paid to secure short-term borrowings were immaterial during each of the years ended December 31, 2002, 2001, and 2000.

At December 31, 2002, Cinergy Corp. had $494 million remaining unused and available capacity relating to its $1 billion revolving credit facilities.  These revolving credit facilities include the following:

Credit Facility	Expiration	Established Lines		Outstanding and Committed		Unused and Available
				(in millions)
364-day senior revolving	April 2003
Direct borrowing		$		$	—	$
Commercial Paper support				473
Total 364-day facility		600		473		127
Three-year senior revolving	May 2004
Direct borrowing				25
Commercial Paper support				—
Letter of Credit support				8
Total Three-year facility		400		33		367
Total Credit Facilities		$	1,000	$	506	$	494

In addition to revolving credit facilities, Cinergy Corp., CG&E, and PSI also maintain uncommitted lines of credit.  These facilities are not guaranteed sources of capital and represent an informal agreement to lend money, subject to availability, with pricing to be determined at the time of advance.  Cinergy Corp., CG&E, and PSI have established uncommitted lines of $65 million, $15 million, and $60 million, respectively, all of which remained unused as of December 31, 2002.

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Commercial Paper

Cinergy Corp.’s $800 million commercial paper program is supported by Cinergy Corp.’s $1 billion revolving credit facilities.  The commercial paper program at the Cinergy Corp. level supports, in part, the short-term borrowing needs of CG&E and PSI and eliminates their need for separate commercial paper programs.  As of December 31, 2002, Cinergy Corp. had $473 million in commercial paper outstanding.

Variable Rate Pollution Control Notes

CG&E and PSI have issued certain variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development for pollution control purposes).  Because the holders of these notes have the right to have their notes redeemed on a daily, monthly, or annual basis, they are reflected in Notes payable and other short-term obligations on the Balance Sheets of Cinergy, CG&E, and PSI.

In October 2002, CG&E and PSI caused the redemption of certain series’ of variable rate pollution control notes with a principal amount of $84 million and $47.6 million, respectively.  Holders of the notes had the option of having their notes redeemed at various times ranging from any business day to annually.  The notes were redeemed with proceeds from the issuance of new series’ of variable rate pollution control notes that do not have the redemption features mentioned above, and are therefore classified as Long-term debt obligations.  See Note 4 for further discussion of this redemption.

Money Pool

Cinergy Corp., Services, and our operating companies participate in a money pool arrangement to better manage cash and working capital requirements.  Under this arrangement, those companies with surplus short-term funds provide short-term loans to affiliates (other than Cinergy Corp.) participating under this arrangement.  This surplus cash may be from internal or external sources.  The amounts outstanding under this money pool arrangement are shown as a component of Notes receivable from affiliated companies and/or Notes payable to affiliated companies on the Balance Sheets of CG&E, PSI, and ULH&P.  Any money pool borrowings outstanding reduce the unused and available short-term debt regulatory authority of CG&E, PSI, and ULH&P.

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The following table summarizes our Notes payable and other short-term obligations, and Notes payable to affiliated companies.

	December 31, 2002						December 31, 2001
	Established Lines		Outstanding		Weighted Average Rate		Established Lines			Outstanding			Weighted Average Rate
	(in millions)
Cinergy
Cinergy Corp.
Revolving lines	$	1,000	$	25	2.02	%		$	1,175		$	599		2.55	%
Uncommitted lines(1)	65		—		—			40			—			—
Commercial paper(2)	800		473		1.81			800			125			3.49
Operating companies
Uncommitted lines(1)	75		—		—			75			66			3.73
Pollution control notes			147		1.82						279			2.10
Non-regulated subsidiaries
Revolving lines	7		1		3.28			46			32			2.94
Short-term debt	22		22		2.93			49			44			4.81
Cinergy Total			$	668	1.86	%					$	1,145		2.71	%
CG&E and subsidiaries
Uncommitted lines(1)	$	15	$	—	—	%		$	15		$	—		—	%
Pollution control notes			112		1.87						196			2.00
Money Pool			9		1.29						445			2.73
CG&E Total			$	121							$	641
PSI
Uncommitted lines(1)	$	60	$	—	—	%		$	60		$	66		3.73	%
Pollution control notes			35		1.65						83			2.33
Money Pool			138		1.29						422			2.58
PSI Total			$	173							$	571
ULH&P
Money Pool			$	14	1.29	%					$	26		2.73	%
ULH&P Total			$	14							$	26

(1)	Outstanding amounts may be greater than established lines as uncommitted lenders are, at times, willing to loan funds in excess of the established lines.
(2)	The commercial paper program is supported by Cinergy Corp.’s revolving lines.

In our credit facilities, Cinergy Corp. has covenanted to maintain:

•a consolidated net worth of $2 billion; and

•a ratio of consolidated indebtedness to consolidated total capitalization not in excess of 65 percent.

A breach of these covenants could result in the termination of the credit facilities and the acceleration of the related indebtedness.  In addition to breaches of covenants, certain other

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events that could result in the termination of available credit and acceleration of the related indebtedness include:

•bankruptcy;

•defaults in the payment of other indebtedness; and

•judgments against the company that are not paid or insured.

The latter two events, however, are subject to dollar-based materiality thresholds.

6.Sales of Accounts Receivable

During 2001, CG&E, PSI, and ULH&P had an agreement to sell, on a revolving basis, undivided percentage interests in certain of their accounts receivable and the related collections up to an aggregate maximum of $350 million.  CG&E retained servicing responsibilities for its role as a collection agent of the amounts due on the sold receivables.  However, the purchaser assumed the risk of collection on the sold receivables without recourse to CG&E, PSI, and ULH&P in the event of a loss.  Proceeds from a portion of the sold receivables were held back as a reserve to reduce the purchaser’s credit risk.  CG&E, PSI, and ULH&P did not retain any ownership interest in the sold receivables, but did retain undivided interests in their remaining balances of accounts receivable.  The recorded amounts of the retained interests were measured at net realizable value.  The Accounts receivable on the Balance Sheets of Cinergy, CG&E, PSI, and ULH&P were net of the amounts sold at December 31, 2001.

In February 2002, CG&E, PSI, and ULH&P replaced their previous agreement to sell certain of their accounts receivable and related collections.  Cinergy Corp. formed Cinergy Receivables Company, LLC (Cinergy Receivables) to purchase, on a revolving basis, nearly all of the retail accounts receivable and related collections of CG&E, PSI, and ULH&P.  Cinergy Corp. does not consolidate Cinergy Receivables since it meets the requirements to be accounted for as a qualifying SPE.  The sales of receivables are accounted for under Statement 140.

The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price (typically approximates 25 percent of the total proceeds).  The note is subordinate to senior loans that Cinergy Receivables obtains from commercial paper conduits controlled by unrelated financial institutions.  Cinergy Receivables provides credit enhancement related to senior loans in the form of over-collateralization of the purchased receivables.  However, the over-collateralization is calculated monthly and does not extend to the entire pool of receivables held by Cinergy Receivables at any point in time.  As such, these senior loans do not have recourse to all assets of Cinergy Receivables.  These loans provide the cash portion of the proceeds paid to CG&E, PSI, and ULH&P.

This subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) under Statement 140 and is classified within Notes receivable from affiliated companies in the accompanying Balance Sheets of CG&E, PSI, and ULH&P and is classified within Notes receivable on Cinergy Corp.’s Balance Sheets.  In addition, Cinergy Corp.’s investment in Cinergy Receivables constitutes a purchased beneficial interest (purchased right to receive specified cash flows, in our case residual cash flows), which is subordinate to the

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retained interests held by CG&E, PSI, and ULH&P.  The carrying values of the retained interests are determined by allocating the carrying value of the receivables between the assets sold and the interests retained based on relative fair value.  The key assumptions in estimating fair value are credit losses and selection of discount rates.  Because (a) the receivables generally turn in less than two months, (b) credit losses are reasonably predictable due to each company’s broad customer base and lack of significant concentration, and (c) the purchased beneficial interest is subordinate to all retained interests and thus would absorb losses first, the allocated basis of the subordinated notes are not materially different than their face value.  Interest accrues to CG&E, PSI, and ULH&P on the retained interests using the accretable yield method, which generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent.  Cinergy Corp. records income from Cinergy Receivables in a similar manner.  We record an impairment charge against the carrying value of both the retained interests and purchased beneficial interest whenever we determine that an other-than-temporary impairment has occurred (which is unlikely unless credit losses on the receivables far exceed the anticipated level).

The key assumptions used in measuring the retained interests for sales since the inception of the new agreement are as follows (all amounts are averages of the assumptions used in each sale during the period):

	Cinergy		CG&E and subsidiaries		PSI		ULH&P
Anticipated credit loss rate	0.6	%	0.6	%	0.5	%	1.0	%
Discount rate on expected cash flows	5.0	%	5.0	%	5.0	%	5.0	%
Receivables turnover rate(1)	12.9	%	13.7	%	11.8	%	13.5	%

(1) Receivables at each month-end divided by annualized sales for the month.

The hypothetical effect on the fair value of the retained interests assuming both a 10 percent and 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history.

CG&E retains servicing responsibilities for its role as a collection agent on the amounts due on the sold receivables.  However, Cinergy Receivables assumes the risk of collection on the purchased receivables without recourse to CG&E, PSI, and ULH&P in the event of a loss.  While no direct recourse to CG&E, PSI, and ULH&P exists, these entities risk loss in the event collections are not sufficient to allow for full recovery of their retained interests.  No servicing asset or liability is recorded since the servicing fee paid to CG&E approximates a market rate.

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The following table shows the gross and net receivables sold, retained interests, purchased beneficial interest, sales during the period, and cash flows during the period as of December 31, 2002.

	Cinergy		CG&E and subsidiaries		PSI		ULH&P
	(dollars in millions)
Receivables sold as of period end	$	483	$	299	$	184	$	45
Less:  Retained interests	135		81		54		13
Net receivables sold as of period end	$	348	$	218	$	130	$	32
Purchased beneficial interests	$	10	$	—	$	—	$	—
Sales during period
Receivables sold	$	3,233	$	1,840	$	1,392	$	287
Loss recognized on sale	32		19		13		3
Cash flows during period
Cash proceeds from sold receivables	$	3,184	$	1,813	$	1,371	$	283
Collection fees received	2		1		1		—
Return received on retained interests	16		9		7		1

A decline in the long-term senior unsecured credit ratings of CG&E, PSI, or ULH&P below investment grade would result in a termination of the sale program and discontinuance of future sales of receivables, and could prevent Cinergy Receivables from borrowing additional funds from commercial paper conduits.

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7.Leases

(a)Operating Leases

We have entered into operating lease agreements for various facilities and properties such as computer, communication and transportation equipment, and office space.  Total rental payments on operating leases for each of the past three years are detailed in the table below.  This table also shows future minimum lease payments required for operating leases with remaining non-cancelable lease terms in excess of one year as of December 31, 2002:

	Actual Payments						Estimated Minimum Payments
	2000		2001		2002		2003		2004		2005		2006		2007		After 2007		Total
	(in millions)
Cinergy(1)	$	56	$	61	$	64	$	43	$	33	$	26	$	22	$	18	$	52	$	194
CG&E and subsidiaries	30		33		30		9		7		7		6		5		12		46
PSI	21		21		23		10		8		7		7		6		19		57
ULH&P(2)	4		5		4		—		—		—		—		—		—		—

(1)	The results of Cinergy also include amounts related to non-registrants.
(2)	Estimated minimum lease payments are immaterial.

(b)Capital Leases

In each of the years 1999 through 2002, CG&E, PSI, and ULH&P entered into capital lease agreements to fund the purchase of gas and electric meters.  The lease terms are for 120 months commencing with the date of purchase and contain various buyout options ranging from 48 to 105 months.  It is our objective to own the meters indefinitely and the operating companies plan to exercise the buyout option at month 105.  The effective lease rates given the early buyout option at 105 months are 6.71 percent for the 1999 leases, 6.09 percent for the 2000 leases, 6.00 percent for the 2001 leases, and 4.48 percent for the 2002 leases.  The meters are depreciated at the same rate as if owned by the operating companies.  CG&E, PSI, and ULH&P each recorded a capital lease obligation, included in Non-Current Liabilities-Other.

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The total minimum lease payments and the present values for these capital lease items are shown below:

	Total Minimum Lease Payments
	Cinergy			CG&E and subsidiaries			PSI			ULH&P
	(in millions)
Total minimum lease payments(1)	$	55		$	32		$	23		$	8
Less: amount representing interest	(12		)	(7		)	(5		)	(2		)
Present value of minimum lease payments	$	43		$	25		$	18		$	6

(1) Annual minimum lease payments are immaterial.

8.Financial Instruments

(a)Financial Derivatives

We have entered into financial derivative contracts for the purpose described below.

Interest Rate Risk Management

Our current policy of managing exposure to fluctuations in interest rates is to maintain approximately 30 percent of the total amount of outstanding debt in floating interest rate debt instruments.  In maintaining this level of exposure, we use interest rate swaps.  Under the swaps, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed notional amount.  CG&E has an outstanding interest rate swap agreement that decreased the percentage of floating-rate debt.  Under the provisions of the swap, which has a notional amount of $100 million, CG&E pays a fixed-rate and receives a floating-rate through October 2007.  This swap qualifies as a cash flow hedge under the provisions of Statement 133.  As the terms of the swap agreement mirror the terms of the debt agreement that it is hedging, we anticipate that this swap will continue to be effective as a hedge.  Changes in fair value of this swap are recorded in Accumulated other comprehensive income (loss), beginning with our adoption of Statement 133 on January 1, 2001.  Cinergy Corp. has three outstanding interest rate swaps with a combined notional amount of $250 million.  Under the provisions of the swaps, Cinergy Corp. receives fixed-rate interest payments and pays floating-rate interest payments through September 2004.  These swaps qualify as fair value hedges under the provisions of Statement 133.  We anticipate that these swaps will continue to be effective as hedges.

Treasury locks are agreements that fix the yield or price on a specified treasury security for a specified period, which we sometimes use in connection with the issuance of fixed-rate debt.  On September 23, 2002, CG&E issued $500 million principal amount senior unsecured debentures due September 15, 2012, with an interest rate of 5.70 percent.  In July 2002, CG&E executed a treasury lock with a notional amount of $250 million, which was designated as a cash flow hedge of 50 percent of the forecasted interest payments on this debt offering.  The treasury lock effectively fixed the benchmark interest rate (i.e., the treasury component of the interest rate, but

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not the credit spread) for 50 percent of the offering from July 2002 through the issuance date in order to reduce the exposure associated with treasury rate volatility.  With the issuance of the debt, the treasury lock was settled.  Given the use of hedge accounting, this settlement is reflected in Accumulated other comprehensive income (loss) on an after-tax basis in the amount of $13 million, rather than a charge to net income.  This amount will be reclassified to Interest expense over the 10-year life of the related debt as interest is accrued.

See Note 1(l) for additional information on financial derivatives.   In the future, we will continually monitor market conditions to evaluate whether to modify our level of exposure to fluctuations in interest rates.

(b)Fair Value of Other Financial Instruments

The estimated fair values of other financial instruments were as follows (this information does not claim to be a valuation of the companies as a whole):

	December 31, 2002				December 31, 2001
Financial Instruments	Carrying Amount		Fair Value		Carrying Amount		Fair Value
			(in millions)
Cinergy(1)
First mortgage bonds and other long-term debt(2)	$	4,272	$	4,483	$	3,745	$	3,805
CG&E and subsidiaries
First mortgage bonds and other long-term debt(2)	$	1,690	$	1,743	$	1,205	$	1,214
PSI
First mortgage bonds and other long-term debt(2)	$	1,372	$	1,473	$	1,348	$	1,379
ULH&P
Other long-term debt(2)	$	75	$	78	$	75	$	76

(1)The results of Cinergy also include amounts related to non-registrants.

(2)Includes amounts reflected as Long-term debt due within one year.

The following methods and assumptions were used to estimate the fair values of each major class of instruments:

(i)Cash and cash equivalents, Restricted deposits, and Notes payable and other short-term obligations

Due to the short period to maturity, the carrying amounts reflected on the Balance Sheets approximate fair values.

(ii)Long-term debt

The fair values of long-term debt issues were estimated based on the latest quoted market prices or, if not listed on the New York Stock Exchange, on the present value of future cash flows.  The discount rates used approximate the incremental borrowing costs for similar instruments.

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(c)Concentrations of Credit Risk

Credit risk is the exposure to economic loss that would occur as a result of nonperformance by counterparties, pursuant to the terms of their contractual obligations.  Specific components of credit risk include counterparty default risk, collateral risk, concentration risk, and settlement risk.

(i)Trade Receivables and Physical Power Portfolio

Our concentration of credit risk with respect to trade accounts receivable from electric and gas retail customers is limited.  The large number of customers and diversified customer base of residential, commercial, and industrial customers significantly reduces our credit risk.  Contracts within the physical portfolio of power marketing and trading operations are primarily with the traditional electric cooperatives and municipalities and other investor-owned utilities.  At December 31, 2002, we believe the likelihood of significant losses associated with credit risk in our trade accounts receivable or physical power portfolio is remote.

(ii)Energy Trading Credit Risk

Cinergy’s extension of credit for energy marketing and trading is governed by a Corporate Credit Policy.  Written guidelines document the management approval levels for credit limits, evaluation of creditworthiness, and credit risk mitigation procedures.  Exposures to credit risks are monitored daily by the Corporate Credit Risk function.  As of December 31, 2002, approximately 96 percent of the credit exposure related to energy trading and marketing activity was with counterparties rated Investment Grade or the counterparties’ obligations were guaranteed by a parent company or other entity rated Investment Grade.  No single non-investment grade counterparty accounts for more than one percent of our total credit exposure.  Energy commodity prices can be extremely volatile and the market can, at times, lack liquidity.  Because of these issues, credit risk is generally greater than with other commodity trading.

In December 2001, Enron Corp. (Enron) filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York.  We decreased our trading activities with Enron in the months prior to its bankruptcy filing.  We intend to resolve any contract differences pursuant to the terms of those contracts, business practices, and the applicable provisions of the Bankruptcy Code, as approved by the court.  While we cannot predict the resolution of these matters, we do not believe that any exposure relating to those contracts would have a material impact on our financial position or results of operations.

We continually review and monitor our credit exposure to all counterparties and secondary counterparties.  If appropriate, we may adjust our credit reserves to attempt to compensate for increased credit risk within the industry.  Counterparty credit limits may be adjusted on a daily basis in response to changes in a counterparty’s financial status or public debt ratings.

(iii)Financial Derivatives

Potential exposure to credit risk also exists from our use of financial derivatives such as currency swaps, foreign exchange forward contracts, interest rate swaps, and treasury locks.  Because

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these financial instruments are transacted with highly rated financial institutions, we do not anticipate nonperformance by any of the counterparties.

9.Pension and Other Postretirement Benefits

We provide benefits to retirees in the form of pensions and other postretirement benefits.

Our qualified defined benefit pension plans cover substantially all U.S. employees meeting certain minimum age and service requirements.  A final average pay formula determines plan benefits.  These plan benefits are based on:

•years of participation;

•age at retirement; and

•the applicable average Social Security wage base or benefit amount.

Our pension plan funding policy for U.S. employees is to contribute at least the amount required by the Employee Retirement Income Security Act of 1974, and up to the amount deductible for income tax purposes.  The pension plans’ assets consist of investments in equity and fixed income securities.

We provide certain health care and life insurance benefits to retired U.S. employees and their eligible dependents.  These benefits are subject to minimum age and service requirements.  The health care benefits include medical coverage, dental coverage, and prescription drugs and are subject to certain limitations, such as deductibles and co-payments.  Neither CG&E nor ULH&P pre-fund their obligations for these postretirement benefits.  In 1999, PSI began pre-funding its obligations through a grantor trust as authorized by the IURC.  This trust, which consists of equity and fixed income securities, is not restricted to the payment of plan benefits and therefore, not considered plan assets under Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions.  At December 31, 2002 and 2001, trust assets were approximately $52 million and $53 million, respectively, and are reflected in Cinergy’s Balance Sheets as Other investments.

In addition, we sponsor non-qualified pension plans (plans that do not meet the criteria for tax benefits) that cover officers, certain other key employees, and non-employee directors.  We began funding certain of these non-qualified plans through a rabbi trust in 1999.  This trust, which consists of equity and fixed income securities, is not restricted to the payment of plan benefits and therefore, not considered plan assets under Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions.  At December 31, 2002 and 2001, trust assets were approximately $8 million and are reflected in Cinergy’s Balance Sheets as Other investments.

In 2000 and 2002, Cinergy offered voluntary early retirement programs to certain individuals.  In accordance with Statement of Financial Accounting Standards No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (Statement 88), Cinergy recognized an expense of $12.8 million and $39.1 million in 2000 and 2002, respectively.

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Our benefit plans’ costs for the past three years included the following components:

	Qualified Pension Benefits									Non-Qualified Pension Benefits						Other Postretirement Benefits
	2002			2001			2000			2002		2001		2000		2002			2001		2000
	(in millions)
Service cost	$	27.3		$	27.9		$	27.4		$	2.7	$	2.1	$	2.0	$	3.5		$	3.8	$	3.4
Interest cost	79.2			77.5			73.0			5.1		4.8		4.1		19.6			17.9		17.0
Expected return on plans’ assets	(86.3		)	(81.9		)	(77.0		)	—		—		—		(0.3		)	—		—
Amortization of transition (asset) obligation	(1.3		)	(1.3		)	(1.3		)	0.1		0.1		0.1		5.0			5.0		5.0
Amortization of prior service cost	6.2			4.6			4.5			0.9		1.1		1.1		—			—		—
Recognized actuarial (gain) loss	(5.4		)	(3.2		)	(2.4		)	0.8		0.6		0.1		1.1			0.1		—
Voluntary early retirement costs (Statement 88)	38.6			—			11.9			0.5		—		0.9		—			—		—
Net periodic benefit cost	$	58.3		$	23.6		$	36.1		$	10.1	$	8.7	$	8.3	$	28.9		$	26.8	$	25.4

The net periodic benefit cost by registrant was as follows:

	Qualified Pension Benefits						Non-Qualified Pension Benefits						Other Postretirement Benefits
	2002		2001		2000		2002		2001		2000		2002		2001		2000
	(in millions)
Cinergy(1)	$	58.3	$	23.6	$	36.1	$	10.1	$	8.7	$	8.3	$	28.9	$	26.8	$	25.4
CG&E and subsidiaries	7.2		1.9		5.3		1.1		1.7		1.3		7.2		6.9		8.8
PSI	12.2		7.5		9.4		0.6		0.7		0.7		15.3		13.5		12.9
ULH&P	1.7		0.3		0.5		—		—		—		0.4		0.4		0.4

(1)  The results of Cinergy also include amounts related to non-registrants.

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The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over the two-year period ended December 31, 2002, and a statement of the funded status as of December 31 of both years.

	Qualified Pension Benefits						Non-Qualified Pension Benefits						Other Postretirement Benefits
	2002			2001			2002			2001			2002			2001
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of period	$	1,083.5		$	1,064.5		$	70.9		$	67.0		$	270.4		$	247.1
Service cost	27.3			27.9			2.7			2.1			3.5			3.8
Interest cost	79.2			77.5			5.1			4.8			19.6			17.9
Amendments(1)	43.3			18.0			4.5			(1.8		)	(12.3		)	—
Actuarial (gain) loss	156.5			(43.6		)	20.6			4.3			80.2			17.9
Benefits paid	(74.9		)	(60.8		)	(6.0		)	(5.5		)	(18.2		)	(16.3		)
Benefit obligation at end of period	1,314.9			1,083.5			97.8			70.9			343.2			270.4
Change in plan assets
Fair value of plan assets at beginning of period	875.4			1,043.6			—			—			—			—
Actual return on plan assets	(48.0		)	(108.1		)	—			—			—			—
Employer contribution	4.0			0.7			6.0			5.5			18.2			16.3
Benefits paid	(74.9		)	(60.8		)	(6.0		)	(5.5		)	(18.2		)	(16.3		)
Fair value of plan assets at end of period	756.5			875.4			—			—			—			—
Funded status	(558.4		)	(208.1		)	(97.8		)	(70.9		)	(343.2		)	(270.4		)
Unrecognized prior service cost	48.4			50.0			13.5			10.2			—			—
Unrecognized net actuarial (gain) loss	196.2			(100.1		)	37.6			17.7			125.5			45.7
Unrecognized net transition (asset) obligation	(1.9		)	(3.2		)	0.1			0.1			33.5			50.8
Benefit cost at December 31	$	(315.7	)	$	(261.4	)	$	(46.6	)	$	(42.9	)	$	(184.2	)	$	(173.9	)
Amounts recognized in balance sheets
Accrued benefit liability	$	(353.0	)	$	(261.4	)	$	(89.0	)	$	(63.3	)	$	(184.2	)	$	(173.9	)
Intangible asset	32.6			—			13.6			10.3			—			—
Accumulated other comprehensive income (pre-tax)	4.7			—			28.8			10.1			—			—
Net recognized at end of period	$	(315.7	)	$	(261.4	)	$	(46.6	)	$	(42.9	)	$	(184.2	)	$	(173.9	)

(1)For 2002, the amounts of $43.3 million and $4.5 million include $38.6 million and $.5 million, respectively of voluntary early retirement expenses in accordance with Statement 88, as previously discussed.

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The following table provides the weighted average actuarial assumptions.

	Qualified Pension Benefits							Non-Qualified Pension Benefits									Other Postretirement Benefits
	2002		2001		2000			2002			2001			2000			2002			2001			2000
	(in millions)
Actuarial assumptions:
Discount rate	6.75	%	7.50	%	7.50	%	6.75		%	7.50		%	7.50		%	6.75		%	7.50		%	7.50		%
Rate of future compensation increase	4.00		4.00		4.50		4.00			4.00			4.50			N/A			N/A			N/A
Rate of return on plans’ assets	9.00		9.25		9.00		N/A			N/A			N/A			N/A			3.00			N/A

For measurement purposes, we assumed a seven percent annual rate of increase in the per capita cost of covered health care benefits for 2002.  It was assumed that the rate would decrease gradually to five percent in 2008 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.  A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	One-Percentage- Point Increase		One-Percentage- Point Decrease
	(in millions)
Effect on total of service and interest cost components	$	3.4	$	(2.9	)
Effect on postretirement benefit obligation	44.3		(38.7		)

During 2002, eligible Cinergy employees were offered the opportunity to make a one-time election, effective January 1, 2003, to either continue to have their pension benefit determined by the current defined benefit pension formula or to have their benefit determined using a cash balance formula.  Participants in the cash balance plan may request a lump-sum cash payment based upon termination of their employment which may result in increased cash requirements from pension plan assets.

Since 85 percent of eligible employees chose to continue with the traditional pension formula, we do not believe the cash balance features will have a material effect on our financial position or results of operations.

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10.Income Taxes

The following table shows the significant components of Cinergy’s, CG&E’s, and PSI’s net deferred income tax liabilities as of December 31:

	Cinergy(1)				CG&E and subsidiaries				PSI
	2002		2001		2002		2001		2002		2001
	(in millions)
Deferred Income Tax Liability
Property, plant, and equipment	$	1,356.5	$	1,172.0	$	803.1	$	708.0	$	520.3	$	453.2
Unamortized costs of reacquiring debt	13.9		13.4		2.8		3.2		11.0		10.2
Deferred operating expenses and carrying costs	4.4		10.3		—		—		4.4		10.3
Purchased power tracker	11.6		9.7		—		—		11.6		9.7
RTC	213.2		206.0		213.2		206.0		—		—
Net energy risk management assets	8.8		12.2		1.0		8.4		—		—
Amounts due from customers-income taxes	37.4		22.9		20.1		16.0		17.3		6.9
Gasification services agreement buyout costs	89.8		92.3		—		—		89.8		92.3
Other	45.2		48.2		10.9		8.7		1.2		2.3
Total Deferred Income Tax Liability	1,780.8		1,587.0		1,051.1		950.3		655.6		584.9
Deferred Income Tax Asset
Unamortized investment tax credits	42.5		45.9		32.9		36.0		9.6		10.0
Accrued pension and other postretirement benefit costs	196.3		162.4		107.5		96.6		60.1		47.2
Net energy risk management liabilities	—		—		—		—		9.0		5.5
Rural Utilities Service obligation	28.2		28.2		—		—		28.2		28.2
Other	41.9		48.5		28.1		38.4		10.0		7.3
Total Deferred Income Tax Asset	308.9		285.0		168.5		171.0		116.9		98.2
Net Deferred Income Tax Liability	$	1,471.9	$	1,302.0	$	882.6	$	779.3	$	538.7	$	486.7

(1)The results of Cinergy also include amounts related to non-registrants.

We will file a consolidated federal income tax return for the year ended December 31, 2002.  The current tax liability is allocated among the members of the Cinergy consolidated group, pursuant to a tax sharing agreement filed with the SEC under the PUHCA.

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The following table summarizes federal and state income taxes charged (credited) to income for Cinergy, CG&E, and PSI:

	Cinergy(1)									CG&E and subsidiaries									PSI
	2002			2001			2000			2002			2001			2000			2002			2001			2000
	(in millions)
Current Income Taxes
Federal	$	13.3		$	122.9		$	187.3		$	50.6		$	135.1		$	121.5		$	71.1		$	59.9		$	84.4
State	(4.1		)	9.3			16.9			0.6			7.6			1.6			9.7			4.6			10.8
Total Current Income Taxes	9.2			132.2			204.2			51.2			142.7			123.1			80.8			64.5			95.2
Deferred Income Taxes
Federal
Depreciation and other property, plant, and equipment-related items(2)	172.2			42.7			26.1			73.6			23.3			19.0			79.6			10.7			7.1
Pension and other benefit costs	(17.4		)	(11.8		)	(21.3		)	(4.7		)	(4.2		)	(7.5		)	(7.4		)	(7.6		)	(11.5		)
Deferred excise taxes	—			14.5			—			—			14.5			—			—			—			—
Unrealized energy risk management transactions	9.0			44.0			10.9			2.2			23.9			5.6			(2.8		)	11.6			2.0
Fuel costs	(22.7		)	5.7			28.7			8.8			(8.0		)	26.7			(31.5		)	13.7			2.0
Purchased power tracker	1.5			8.5			—			—			—			—			1.5			8.5			—
Gasification services agreement buyout costs	(2.6		)	(2.2		)	(0.1		)	—			—			—			(2.6		)	(2.2		)	(0.1		)
Other-net	(14.1		)	16.1			11.0			8.3			(4.8		)	(3.0		)	(7.5		)	5.3			(1.2		)
Total Deferred Federal Income Taxes	125.9			117.5			55.3			88.2			44.7			40.8			29.3			40.0			(1.7		)
State	30.4			15.4			1.7			20.8			5.0			1.5			7.8			4.8			(1.4		)
Total Deferred Income Taxes	156.3			132.9			57.0			109.0			49.7			42.3			37.1			44.8			(3.1		)
Investment Tax Credits-Net	(8.2		)	(9.1		)	(9.6		)	(4.9		)	(5.9		)	(6.0		)	(3.2		)	(3.2		)	(3.6		)
Total Income Taxes	$	157.3		$	256.0		$	251.6		$	155.3		$	186.5		$	159.4		$	114.7		$	106.1		$	88.5

(1)The results of Cinergy also include amounts related to non-registrants.

(2)The increase in deferred income taxes for depreciation and other property, plant, and equipment-related items includes a change in accounting method for tax purposes related to capitalized costs.

Internal Revenue Code Section 29 provides a tax credit (nonconventional fuel source credit) for qualified fuels produced and sold by a taxpayer to an unrelated person during the taxable year.  The nonconventional fuel source credit reduced current federal income tax expense $41.6 million and $1.1 million for 2002 and 2001, respectively.

Internal Revenue Code Section 45 provides a tax credit for electricity produced from certain renewable resources during the taxable year.  The renewable resource credit reduced current federal income tax expense $4.1 million, $3.2 million, and $2.5 million for 2002, 2001, and 2000, respectively.

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The following table presents a reconciliation of federal income taxes (which are calculated by multiplying the statutory federal income tax rate by book income before federal income tax) to the federal income tax expense reported in the Statements of Income for Cinergy, CG&E, and PSI.

	Cinergy(1)									CG&E and subsidiaries									PSI
	2002			2001			2000			2002			2001			2000			2002			2001			2000
	(in millions)
Statutory federal income tax provision	$	184.8		$	235.6		$	221.3		$	139.2		$	175.2		$	148.1		$	109.0		$	90.7		$	75.1
Increases (reductions) in taxes resulting from:
Amortization of investment tax credits	(8.2		)	(9.1		)	(9.6		)	(4.9		)	(5.9		)	(6.0		)	(3.2		)	(3.2		)	(3.6		)
Depreciation and other property, plant, and equipment-related differences	0.2			3.2			17.7			1.0			2.6			14.0			(0.8		)	0.6			3.6
Preferred dividend requirements of subsidiaries	1.2			1.2			1.6			—			—			—			—			—			—
Income tax credits	(45.7		)	(4.3		)	(2.5		)	—			—			—			—			—			—
Foreign tax adjustments	5.0			(1.3		)	—			—			—			—			—			—			—
Employee Stock Option Plan dividend	(3.0		)	—			—			—			—			—			—			—			—
Other-net	(3.3		)	6.0			4.5			(1.4		)	2.0			0.2			(7.8		)	8.6			4.0
Federal Income Tax Expense	$	131.0		$	231.3		$	233.0		$	133.9		$	173.9		$	156.3		$	97.2		$	96.7		$	79.1

(1)The results of Cinergy also include amounts related to non-registrants.

The following table shows the significant components of ULH&P’s net deferred income tax liability as of December 31, 2002 and 2001:

	ULH&P
	2002		2001
	(in thousands)
Deferred Income Tax Liability
Property, plant, and equipment	$	44,309	$	34,218
Unamortized costs of reacquiring debt	652		699
Amounts due from customers-income taxes	2,194		—
Deferred fuel costs	—		—
Other	6,340		4,158
Total Deferred Income Tax Liability	53,495		39,075
Deferred Income Tax Asset
Unamortized investment tax credits	1,309		1,035
Amounts due to customers-income taxes	—		2,524
Deferred fuel costs	1,987		520
Accrued pension and other postretirement benefit costs	4,410		3,947
Other	2,429		2,726
Total Deferred Income Tax Asset	10,135		10,752
Net Deferred Income Tax Liability	$	43,360	$	28,323

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The following table summarizes federal and state income taxes charged (credited) to income for ULH&P:

	ULH&P
	2002			2001			2000
	(in thousands)
Current Income Taxes
Federal	$	3,250		$	23,109		$	5,003
State	5,984			(2,293		)	(129		)
Total Current Income Taxes	9,234			20,816			4,874
Deferred Income Taxes
Federal
Depreciation and other property, plant, and equipment-related items	2,797			1,042			1,059
Pension and other benefit costs	(309		)	(140		)	(605		)
Fuel costs	(696		)	(7,338		)	8,564
Unamortized costs of reacquiring debt	(70		)	(30		)	(30		)
Service company allocations	—			192			251
Other-net	1,138			212			(338		)
Total Deferred Federal Income Taxes	2,860			(6,062		)	8,901
Deferred State Income Taxes	522			(781		)	303
Total Deferred Income Taxes	3,382			(6,843		)	9,204
Investment Tax Credits-Net	(267		)	(274		)	(277		)
Total Income Taxes	$	12,349		$	13,699		$	13,801

The following table presents a reconciliation of federal income taxes (which are calculated by multiplying the statutory federal income tax rate by book income before federal income tax) to the federal income tax expense reported in the Statements of Income for ULH&P.

	ULH&P
	2002			2001			2000
	(in thousands)
Statutory federal income tax provision	$	6,298		$	18,444		$	13,391
Increases (reductions) in taxes resulting from:
Amortization of investment tax credits	(267		)	(274		)	(277		)
Depreciation and other property, plant, and equipment- related differences	(387		)	23			830
Other-net	199			(1,420		)	(317		)
Federal Income Tax Expense	$	5,843		$	16,773		$	13,627

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11.Commitments and Contingencies

(a)Construction and Other Commitments

Forecasted construction and other committed expenditures, including capitalized financing costs, for the year 2003 and for the five-year period 2003-2007 (in nominal dollars) are presented in the table below:

	2003		2003-2007
	(in millions)
Cinergy(1)	$	759	$	3,102
CG&E and subsidiaries	326		1,477
PSI(2)	367		1,369
ULH&P	43		242

(1)The results of Cinergy also include amounts related to non-registrants.

(2)Excludes intercompany purchase of peaking plants from a non-regulated affiliate.

This forecast includes an estimate of expenditures in accordance with the companies’ plans regarding nitrogen oxide (NO_X) emission control standards and other environmental compliance (excluding implementation of the tentative U.S. Environmental Protection Agency (EPA) Agreement), as discussed below.

(b)Guarantees

In the ordinary course of business, Cinergy enters into various agreements providing financial or performance assurances to third parties on behalf of certain unconsolidated subsidiaries and joint ventures.  These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to these entitieson a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish their intended commercial purposes.  The guarantees have various termination dates, from short-term (less than one year) to open-ended.

In many cases, the maximum potential amount of an outstanding guarantee is an express term, set forth in the guarantee agreement, representing the maximum potential obligation of Cinergy under that guarantee (excluding, at times, certain legal fees to which a guaranty beneficiary may be entitled).  In those cases where there is no maximum potential amount expressly set forth in the guarantee agreement, we calculate the maximum potential amount by considering the terms of the guaranteed transactions, to the extent such amount is estimable.

Cinergy has guaranteed the payment of $33 million as of December 31, 2002, for unconsolidated subsidiaries’ debt and for borrowings by individuals under the Director, Officer, and Key Employee Stock Purchase Program (see Note 2(d) for further information).  Cinergy may be obligated to pay the debt’s principal and any related interest in the event of an unexcused breach of a guaranteed payment obligation by the unconsolidated subsidiary or an unexcused breach of guaranteed payment obligations by certain directors, officers, and key employees.  The majority of these guarantees expire in three years.

172

Cinergy Corp. has also provided performance guarantees on behalf of certain unconsolidated subsidiaries and joint ventures.  These guarantees support performance under various agreements and instruments (such as construction contracts, operations and maintenance agreements and energy service agreements).  Cinergy Corp. may be liable in the event of an unexcused breach of a guaranteed performance obligation by an unconsolidated subsidiary.  Cinergy Corp. has estimated its maximum potential amount to be $133 million under these guarantees as of December 31, 2002.  Cinergy Corp. may also have recourse to third parties for claims required to be paid under certain of these guarantees.  The majority of these guarantees expire at the completion of the underlying performance agreement, generally 15 to 20 years.

Cinergy has entered into contracts that include indemnification provisions as a routine part of its business activities.  Examples of thesecontracts include purchase and sale agreements and operating agreements.  In general, these provisions indemnify the counterparty for matters such as breaches of representations and warranties and covenants contained in the contract.  In some cases, particularly with respect to purchase and sale agreements, the potential liability for certain indemnification obligations is capped, in whole or in part (generally at an aggregate amount not exceeding the sale price), and subject to a deductible amount beforeany payments would become due.In other cases (such as indemnifications for willful misconduct of employees in a joint venture), the maximum potential amount is not estimable given that the magnitude of any claims under those indemnifications would be a function of the extent of damages actually incurred, which is not practicable to estimate unless and until the event occurs.  Cinergy has estimated the maximum potential amount, where estimable, to be $131 million under these indemnification provisions and considers the likelihood of making any material payments under these provisions to be remote.  The termination period for the majority of matters covered under indemnification provisions in purchase and sale agreements generally ranges from two to seven years.

We believe the likelihood that Cinergy would be required to perform or otherwise incur any significant losses associated with any or all of the guarantees described in the preceding paragraphs is remote.

(c)Ozone Transport Rulemakings

In June 1997, the Ozone Transport Assessment Group, which consisted of 37 states, made a wide range of recommendations to the EPA to address the impact of ozone transport on serious non-attainment areas (geographic areas defined by the EPA as non-compliant with ozone standards) in the Northeast, Midwest, and South.  Ozone transport refers to wind-blown movement of ozone and ozone-causing materials across city and state boundaries.

(i)NO_X State Implementation Plan (SIP) Call

In October 1998, the EPA finalized its ozone transport rule, also known as the NO_X SIP Call.  It applied to 22 states in the eastern half of the U.S., including the three states in which our electric utilities operate, and proposed a model NO_X emission allowance trading program.  This rule recommended that states reduce NO_X emissions primarily from industrial and utility sources to a certain level by May 2003.

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Ohio, Indiana, a number of other states, and various industry groups (some of which we are a member), filed legal challenges to the NO_X SIP Call with the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals).  In August 2000, the Court of Appeals extended the deadline for NO_X reductions to May 31, 2004.  In June 2001, the Court of Appeals remanded portions of the NO_X SIP Call to the EPA for reconsideration of how growth was factored into the state NO_X budgets.  On May 1, 2002, the EPA published, in the Federal Register, a final rule reaffirming its growth factors and state NO_X budgets, with additional explanation.  The states of West Virginia and Illinois, along with various industry groups (some of which we are a member), have challenged the growth factors and state NO_X budgets in an action filed in the Court of Appeals.  It is unclear when the Court of Appeals will reach a decision in this case, or whether this decision will result in an increase or decrease in the size of the NO_X reduction requirement, or a deferral of the May 31, 2004 compliance deadline.

The states of Indiana and Kentucky developed final NO_X SIP rules in response to the NO_X SIP Call, through cap and trade programs, in June and July of 2001, respectively.  On November 8, 2001, the EPA approved Indiana’s SIP rules, which became effective December 10, 2001.  On April 11, 2002, the EPA proposed direct final approval of Kentucky’s rules and they became effective on June 10, 2002.  The state of Ohio completed its NO_X SIP rules in response to the NO_X SIP Call on July 8, 2002, with an effective date of July 18, 2002.  On January 16, 2003, the EPA proposed a direct final rule to approve Ohio’s SIP.  The rule will be effective March 17, 2003, assuming no adverse comments are received.  Cinergy’s current plans for compliance with the EPA’s NO_X SIP Call would also satisfy compliance with Indiana’s, Kentucky’s, and Ohio’s SIP rules.

On September 25, 2000, Cinergy announced a plan for its subsidiaries, CG&E and PSI, to invest in pollution control equipment and other methods to reduce NO_X emissions.  This plan includes the following:

•complete installation of 9 selective catalytic reduction units at several different generating stations;

•install other pollution control technologies, including new computerized combustion controls, at all generating stations;

•make combustion improvements; and

•utilize the NO_X allowance market to buy or sell NO_X allowances as appropriate.

The current estimate for additional expenditures for this investment is approximately $275 million and is in addition to the $578 million already incurred to comply with this program.

(ii)Section 126 Petitions

In February 1998, several northeast states filed petitions seeking the EPA’s assistance in reducing ozone in the Eastern U.S. under Section 126 of the Clean Air Act (CAA).  The EPA believes that Section 126 petitions allow a state to claim that sources in another state are contributing to its air quality problem and request that the EPA require the upwind sources to reduce their emissions.

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In December 1999, the EPA granted four Section 126 petitions relating to NO_X emissions.  This ruling affected all of our Ohio and Kentucky facilities, as well as some of our Indiana facilities, and requires us to reduce our NO_X emissions to a certain level by May 2003.  In May 2001, the Court of Appeals substantially upheld a challenge to the Section 126 requirements, and remanded portions of the rule to the EPA for reconsideration of how growth was factored into the emission limitations.  On August 24, 2001, the Court of Appeals temporarily suspended the Section 126 compliance deadline, pending the EPA’s reconsideration of growth factors.  On May 1, 2002, the EPA issued a final rule extending the Section 126 rule compliance deadline to May 31, 2004, thus harmonizing the deadline with that for the NO_X SIP Call.

The Section 126 rule will not apply, however, in states with approved SIPs under the NO_X SIP Call, which include the states of Indiana and Kentucky.  In addition, the EPA has issued a direct final rule approving Ohio’s SIP.  As a result of these actions, we anticipate that the Section 126 rule will not affect any of our facilities.

(iii)State Ozone Plans

On November 15, 1999, the states of Indiana and Kentucky (along with Jefferson County, Kentucky) jointly filed an amendment to their attainment demonstration on how they intend to bring the Greater Louisville Area (including Floyd and Clark Counties in Indiana) into attainment with the one-hour ozone standard.  The Greater Louisville Area has since attained the one-hour ozone standard, and on October 23, 2001, the EPA re-designated the area as being in attainment with that standard.  Previous SIP amendments called for, among other things, statewide NO_X reductions from utilities in Indiana, Kentucky, and surrounding states which are less stringent than the EPA’s NO_X SIP Call.  In lieu of continuing rulemakings for NO_X emission reductions under this demonstration, the states completed more stringent NO_X emission reduction regulations in response to the NO_X SIP Call.

See (f) below for a discussion of the tentative EPA Agreement, the implementation of which could affect our strategy for compliance with the final NO_X SIP Call.

(d)New Source Review (NSR)

The CAA’s NSR provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major modification to an existing facility, unless the changes are exempt.

On November 3, 1999, the United States sued a number of holding companies and electric utilities, including Cinergy, CG&E, and PSI, in various U.S. District Courts (District Court).  The Cinergy, CG&E, and PSI suit alleged violations of the CAA at two of our generating stations relating to NSR and New Source Performance Standards requirements.  The suit sought (1) injunctive relief to require installation of pollution control technology on each of the generating units at CG&E’s W.C. Beckjord Generating Station (Beckjord Station) and at PSI’s Cayuga Generating Station, and (2) civil penalties in amounts of up to $27,500 per day for each violation.  Since that time, two amendments to the complaint have been filed by the United States, alleging additional violations of the CAA, including allegations involving different generating units.  In addition, three northeast states and two environmental groups have intervened in the case.

On December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in principle with the parties in the litigation for a negotiated resolution of the CAA claims in the litigation.  See (f) below for a discussion of the tentative EPA Agreement.

On October 4, 2002, the Indiana District Court issued a Revised Case Management Plan in Cinergy’s case that sets forth the dates by which various events in the litigation, such as discovery and the filing of dispositive motions, must be completed.  Consistent with the plan, on October 9, 2002, the Indiana District Court set the case for trial by jury commencing on October 4, 2004.

At this time, it is not possible to predict whether a final agreement implementing the agreement in principle can be reached.  The parties continue to negotiate.  If the settlement is not completed, we intend to defend against the allegations vigorously in court.  In such an event, it is not possible to determine the likelihood that the plaintiffs would prevail upon their claims or whether resolution of these matters would have a material effect on our financial position or results of operations.

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(e)Beckjord Station NOV

On November 30, 1999, the EPA filed an NOV against Cinergy and CG&E, alleging that emissions of particulate matter at the Beckjord Station exceeded the allowable limit.  The allegations contained in this NOV were incorporated within the March 1, 2000 amended complaint, as discussed in (d) above.  On June 22, 2000, the EPA issued an NOV and a finding of violation (FOV) alleging additional particulate emission violations at Beckjord Station.  The NOV/FOV indicated the EPA may issue an administrative compliance order, issue an administrative penalty order, or bring a civil or criminal action.

See (f) below for a discussion of the tentative EPA Agreement, which relates to matters discussed within this note.

(f)EPA Agreement

On December 21, 2000, Cinergy, CG&E, and PSI reached an agreement in principle with the United States, three northeast states, and two environmental groups for a negotiated resolution of CAA claims and other related matters brought against coal-fired power plants owned and operated by Cinergy’s operating subsidiaries.  The complete resolution of these issues is contingent upon establishing a final agreement with the EPA and other parties.  If a final agreement is reached with these parties, it would resolve past claims of alleged NSR violations as well as the Beckjord Station NOVs/FOV discussed previously under (d) and (e).

In addition, the intent of the tentative agreement is that we would be allowed to continue on-going activities to maintain reliability and availability without subjecting the plants to future litigation regarding federal NSR permitting requirements.

In return for resolution of claims regarding past maintenance activities, as well as future operational certainty, we have tentatively agreed to:

•shut down or repower with natural gas, nine small coal-fired boilers at three power plants beginning in 2004;

•build four additional sulfur dioxide (SO₂) scrubbers, the first of which must be operational by December 31, 2007;

•upgrade existing particulate control systems;

•phase in the operation of NO_X reduction technology year-round starting in 2004;

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•reduce our existing Title IV SO₂ cap by 35 percent in 2013;

•pay a civil penalty of $8.5 million to the U.S. government; and

•implement $21.5 million in environmental mitigation projects, including retiring 50,000 tons of SO₂ allowances by 2005.

The estimated cost for these capital expenditures is expected to be approximately $700 million through 2013. These capital expenditures are in addition to our previously announced commitment to install NO_X controls as discussed in (c) above, but does include capital costs that Cinergy would expect to spend regardless of the settlement due to new environmental requirements expected in the second half of this decade.

Cinergy, CG&E, and PSI have accrued costs related to certain aspects of the tentative agreement.  In reaching the tentative agreement, we did not admit any wrongdoing and remain free to continue our current maintenance practices, as well as implement future projects for improved reliability.

At this time, it is not possible to predict whether a final agreement implementing the agreement in principle can be reached.  The parties continue to negotiate.  If the settlement is not completed, we intend to defend against the allegations, discussed in (d) and (e) above, vigorously in court.  In such an event, it is not possible to determine the likelihood that the plaintiffs would prevail upon their claims or whether resolution of these matters would have a material effect on our financial position or results of operations.

(g)Manufactured Gas Plant (MGP) Sites

Prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of coal and/or oil.  The gas produced from this process was sold for residential, commercial, and industrial uses.

Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 sites which PSI or its predecessors previously owned.  PSI acquired four of the sites from NIPSCO in 1931.  At the same time, PSI sold NIPSCO the sites located in Goshen and Warsaw, Indiana.  In 1945, PSI sold 19 of these sites (including the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc. (IGC).  IGC later sold the site located in Rochester, Indiana to NIPSCO.

IGC and NIPSCO have both made claims against PSI alleging that PSI is a Potentially Responsible Party with respect to the 21 MGP sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).  The claims further asserted that PSI was legally responsible for the costs of investigating and remediating the sites.  In August 1997, NIPSCO filed suit against PSI in federal court, claiming recovery (pursuant to CERCLA) of NIPSCO’s past and future costs of investigating and remediating MGP-related contamination at the Goshen, Indiana MGP site.

In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation and Cost Sharing Agreement (Agreement).  This Agreement allocated CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies.  As a result of the Agreement, NIPSCO’s lawsuit against PSI was dismissed.  Similar agreements were reached between IGC and PSI that allocate CERCLA liability at 14 MGP sites with which NIPSCO was not involved.  These agreements concluded all CERCLA and similar claims between the three companies related to MGP sites.  The parties continue to investigate and remediate the sites, as appropriate, under the agreements and applicable laws.  The Indiana Department of Environmental Management (IDEM) oversees investigation and cleanup of some of the sites.

PSI notified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and IDEM.  In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana against its general liability insurance carriers.  PSI sought a declaratory judgment to obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay PSI’s costs of defense and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites.  The lawsuit was moved to the Hendricks County Superior Court (Superior Court) in July 1998.  The trial court issued a variety of rulings with respect to the claims and defenses in the litigation.  PSI has appealed certain adverse rulings to the Indiana Court of Appeals.  At the present time, PSI cannot predict the outcome of this litigation, including the outcome of the appeals to the Indiana Court of Appeals.

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PSI and CG&E, including its utility subsidiaries, have accrued costs for the sites related to investigation, remediation, and groundwater monitoring to the extent such costs are probable and can be reasonably estimated.  PSI and CG&E, including its utility subsidiaries, do not believe they can provide an estimate of the reasonably possible total remediation costs for any site before a remedial investigation/feasibility study is performed.  To the extent remediation is necessary, the timing of the remediation activities impacts the cost of remediation.  Therefore, PSI and CG&E, including its utility subsidiaries, currently cannot determine the total costs that may be incurred in connection with remediation of all sites, to the extent that remediation is required.  Until investigation and remediation activities have been completed on these sites, and the extent of insurance coverage for these costs, if any, is determined, we are unable to reasonably estimate the total costs and impact on our financial position or results of operations.

(h)Asbestos Claims Litigation

CG&E and PSI have been named in lawsuits related to Asbestos at their electric generating stations.  In these lawsuits, plaintiffs claim to have been exposed to Asbestos containing products in the course of their work at the CG&E and PSI generating stations.  The plaintiffs further claim that as the property owner of the generating stations, CG&E and PSI should be held liable for their injuries and illnesses based on an alleged duty to warn and protect them from any Asbestos exposure.  A majority of the lawsuits to date have been brought against PSI.  The impact on CG&E’s and PSI’s financial position or results of operations of these cases to date has not been material.

One specific case filed against PSI has been tried to verdict.  Following a 10 week trial of the case entitled William Lee Roberts, Jr. and Beverly Roberts v. AC&S, Inc., et al., PSI Energy, Inc., Marion Superior Court 2, on May 24, 2002, the jury returned a verdict against PSI in the amount of approximately $500,000 on a negligence claim and for PSI on punitive damages.  PSI is appealing the judgment in this case.  The total damages were immaterial to PSI’s financial position and results of operations.  However, future verdicts in any of the pending lawsuits could be material.  At this time, CG&E and PSI are not able to predict the ultimate outcome of these lawsuits or the impact on CG&E’s and PSI’s financial position or results of operations.

(i)Gas Customer Choice

In January 2000, Investments sold Cinergy Resources, Inc. (Resources), a former subsidiary, to Licking Rural Electrification, Inc., doing business as The Energy Cooperative (Energy Cooperative).  In February 2001, Cinergy, CG&E, and Resources were named as defendants in

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three class action lawsuits brought by customers relating to Energy Cooperative’s removal from the Ohio Gas Customer Choice program and the failure to deliver gas to customers.

Subsequently, these class action suits were amended and consolidated into one suit.  CG&E has been dismissed as a defendant in the consolidated suit.  In March 2001, Cinergy, CG&E, and Investments were named as defendants in a lawsuit filed by both Energy Cooperative and Resources.  This lawsuit concerns any obligations or liabilities Investments may have to Energy Cooperative following its sale of Resources.  This lawsuit is pending in the Licking County Common Pleas Court.  Trial is anticipated to occur in late 2003 or early 2004.  In October 2001, Cinergy, CG&E, and Investments initiated litigation against the Energy Cooperative requesting indemnification by the Energy Cooperative for the claims asserted by former customers in the class action litigation.  This customer litigation is pending in the Hamilton County Common Pleas Court.  A trial date has not been set.  We intend to vigorously defend these lawsuits.  At the present time, we cannot predict the outcome of these suits.

(j)PSI Fuel Adjustment Charge

PSI defers fuel costs that are recoverable in future periods subject to IURC approval under a fuel recovery mechanism.  In June 2001, the IURC issued an order in a PSI fuel recovery proceeding, disallowing approximately $14 million of deferred costs.  On June 26, 2001, PSI formally requested that the IURC reconsider its disallowance decision.  In August 2001, the IURC indicated that it would reconsider its decision.  In August 2002, the IURC issued its final ruling allowing PSI to fully recover the $14 million.

In June 2001, PSI filed a petition with the IURC requesting authority to recover $16 million in under billed deferred fuel costs incurred from March 2001 through May 2001.  The IURC approved recovery of these costs subject to refund pending the findings of an investigative sub-docket.  The sub-docket was opened to investigate the reasonableness of, and underlying reasons for, the under billed deferred fuel costs.  A hearing was held in July 2002, and we anticipate a decision in the first quarter of 2003.

(k)PSI Retail Rate Case

In December 2002, PSI filed a petition with the IURC seeking approval of a base retail electric rate increase.  PSI’s proposed increase reflects an average increase of approximately 16 to 19 percent over PSI’s current retail electric rates.  If approved by regulators, PSI estimates the rate request will become effective in early 2004.  PSI plans to file initial testimony in this case in March 2003.  An IURC decision is expected in the first quarter of 2004.

(l)Construction Work in Progress (CWIP) Ratemaking Treatment for NO_X Equipment

During the third quarter of 2001, PSI filed an application with the IURC requesting CWIP ratemaking treatment for costs related to NO_X equipment currently being installed at certain PSI generation facilities.  CWIP ratemaking treatment allows for the recovery of carrying costs on the equipment during the construction period.  PSI filed its case-in-chief testimony in January 2002.  In July 2002, the IURC approved the application allowing PSI to commence CWIP ratemaking treatment for its NO_X equipment investments made through December 31, 2001.

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Initially this rate adjustment will result in approximately a one percent increase in customer rates.  Under the IURC’s CWIP rules, PSI may update its CWIP tracker at six-month intervals.  The IURC’s July order also authorized PSI to defer, for subsequent recovery, post-in-service depreciation and to continue the accrual for AFUDC.  Pursuant to Statement of Financial Accounting Standards No. 92, Regulated Enterprises-Accounting for Phase-in Plans, the equity component of AFUDC will not be deferred for financial reporting.

In October 2002, PSI filed its first six-month CWIP tracker update with the IURC requesting approximately $11 million of additional revenue associated with investments made January 1, 2002, through June 30, 2002, for NO_X emission reduction equipment.  The IURC authorized the recovery of these incremental expenditures in an order issued on January 29, 2003.  The cumulative annual revenue to be recovered under this tracker is $28 million.

(m)Purchased Power Tracker

In May 1999, PSI filed a petition with the IURC seeking approval of a Tracker.  This request was designed to provide for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not recovered through the existing fuel adjustment clause.

A hearing was held before the IURC in February 2001, to determine whether it was appropriate for PSI to continue the Tracker for future periods.  In April 2001, a favorable order was received extending the Tracker for two years, through the summer of 2002.  PSI is authorized to seek recovery of 90 percent of its purchased power expenses through the Tracker (net of the displaced energy portion recovered through the fuel recovery process and net of the mitigation credit portion), with the remaining 10 percent deferred for subsequent recovery in PSI’s nextgeneral rate case.  In March 2002, PSI filed a petition with the IURC seeking approval to extend the Tracker process beyond the summer of 2002.  A hearing was held on January 16, 2003.  We cannot predict the outcome of this proceeding at this time.

In June 2002, PSI also filed a petition with the IURC seeking approval of the recovery through the Tracker of its actual summer 2002 purchased power costs.  A hearing on this matter is scheduled for the first quarter of 2003.

(n)CG&E Gas Rate Case

In the third quarter of 2001, CG&E filed a retail gas rate case with the PUCO seeking to increase base rates for natural gas distribution service and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $716 million over the next 10 years.  CG&E entered into a settlement agreement with most of the parties and a hearing on this matter was held in April 2002.  An order was issued in May 2002, in which the PUCO approved the settlement agreement and authorized a base rate increase of approximately $15 million, or 3.3 percent overall, to be effective on May 30, 2002.  In addition, the PUCO authorized CG&E to implement the tracking mechanism to recover the costs of the accelerated gas main replacement program, subject to certain rate caps that increase in amount annually through May 2007, through the effective date of new rates in CG&E’s next retail gas rate case.  The

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PUCO’s order was not appealed.  In the fourth quarter of 2002, CG&E filed an application to increase its rates under the tracking mechanism by approximately $8 million or 2.4 percent.  The PUCO is investigating the application and CG&E expects that the increase will become effective in May 2003.

(o)ULH&P Gas Rate Case

In the second quarter of 2001, ULH&P filed a retail gas rate case with the KPSC seeking to increase base rates for natural gas distribution services and requesting recovery through a tracking mechanism of the costs of an accelerated gas main replacement program with an estimated capital cost of $112 million over the next 10 years.  A hearing on this matter was held in November 2001 and an order was issued in January 2002.  In the order, the KPSC authorized a base rate increase of $2.7 million, or 2.8 percent overall, to be effective on January 31, 2002.  In addition, the KPSC authorized ULH&P to implement the tracking mechanism to recover the costs of the accelerated gas main replacement program for an initial period of three years, with the possibility of renewal for the full 10 years.  Per the terms of the order, the tracking mechanism will be set annually.  The first filing was made in March 2002 and was approved by the KPSC in an order issued in August 2002.  ULH&P filed an application for a certificate for public convenience and necessity with the KPSC in November 2002, to do cast iron and bare steel main replacement work in 2003 at an estimated cost of $14.1 million.  The Kentucky Attorney General (Attorney General) has appealed the KPSC’s approval of the tracking mechanism to the Franklin Circuit Court (Court) and has also appealed the KPSC’s August 2002 order approving the new tracking mechanism rates.  The KPSC’s August 2002 order requires ULH&P to maintain records of the revenues collected under the tracking mechanism to enable ULH&P to refund such revenues, in case the Attorney General’s appeal is upheld and the KPSC orders a refund.  Amounts collected to date under this tracking mechanism are not material.  ULH&P filed an application for rehearing with the KPSC in September 2002, in which ULH&P requested that the KPSC eliminate this requirement.  In October 2002, the KPSC issued an order granting ULH&P’s application for rehearing in part.  The KPSC’s order clarified that ULH&P must maintain its records of the revenues collected under the tracking mechanism in case a refund is ordered at a later date; however, the KPSC’s order stated that it will not address the issue of whether to order a refund unless the Court rules that the KPSC lacked the requisite authority to approve the tracking mechanism.  As a result, ULH&P will not record these revenues as subject to refund unless the Court so rules.  At the present time, ULH&P cannot predict the outcome of this litigation.

(p)Contract Disputes

Cinergy, through a subsidiary of Investments, is currently involved in negotiations to resolve a customer billing dispute.  The primary issue of contention between the parties relates to the determinants used in calculating the monthly charge billed for electricity.  Cinergy has reserved for a portion of the amount billed based on our current estimate of net realizable value.

Cinergy, through a subsidiary of Capital & Trading, is involved in a billing dispute with respect to billings for the supply of wholesale natural gas to a customer.  This dispute, if not satisfactorily resolved by the parties, is subject to arbitration.  Cinergy has reserved for a portion of the amount billed based on the current estimate of net realizable value.

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Although we cannot predict the outcome of these matters, we believe the ultimate impact on Cinergy’s financial position and results of operations, beyond amounts reserved, will not be material.

12. Jointly-Owned Plant

CG&E, CSP, and DP&L jointly own electric generating units and related transmission facilities.  PSI is a joint-owner of Gibson Station Unit No. 5 with Wabash Valley Power Association, Inc. (WVPA), and Indiana Municipal Power Agency (IMPA).  Additionally, PSI is a joint-owner with WVPA and IMPA of certain transmission property and local facilities.  These facilities constitute part of the integrated transmission and distribution systems, which are operated and maintained by PSI.  The Statements of Income reflect CG&E’s and PSI’s portions of all operating costs associated with the jointly-owned facilities.

As of December 31, 2002, CG&E’s and PSI’s investments in jointly-owned plant or facilities were as follows:

(in millions)

	Ownership Share		Property, Plant, and Equipment	Accumulated Depreciation	Construction Work in Progress
CG&E
Production:
Miami Fort Station (Units 7 and 8)	64.00	%	$288	$135	$34
Beckjord Station (Unit 6)	37.50		46	30	—
Stuart Station(1)	39.00		298	157	67
Conesville Station (Unit 4)(1)	40.00		77	48	—
Zimmer Station	46.50		1,239	402	23
East Bend Station	69.00		398	200	—
Killen Station(1)	33.00		187	110	17
Transmission	Various		85	38	—
PSI
Production:
Gibson Station (Unit 5)	50.05		215	119	14
Transmission and local facilities	94.37		2	1	—

(1)Station is not operated by CG&E.

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13. Quarterly Financial Data (unaudited)

	First Quarter			Second Quarter		Third Quarter			Fourth Quarter			Total
	(in millions, except per share amounts)
Cinergy(1)
2002
Results of Operations:
Operating Revenues(2)	$	2,192		$	2,471	$	3,880		$	3,417		$	11,960
Operating Income	213			137		239			215			804
Income before discontinued operations and cumulative effect of a change in accounting principle	96			45		131			125			397
Discontinued operations, net of tax(3)	—			—		—			(25		)	(25		)
Cumulative effect of a change in accounting principle, net of tax(4)	(11		)	—		—			—			(11		)
Net Income	$	85		$	45	$	131		$	100		$	361
Per Share Data:
EPS
Income before discontinued operations and cumulative effect of a change in accounting principle	0.58			0.27		0.78			0.74			2.37
Discontinued operations, net of tax(3)	—			—		—			(0.15		)	(0.15		)
Cumulative effect of a change in accounting principle, net of tax(4)	(0.06		)	—		—			—			(0.06		)
Net Income	$	0.52		$	0.27	$	0.78		$	0.59		$	2.16
EPS - assuming dilution
Income before discontinued operations and cumulative effect of a change in accounting principle	0.58			0.26		0.77			0.73			2.34
Discontinued operations, net of tax(3)	—			—		—			(0.15		)	(0.15		)
Cumulative effect of a change in accounting principle, net of tax(4)	(0.06		)	—		—			—			(0.06		)
Net Income	$	0.52		$	0.26	$	0.77		$	0.58		$	2.13
2001
Results of Operations:
Operating Revenues(2)	$	3,715		$	3,654	$	3,340		$	2,288		$	12,997
Operating Income	249			178		278			239			944
Income before discontinued operations	121			82		130			126			459
Discontinued operations, net of tax(3)	(1		)	1		(2		)	(15		)	(17		)
Net Income	$	120		$	83	$	128		$	111		$	442
Per Share Data:
EPS
Income before discontinued operations	0.76			0.50		0.82			0.80			2.88
Discontinued operations, net of tax(3)	—			0.01		(0.01		)	(0.10		)	(0.10		)
Net Income	$	0.76		$	0.51	$	0.81		$	0.70		$	2.78
EPS - assuming dilution
Income before discontinued operations	0.75			0.50		0.81			0.79			2.85
Discontinued operations, net of tax(3)	—			0.01		(0.01		)	(0.10		)	(0.10		)
Net Income	$	0.75		$	0.51	$	0.80		$	0.69		$	2.75
CG&E and subsidiaries
2002
Results of Operations:
Operating Revenues(2)	$	815		$	922	$	1,789		$	1,425		$	4,951
Operating Income	155			101		135			114			505
Net Income	78			53		72			61			264
2001
Results of Operations:
Operating Revenues(2)	$	1,267		$	1,282	$	1,329		$	874		$	4,752
Operating Income	154			98		166			194			612
Net Income	82			49		89			107			327
PSI
2002
Results of Operations:
Operating Revenues(2)	$	630		$	467	$	777		$	485		$	2,359
Operating Income	74			52		120			136			382
Net Income	38			30		68			78			214
2001
Results of Operations:
Operating Revenues(2)	$	925		$	1,189	$	1,267		$	727		$	4,108
Operating Income	85			66		110			69			330
Net Income	41			34		57			30			162

(1)The results of Cinergy also include amounts related to non-registrants.

(2)EITF 02-3 will require that all gains and losses on energy trading derivatives be presented on a net basis beginning January 1, 2003.  This will result in substantial reductions in reported Operating Revenues, Fuel and purchased and exchanged power expense, and Gas purchased expense.  However, Operating Income and Net Income will not be affected by this change.  For further information on EITF 02-3 see Note 1(q)(i).

(3)See Note 15 for further explanation.

(4)Upon implementation of Statement 142, Cinergy recognized a non-cash impairment charge of $11 million, net of tax, for goodwill related to certain international assets.  See Note 14 for further information.

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14. Effects of a Change in Accounting Principle

Cinergy finalized its transition goodwill impairment test, as required by Statement 142, in the fourth quarter of 2002 and recognized a non-cash impairment charge of $11 million (net of tax) for goodwill related to certain of our international assets.  This amount is reflected in Cinergy Corp.’s Statements of Income as a Cumulative effect of a change in accounting principle.  While Statement 142 did not require the initial transition impairment test to be completed until December 31, 2002, it does require any transition impairment charge to be reflected as of January 1, 2002.  The condensed financial results below revise previously reported results of Cinergy Corp. as filed in the Form 10-Q for the quarter ended March 31, 2002, to reflect the impairment charge as of January 1, 2002.

	Year to Date March 31, 2002
	Net Income			EPS(1)
	(in millions, except for EPS)
	(unaudited)
Reported results	$	96		$	0.58
Cumulative effect of a change in accounting principle	(11		)	(0.06		)
Revised results	$	85		$	0.52

(1)Represents EPS and EPS - assuming dilution.

15. Monetization of Non-Core Investments

During 2002, Cinergy began taking steps to monetize certain non-core investments, including renewable and international investments within the Energy Merchant business unit.   During the second half of the year, Cinergy either sold or initiated plans to dispose of generation and electric and gas distribution operations in the Czech Republic, Estonia, and South Africa.  Cinergy also sold investments, which were accounted for under the equity method, in renewable investments located in Spain and California.  In total, Cinergy disposed of approximately $125 million of investments at a net loss of $7 million in 2002.  Included in this net loss were cumulative foreign currency translation losses of approximately $4 million.

GAAP requires different accounting treatment for investment disposals involving entities which are consolidated and entities which are accounted for under the equity method.  The consolidated entities have been presented as Discontinued operations, net of tax in Cinergy’s accompanying financial statements, and prior year financial statements have been reclassified to account for these entities as such.  The disposal of the entities accounted for using the equity method are not allowed to be presented as discontinued operations.  A gain of approximately $17 million on the sale of these entities is included in Miscellaneous-Net in Cinergy’s Statements of Income.

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The table below reflects the assets and liabilities of the investments accounted for as discontinued operations as of December 31, 2002 and 2001, and the results of operations and the loss on disposal for the years then ended.

	December 31
	2002		2001
	(in millions)
Revenues(1)	$	30	$	38
Loss on Discontinued Operations
Loss on operations	$	1	$	17
Loss on disposal(2)	24		—
Total Loss on Discontinued Operations	$	25	$	17
Assets
Current assets	$	—	$	8
Property, plant, and equipment-net	—		45
Other assets	1		9
Total Assets	$	1	$	62
Liabilities
Current liabilities	$	2	$	16
Total Liabilities	$	2	$	16

(1)Presented for informational purposes only.  All results of operations are reported net in our Statements of Income.

(2)Approximately $17 million of this amount represents a write-down to fair value, less cost to sell, on assets classified as held for sale.  The remainder represents actual losses on completed sales.  Included in the loss on disposal are cumulative foreign currency translation losses of approximately $4 million.

The losses included in discontinued operations primarily pertain to two investments.  In one case, the primary customer of a combined heat and power plant filed for bankruptcy resulting in a significant reduction in future expected revenues from the investment.  In the second case, the retail market of a gas distribution business did not develop as expected, and we have elected to exit the business rather than invest the additional capital which would be required to reach a sustainable level of market penetration.

16.Financial Information by Business Segment

We conduct operations through our subsidiaries and manage through the following three business units:

•Energy Merchant;

•Regulated Businesses; and

•Power Technology.

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The following section describes the activities of our business units as of December 31, 2002.

Energy Merchant manages wholesale generation and energy marketing and trading of energy commodities.  Energy Merchant operates and maintains our regulated and non-regulated electric generating plants, including some of our jointly-owned plants.  Energy Merchant is also responsible for our international operations and performs the following activities:

•energy risk management;

•proprietary arbitrage activities; and

•customized energy solutions.

Regulated Businesses consists of PSI’s regulated, integrated utility operations, and Cinergy’s other regulated electric and gas transmission and distribution systems.  Regulated Businesses plans, constructs, operates, and maintains Cinergy’s transmission and distribution systems and delivers gas and electric energy to consumers.  Regulated Businesses also earns revenues from wholesale customers primarily by transmitting electric power through Cinergy’s transmission system.

Power Technology primarily manages the development, marketing, and sales of our non-regulated retail energy and energy-related businesses.  This is accomplished through various subsidiaries and joint ventures.  Power Technology also manages Cinergy Ventures, LLC (Ventures), Cinergy’s venture capital subsidiary.  Ventures invests in emerging energy technologies that can benefit future Cinergy business development activities.

Following are the financial results by business unit.  Certain amounts for prior years have been restated to reflect segment restructuring, which includes the consolidation of all of our international operations into Energy Merchant.  This restructuring became effective January 1, 2002.

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Financial results by business unit for the years ended December 31, 2002, 2001, and 2000, are as indicated below:

Business Units

	2002
	Cinergy Business Units
	Energy Merchant			Regulated Businesses		Power Technology			Total			All Other(1)		Reconciling Eliminations(2)			Consolidated
	(in millions)
Operating revenues -
External customers(3)	$	9,283		$	2,640	$	37		$	11,960		$	—	$	—		$	11,960
Intersegment revenues(4)	160			—		—			160			—		(160		)	—
Cost of sales -
Fuel and purchased and exchanged power	4,054			458		—			4,512			—		—			4,512
Gas purchased	4,436			233		—			4,669			—		—			4,669
Depreciation(5)	158			249		7			414			—		—			414
Equity in earnings (losses) of unconsolidated subsidiaries	20			5		(10		)	15			—		—			15
Interest(6)	103			133		14			250			—		—			250
Income taxes	21		(7)	151		(15		)	157			—		—			157
Discontinued operations, net of tax(8)	(25		)	—		—			(25		)	—		—			(25		)
Cumulative effect of a change in accounting principle, net of tax(9)	(11		)	—		—			(11		)	—		—			(11		)
Segment profit (loss)(10)	126			270		(35		)	361			—		—			361
Total segment assets	5,703			7,284		227			13,214			93		—			13,307
Investments in unconsolidated subsidiaries	337			10		70			417			—		—			417
Total expenditures for long-lived assets	188			681		1			870			—		—			870

(1)	The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment performance measurement.
(2)	The Reconciling Eliminations category eliminates the intersegment revenues and expenses of Energy Merchant.
(3)	The decrease in 2002, as compared to 2001, is primarily due to the decrease in the average price realized on wholesale commodity transactions.
(4)	In connection with deregulation in Ohio, beginning in 2001, certain revenues, which were previously recorded through intersegment transfer pricing, are now directly recorded to the business segment.
(5)	The components of Depreciation include depreciation of fixed assets and amortization of intangible assets.
(6)	Interest income is deemed immaterial.
(7)	The decrease in 2002, as compared to 2001, in part reflects the effect of tax credits associated with production of synthetic fuel beginning in July 2002.
(8)	For further information, see Note 15.
(9)	Upon implementation of Statement 142, Cinergy recognized a non-cash impairment charge of $11 million, net of tax, for goodwill related to certain international assets.  See Note 14 for further information.
(10)	Management utilizes Segment profit (loss), after taxes, to evaluate segment performance.

187

	2001
	Cinergy Business Units
	Energy Merchant			Regulated Businesses		Power Technology			Total			All Other(1)		Reconciling Eliminations(2)			Consolidated
	(in millions)
Operating revenues -
External customers(3)	$	10,245		$	2,703	$	49		$	12,997		$	—	$	—		$	12,997
Intersegment revenues(4)	144			—		—			144			—		(144		)	—
Cost of sales -
Fuel and purchased and exchanged power	5,537			469		—			6,006			—		—			6,006
Gas purchased	4,035			397		—			4,432			—		—			4,432
Depreciation(5)	135			236		3			374			—		—			374
Equity in earnings (losses) of unconsolidated subsidiaries	9			—		(8		)	1			—		—			1
Interest(6)	110			142		14			266			—		—			266
Income taxes	96			169		(9		)	256			—		—			256
Discontinued operations, net of tax(7)	(17		)	—		—			(17		)	—		—			(17		)
Segment profit (loss)(8)	195			266		(19		)	442			—		—			442
Total segment assets	4,957			7,084		213			12,254			46		—			12,300
Investments in unconsolidated subsidiaries	256			—		76			332			—		—			332
Total expenditures for long-lived assets	764			633		—			1,397			—		—			1,397

(1)The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment performance measurement.

(2)The Reconciling Eliminations category eliminates the intersegment revenues and expenses of Energy Merchant.

(3)The increase in 2001, as compared to 2000, is primarily due to the increase in volumes and average price realized on wholesale commodity transactions.

(4)In connection with deregulation in Ohio, beginning in 2001, certain revenues, which were previously recorded through intersegment transfer pricing, are now directly recorded to the business segment.

(5)The components of Depreciation include depreciation of fixed assets and amortization of intangible assets.

(6)Interest income is deemed immaterial.

(7)For further information, see Note 15.

(8)Management utilizes Segment profit (loss), after taxes, to evaluate segment performance.

188

	2000
	Cinergy Business Units
	Energy Merchant			Regulated Businesses		Power Technology			Total			All Other(1)		Reconciling Eliminations(2)			Consolidated
	(in millions)
Operating revenues -
External customers	$	4,974		$	3,347	$	76		$	8,397		$	—	$	—		$	8,397
Intersegment revenues	1,021			—		—			1,021			—		(1,021		)	—
Cost of sales -
Fuel and purchased and exchanged power	2,725			414		—			3,139			—		—			3,139
Gas purchased	2,402			267		6			2,675			—		—			2,675
Depreciation(3)	119			220		3			342			—		—			342
Equity in earnings (losses) of unconsolidated subsidiaries	7			—		(1		)	6			—		—			6
Interest(4)	82			133		9			224			—		—			224
Income taxes	93			166		(7		)	252			—		—			252
Discontinued operations, net of tax(5)	(1		)	—		—			(1		)	—		—			(1		)
Segment profit (loss)(6)	157			255		(13		)	399			—		—			399
Total segment assets	5,995			6,116		177			12,288			42		—			12,330
Investments in unconsolidated subsidiaries	488			—		52			540			—		—			540
Total expenditures for long-lived assets	138			397		—			535			3		—			538

(1)The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment performance measurement.

(2)The Reconciling Eliminations category eliminates the intersegment revenues and expenses of Energy Merchant.

(3)The components of Depreciation include depreciation of fixed assets and amortization of intangible assets.

(4)Interest income is deemed immaterial.

(5)For further information, see Note 15.

(6)Management utilizes Segment profit (loss), after taxes, to evaluate segment performance.

189

Products and Services

(in millions)

	Revenues
	Utility						Energy Marketing and Trading
Year	Electric		Gas		Total		Electric		Gas		Total		Other		Consolidated
2002	$	2,197	$	436	$	2,633	$	4,715	$	4,481	$	9,196	$	131	$	11,960
2001	2,101		595		2,696		6,154		4,068		10,222		79		12,997
2000	2,851		497		3,348		2,508		2,445		4,953		96		8,397

Geographic Areas

Revenues

(in millions)

Year	Domestic		International		Consolidated
2002	$	11,846	$	114	$	11,960
2001	12,860		137		12,997
2000	8,337		60		8,397

Long-Lived Assets

(in millions)

Year	Domestic		International		Consolidated
2002	$	10,276	$	393	$	10,669
2001	9,682		428		10,110
2000	8,267		290		8,557

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17. Earnings Per Common Share

A reconciliation of EPS to EPS - assuming dilution is presented below:

	Income			Shares	EPS
	(in thousands, except per share amounts)
Year ended December 31, 2002
EPS:
Income before discontinued operations and cumulative effect of a change in accounting principle	$	396,903			$	2.37
Discontinued operations, net of tax	(25,428		)		(0.15		)
Cumulative effect of a change in accounting principle, net of tax	(10,899		)		(0.06		)
Net income	$	360,576		167,047	$	2.16
Effect of dilutive securities:
Common stock options				899
Employee Stock Purchase and Savings Plan				3
Directors’ compensation plans				169
Contingently issuable common stock				934
EPS - assuming dilution:
Net income plus assumed conversions	$	360,576		169,052	$	2.13
Year ended December 31, 2001
EPS:
Income before discontinued operations and cumulative effect of a change in accounting principle	$	458,826			$	2.88
Discontinued operations, net of tax	(16,547		)		(0.10		)
Net income	$	442,279		159,110	$	2.78
Effect of dilutive securities:
Common stock options				975
Directors’ compensation plans				152
Contingently issuable common stock				810
EPS - assuming dilution:
Net income plus assumed conversions	$	442,279		161,047	$	2.75
Year ended December 31, 2000
EPS:
Income before discontinued operations and cumulative effect of a change in accounting principle	$	400,535			$	2.52
Discontinued operations, net of tax	(1,069		)		(0.01		)
Net income	$	399,466		158,938	$	2.51
Effect of dilutive securities:
Common stock options				491
Directors’ compensation plans				177
Contingently issuable common stock				262
EPS - assuming dilution:
Net income plus assumed conversions	$	399,466		159,868	$	2.50

191

Options to purchase shares of common stock are excluded from the calculation of EPS - assuming dilution when the exercise prices of these options are greater than the average market price of the common shares during the period.  For the years 2002, 2001, and 2000, approximately 3 million, 2.1 million, and 1.9 million shares, respectively, were excluded from the EPS - assuming dilution calculation.

Also excluded from the EPS - assuming dilution calculation for the years ended December 31, 2002 and 2001, are up to 10.8 million shares issuable pursuant to the stock purchase contracts associated with the preferred trust securities issued by Cinergy Corp. in December 2001.  These stock purchase contracts would impact EPS - assuming dilution only to the extent that Cinergy’s average stock price were to exceed $34.40 per share, which is the maximum price payable by the holders of the stock purchase contracts, during any period for which earnings per share are presented.  As discussed in Note 2(e), the number of shares issued pursuant to the stock purchase contracts is contingent upon the market price of Cinergy Corp. stock in February 2005 and could range between 9.2 and 10.8 million shares.

18. Ohio Deregulation

On July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio.  The Electric Restructuring Bill created a competitive electric retail service market effective January 1, 2001.  The legislation provided for a market development period that began January 1, 2001, and ends no later than December 31, 2005.

On May 8, 2000, CG&E reached a stipulated agreement with the PUCO staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio effective January 1, 2001.  On August 31, 2000, the PUCO approved CG&E’s stipulation agreement.  The major features of the agreement include:

•Residential customer rates are frozen through December 31, 2005;

•Residential customers received a five-percent reduction in the generation portion of their electric rates, effective January 1, 2001;

•CG&E will provide $4 million from 2001 to 2005 in support of energy efficiency and weatherization services for low income customers;

•CG&E will provide shopping credits to switching customers;

•The creation of a RTC designed to recover CG&E’s regulatory assets and other transition costs over a ten-year period;

•Authority for CG&E to transfer its generation assets to one or more, non-regulated affiliates to provide flexibility to manage its generation asset portfolio in a manner that enhances opportunities in a competitive marketplace;

•Authority for CG&E to apply the proceeds of transition cost recovery to costs incurred during the transition period, including implementation costs and purchased power costs that may be incurred by CG&E to maintain an operating reserve margin sufficient to provide reliable service to its customers;

192

•Authority for CG&E to adjust the amortization of its regulatory assets and other transition costs to reflect the effects of any shopping incentives provided to customers; and

•CG&E will provide standard offer default supplier service (i.e., CG&E will be the supplier of last resort, so that no customer will be without an electric supplier).

Subsequent to the PUCO’s approval of CG&E’s stipulation agreement, two parties filed applications for rehearing with the PUCO.  In October 2000, the PUCO denied these applications.  One of the parties appealed to the Ohio Supreme Court in the fourth quarter of 2000 and CG&E subsequently intervened in that case.  In April 2002, the Ohio Supreme Court affirmed the PUCO’s stipulated agreement with CG&E with respect to implementing electric customer choice.  The Ohio Supreme Court ruling leaves CG&E’s transition plan entirely intact.

Under CG&E’s transition plan, retail customers continue to receive transportation services from CG&E, but may purchase electricity from another supplier.  Retail customers that purchase electricity from another supplier receive shopping credits from CG&E.  The shopping credits generally reflect the costs of electric generation included in CG&E’s frozen rates.  However, shopping credits for the first 20 percent of electricity usage in each customer class to switch suppliers are higher than CG&E’s electric generation costs in order to stimulate the development of the competitive retail electric service market.

CG&E recovers its regulatory assets and other transition costs through a RTC paid by all retail customers.  As the RTC is collected from customers, CG&E amortizes the deferred balance of regulatory assets and other transition costs.  A portion of the RTC collected from customers is recognized currently as a return on the deferred balance of regulatory assets and other transition costs and as reimbursement for the difference in the shopping credits provided to customers and the wholesale revenues from switched generation.  The ability of CG&E to recover its regulatory assets and other transition costs is dependent on several factors, including, but not limited to, the level of CG&E’s electric sales, prices in the wholesale power markets, and the amount of customers switching to other electric suppliers.

On January 10, 2003, CG&E filed an application with the PUCO for approval of a methodology to establish how market-based rates for non-residential customers will be determined when the market development period ends.  In the filing, CG&E seeks to establish a market-based standard service offer rate for non-residential customers that do not switch suppliers and a process for establishing the competitively-bid generation service option required by the Electric Restructuring Bill.  As of December 31, 2002, more than 20 percent of the load in each of CG&E’s non-residential customer classes has switched to other electric suppliers.  Under its transition plan, CG&E may end the market development period for those classes of customers once 20 percent switching has been achieved; however, PUCO approval of the standard service offer rate and competitive bidding process is required before the market development period can be ended.  CG&E is not requesting to end the market development period for non-residential customers at this time.  CG&E is unable to predict the outcome of this proceeding.

In its transition plan, CG&E proposed to transfer its generating stations and their related assets and obligations to an Exempt Wholesale Generator (EWG) affiliate, subject to receipt of FERC, SEC, and applicable third-party approvals and consents.

193

To facilitate this transfer, the generation assets of CG&E, as of August 2000, were released from the first mortgage indenture lien allowing them to move unencumbered to the EWG affiliate.  Generation assets added after August 2000 remain subject to the lien of CG&E’s first mortgage bond indenture and would require release at some future date prior to being transferred.  A FERC order, that was effective April 2002, allowed Cinergy to jointly dispatch the regulated generating assets of PSI in conjunction with the deregulated generating assets of CG&E.  FERC has also authorized the transfer of the CG&E generating assets to a non-regulated affiliate.  However, Cinergy has determined that it can realize the benefits of the new joint dispatch agreement without transferring CG&E’s generation assets to an EWG affiliate, and therefore Cinergy does not plan to transfer CG&E’s generation assets to a non-regulated affiliate in the foreseeable future.

194

19. Comprehensive Income

The elements of Comprehensive income and their related tax effects for the years ended December 31, 2002, 2001, and 2000 are as follows:

	Comprehensive Income
	2002									2001									2000
	Before-tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount
										(dollars in thousands)
Cinergy(1)
Net income	$	518,840		$	(158,264	)	$	360,576		$	697,785		$	(255,506	)	$	442,279		$	651,023		$	(251,557	)	$	399,466
Other comprehensive income (loss)
Foreign currency translation adjustment	35,574			(14,034		)	21,540			4,996			(3,355		)	1,641			721			1,353			2,074
Reclassification adjustments	4,377			—			4,377			—			—			—			—			—			—
Total foreign currency translation adjustment	39,951			(14,034		)	25,917			4,996			(3,355		)	1,641			721			1,353			2,074
Minimum pension liability adjustment	(23,031		)	9,268			(13,763		)	(2,636		)	1,081			(1,555		)	(1,852		)	753			(1,099		)
Unrealized gain (loss) on investment trusts	(8,637		)	3,360			(5,277		)	(1,345		)	504			(841		)	(2,778		)	649			(2,129		)
Cumulative effect of change in accounting principle	—			—			—			(4,026		)	1,526			(2,500		)	—			—			—
Cash flow hedges	(32,663		)	12,915			(19,748		)	(4,477		)	1,698			(2,779		)	—			—			—
Total other comprehensive income (loss)	(24,380		)	11,509			(12,871		)	(7,488		)	1,454			(6,034		)	(3,909		)	2,755			(1,154		)
Total comprehensive income	$	494,460		$	(146,755	)	$	347,705		$	690,297		$	(254,052	)	$	436,245		$	647,114		$	(248,802	)	$	398,312
CG&E
Net income	$	419,037		$	(155,341	)	$	263,696		$	513,181		$	(186,527	)	$	326,654		$	426,218		$	(159,398	)	$	266,820
Other comprehensive income (loss)
Minimum pension liability adjustment	(1,423		)	551			(872		)	106			28			134			(43		)	15			(28		)
Unrealized gain (loss) on investment trusts	(745		)	283			(462		)	743			(282		)	461			—			—			—
Cumulative effect of change in accounting principle	—			—			—			(4,026		)	1,526			(2,500		)	—			—			—
Cash flow hedges	(30,960		)	12,226			(18,734		)	(4,477		)	1,698			(2,779		)	—			—			—
Total other comprehensive income (loss)	(33,128		)	13,060			(20,068		)	(7,654		)	2,970			(4,684		)	(43		)	15			(28		)
Total comprehensive income	$	385,909		$	(142,281	)	$	243,628		$	505,527		$	(183,557	)	$	321,970		$	426,175		$	(159,383	)	$	266,792
PSI
Net income	$	328,958		$	(114,709	)	$	214,249		$	268,419		$	(106,086	)	$	162,333		$	223,945		$	(88,547	)	$	135,398
Other comprehensive income (loss)
Minimum pension liability adjustment	(3,534		)	1,396			(2,138		)	(76		)	27			(49		)	(76		)	29			(47		)
Unrealized gain (loss) on investment trusts	(7,179		)	2,793			(4,386		)	(1,537		)	511			(1,026		)	(2,419		)	555			(1,864		)
Total other comprehensive income (loss)	(10,713		)	4,189			(6,524		)	(1,613		)	538			(1,075		)	(2,495		)	584			(1,911		)
Total comprehensive income	$	318,245		$	(110,520	)	$	207,725		$	266,806		$	(105,548	)	$	161,258		$	221,450		$	(87,963	)	$	133,487

(1)The results of Cinergy also include amounts related to non-registrants.  Individual amounts for ULH&P are immaterial.

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The after-tax components of Accumulated other comprehensive income (loss) as of December 31, 2002, 2001, and 2000 are as follows:

	Accumulated Other Comprehensive Income (Loss) Classification
	Foreign Currency Translation Adjustment			Minimum Pension Liability Adjustment			Unrealized Gain (Loss) on Investment Trusts			Cash Flow Hedges			Total Other Comprehensive Income (Loss)
	(dollars in thousands)
Cinergy(1)
Balance at December 31, 1999	$	(8,146	)	$	(3,681	)	$	2,086		$	—		$	(9,741	)
Current-period change	2,074			(1,099		)	(2,129		)	—			(1,154		)
Balance at December 31, 2000	$	(6,072	)	$	(4,780	)	$	(43	)	$	—		$	(10,895	)
Cumulative effect of change in accounting principle	—			—			—			(2,500		)	(2,500		)
Current-period change	1,641			(1,555		)	(841		)	(2,779		)	(3,534		)
Balance at December 31, 2001	$	(4,431	)	$	(6,335	)	$	(884	)	$	(5,279	)	$	(16,929	)
Current-period change	25,917			(13,763		)	(5,277		)	(19,748		)	(12,871		)
Balance at December 31, 2002	$	21,486		$	(20,098	)	$	(6,161	)	$	(25,027	)	$	(29,800	)
CG&E
Balance at December 31, 1999	$	—		$	(966	)	$	—		$	—		$	(966	)
Current-period change	—			(28		)	—			—			(28		)
Balance at December 31, 2000	$	—		$	(994	)	$	—		$	—		$	(994	)
Cumulative effect of change in accounting principle	—			—			—			(2,500		)	(2,500		)
Current-period change	—			134			461			(2,779		)	(2,184		)
Balance at December 31, 2001	$	—		$	(860	)	$	461		$	(5,279	)	$	(5,678	)
Current-period change	—			(872		)	(462		)	(18,734		)	(20,068		)
Balance at December 31, 2002	$	—		$	(1,732	)	$	(1	)	$	(24,013	)	$	(25,746	)
PSI
Balance at December 31, 1999	$	—		$	(658	)	$	2,049		$	—		$	1,391
Current-period change	—			(47		)	(1,864		)	—			(1,911		)
Balance at December 31, 2000	$	—		$	(705	)	$	185		$	—		$	(520	)
Current-period change	—			(49		)	(1,026		)	—			(1,075		)
Balance at December 31, 2001	$	—		$	(754	)	$	(841	)	$	—		$	(1,595	)
Current-period change	—			(2,138		)	(4,386		)	—			(6,524		)
Balance at December 31, 2002	$	—		$	(2,892	)	$	(5,227	)	$	—		$	(8,119	)

(1)The results of Cinergy also include amounts related to non-registrants.  Individual amounts for ULH&P are immaterial.

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20. Subsequent Events

(a)Sale of Common Stock

On January 15, 2003, Cinergy Corp. filed a registration statement with respect to the issuance of common stock, preferred stock, and other securities with an aggregate amount of $750 million.  On February 5, 2003, Cinergy sold 5.7 million shares of common stock of Cinergy Corp. with net proceeds of approximately $175 million under this registration statement.  The net proceeds from the transaction will be used to reduce short-term debt of Cinergy Corp. and for other general corporate purposes.

(b)Transfer of Generating Assets

On February 4, 2003, the FERC issued an order under Section 203 of the Federal Power Act authorizing PSI’s proposed acquisition of the Henry County, Indiana, and Butler County, Ohio, gas-fired peaking power plants from two non-regulated affiliates.  This action was the final regulatory approval needed for the transfer, which occurred on February 5, 2003.  In December 2002, the IURC approved a settlement agreement among PSI, the Indiana Office of the Utility Consumer Counselor, and the IURC Testimonial Staff authorizing PSI’s purchase of the plants.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Disclosure with respect to this Item, for each of the registrants, has been previously provided on the Form 8-K dated April 30, 2002 and as amended on May 15, 2002.

198

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS

BOARD OF DIRECTORS

Information regarding Cinergy Corp.’s directors is incorporated by reference from its definitive Proxy Statement for the 2003 Annual Meeting of Shareholders.

The directors of The Cincinnati Gas & Electric Company (CG&E) at January 31, 2003, are as follows:

•R. Foster Duncan - Mr. Duncan, age 48, is Executive Vice President and Chief Financial Officer of CG&E, a position he has held since February 2001.  He has served as director of CG&E since April 2001.  His current term as director expires April 21, 2003.

•James E. Rogers - Mr. Rogers, age 55, is Chairman of the Board and Chief Executive Officer of CG&E.  He has served as a director of CG&E since 1994.  His current term as director expires April 21, 2003.

•James L. Turner - Mr. Turner, age 43, is Vice President of CG&E, a position he has held since July 2000.  He served as a director of CG&E from February 15, 1999 to April 30, 2001, at which time Mr. William J. Grealis was elected as successor-director to Mr. Turner.  Mr. Turner was re-elected, effective October 1, 2001, as successor-director to Mr. Grealis.  Mr. Turner’s current term as director expires April 21, 2003.

Additional information on each of the directors of CG&E is presented in the following “Executive Officers” section.

Information regarding PSI Energy, Inc.’s (PSI) directors is incorporated by reference from PSI’s 2003 Information Statement.

EXECUTIVE OFFICERS

The names of the executive officers of each registrant and the positions they hold, held, or have been elected to (as of January 31, 2003), their ages (as of December 31, 2002), and their business experience during the past five years is included in the chart below.

		Positions and Length of Service
Name	Age	Cinergy Corp.	CG&E	PSI
Wendy L. Aumiller	50	Treasurer 6/02 - present Acting Treasurer 10/01 - 6/02 Assistant Treasurer 10/00 - 10/01 General Manager, Generation Financial Planning 6/00 - 10/00 Assistant Treasurer 7/96 - 6/00	Treasurer 6/02 - present Acting Treasurer 10/01 - 6/02 Assistant Treasurer 10/00 - 10/01 7/96 - 6/00	Treasurer 6/02 - present Acting Treasurer 10/01 - 6/02 Assistant Treasurer 10/00 - 10/01 7/96 - 6/00

199

		Positions and Length of Service
Name	Age	Cinergy Corp.	CG&E	PSI
John Bryant(1)	56	Vice President 1/98 - present President, International Business Unit 7/00 - 2/01
Michael J. Cyrus(2)	47	Executive Vice President 2/01 - present Chief Executive Officer, Energy Merchant Business Unit 2/01 - present President, Energy Commodities Business Unit 3/99 - 2/01 Vice President 4/98 - 2/01 Chief Operating Officer, Energy Commodities Business Unit 11/98 - 3/99	Executive Vice President 2/01 - present Vice President 4/99 - 2/01	Executive Vice President 2/01 - present Vice President 4/99 - 2/01
R. Foster Duncan(3)	48	Executive Vice President and Chief Financial Officer 2/01 - present	Executive Vice President and Chief Financial Officer 2/01 - present	Executive Vice President and Chief Financial Officer 2/01 - present
Douglas F. Esamann	45	Vice President and Chief Financial Officer, Energy Merchant Business Unit 2/01 - 10/01 Vice President and Chief Financial Officer, Energy Commodities Business Unit 3/99 - 2/01 General Manager, Business Development, Energy Commodities Business Unit 3/98 - 3/99 Finance Manager, Energy Commodities Business Unit 5/96 - 3/98		President 10/01 - present
Gregory C. Ficke	50	Vice President and Chief Information Officer, Regulated Businesses Business Unit 2/01 - 10/01 Vice President and Chief Information Officer, Energy Delivery Business Unit 7/00 - 2/01 Vice President, Operations Services, Energy Delivery Business Unit 4/99 - 7/00 Vice President, Gas Operations, Energy Delivery Business Unit 12/98 - 4/99 General Manager, Gas Operations, Energy Delivery Business Unit 8/96 - 12/98	President 10/01 - present
Bennett L. Gaines(4)	49	Vice President and Chief Technology Officer 1/03 - present

200

		Positions and Length of Service
Name	Age	Cinergy Corp.	CG&E	PSI
William J. Grealis(5)	57	Executive Vice President 7/00 - present Chief Executive Officer, Regulated Businesses Business Unit 2/01 - 10/01 Chief of Staff 7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer 8/98 - 7/00 Vice President 1/95 - 8/98	Executive Vice President 7/00 - present Chief of Staff 7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer 8/98 - 7/00 Vice President 4/98 - 8/98 President 1/95 - 3/98	Executive Vice President 7/00 - present Chief of Staff 7/00 - 2/01 Vice President, Corporate Services, and Chief Strategic Officer 8/98 - 7/00 Vice President 4/98 - 8/98
J. Joseph Hale, Jr.(6)	53	Vice President 12/96 - present	Vice President 10/01 - present President 7/00 - 10/01 Vice President 8/98 - 7/00 General Manager, Marketing Operations 1/95 - 8/98	Vice President 10/01 - present Vice President 2/00 - 7/00 Interim President 6/99 - 2/00 Vice President 8/98 - 6/99
M. Stephen Harkness(7)	54	Vice President 12/96 - present
Julia S. Janson	38	Secretary 7/00 - present Senior Counsel 7/98 - present Counsel 5/96 - 7/98	Secretary 1/03 - present Assistant Secretary 7/00 - 1/03 Senior Counsel 7/98 - present Counsel 5/96 - 7/98	Secretary 7/00 - present Senior Counsel 7/98 - present Counsel 5/96 - 7/98
Marc E. Manly(8)	50	Executive Vice President and Chief Legal Officer 11/02 - present Assistant Secretary 1/03 - present	Executive Vice President and Chief Legal Officer 11/02 - present	Executive Vice President and Chief Legal Officer 11/02 - present Assistant Secretary 1/03 - present
Theodore R. Murphy II(9)	45	Senior Vice President and Chief Risk Officer 8/02 - present	Senior Vice President and Chief Risk Officer 8/02 - present	Senior Vice President and Chief Risk Officer 8/02 - present
Frederick J. Newton III(10)	47	Executive Vice President and Chief Administrative Officer 5/02 - present	Executive Vice President and Chief Administrative Officer 5/02 - present	Executive Vice President and Chief Administrative Officer 5/02 - present
Ronald R. Reising(11)	42	Vice President 6/02 - present	Vice President 6/02 - present	Vice President 6/02 - present
Bernard F. Roberts	50	Vice President and Comptroller 3/99 - present Vice President and Chief Financial Officer, Energy Commodities Business Unit 7/96 - 3/99	Vice President and Comptroller 3/99 - present	Vice President and Comptroller 3/99 - present
James E. Rogers	55	Chairman of the Board 12/00 - present President and Chief Executive Officer 12/95 - present Vice Chairman 12/95 - 12/00	Chairman of the Board 12/00 - present Chief Executive Officer 12/95 - present Vice Chairman 12/95 - 12/00	Chairman of the Board 12/00 - present Chief Executive Officer 12/95 - present Vice Chairman 12/95 - 12/00

201

		Positions and Length of Service
Name	Age	Cinergy Corp.	CG&E	PSI
James L. Turner(12)	43	Executive Vice President 10/01 - present Chief Executive Officer, Regulated Businesses Business Unit 12/01 - present President, Regulated Businesses Business Unit 2/01 - 12/01 President, Energy Delivery Business Unit 7/00 - 2/01 Vice President 4/99 - 12/01 Senior Counsel 6/95 - 3/97	Vice President 7/00 - present President 2/99 - 7/00	Vice President 7/00 - present
Timothy J. Verhagen(13)	56	Vice President 1/01 - present

	None of the officers are related in any manner.  Our executive officers hold the offices set opposite their names until the next annual meeting of the Board of Directors and until their successors have been elected and qualified.
(1)	Mr. Bryant also serves as the President of Cinergy Global Resources, Inc. (Global Resources) and Cinergy Global Power, Inc., and as the Managing Director of Cinergy Global Power Services Limited, Cinergy’s (which includes Cinergy Corp. and all of our regulated and non-regulated subsidiaries) international project development subsidiary from 1997 to present.  Previously, he served as the Executive Generation Director of Midlands Electricity plc (Midlands; a non-affiliate of Cinergy) from 1996 to 1997, and Generation Director of Midlands from 1992 to 1996.
(2)	Prior to joining Cinergy, Mr. Cyrus was Senior Vice President of Trading and Operations with Electric Clearinghouse, Inc. (a non-affiliate of Cinergy), the power subsidiary of Natural Gas Clearinghouse (NGC; a non-affiliate of Cinergy) in Houston, Texas, a position he had held since 1997.  Prior to that, Mr. Cyrus was President of NGC Canada and Executive Vice President of Novagas Clearinghouse, Ltd.  Previously, Mr. Cyrus held various executive positions involving energy trading, marketing, and risk management with NGC since 1993.
(3)	Prior to joining Cinergy, Mr. Duncan was Executive Vice President and Chief Financial Officer of LG&E Energy Corp. (LG&E) (a non-affiliate of Cinergy) in Louisville, Kentucky since December 1998.  Prior to that, he was Executive Vice President of Planning and Corporate Development at LG&E from January 1998 to December 1998.  Prior to joining LG&E, in January 1998, he was Vice President and Treasurer of Freeport-McMoRan, Inc. and Freeport-McMoRan Copper & Gold (non-affiliates of Cinergy), global natural resource companies headquartered in New Orleans, Louisiana since May 1994.
(4)	Prior to joining Cinergy, Mr. Gaines was Managing Director, Business Services, at Powergen plc. for the United Kingdom operations since 2001.  Prior to that, he was Corporate Director, Supply Chain and Operating Service at LG&E in Louisville, Kentucky from 2000 to 2001.  Prior to joining LG&E, Mr. Gaines was Corporate Director, Strategic Sourcing and eCommerce at Electronic Data Systems Corporation from 1998 to 2000 in Dallas, Texas.  Prior to that, from 1994-1998, he worked for McKesson Corporation as Vice President of Customer Operations in Dallas, Texas.
(5)	Mr. Grealis served as President of Cinergy Investments, Inc. from 1995 to March 1999.  Mr. Grealis also served as President of the former Energy Services Business Unit from 1996 to May 1997.
(6)	Since 1992, Mr. Hale has served as President of Cinergy Foundation, Inc., a Cinergy affiliate that is organized and operated exclusively for charitable purposes.
(7)	Mr. Harkness also serves as Chief Operating and Chief Financial Officer of the Energy Merchant Business Unit.
(8)	Prior to joining Cinergy, Mr. Manly was Managing Director, Law and Governmental Affairs, General Counsel and Corporate Secretary of NewPower Holdings, Inc. (a non-affiliate of Cinergy) from April 2000 to August 2002.  Prior to that, he was Vice President, Chief Counsel for AT&T Consumer Services Group (a non-affiliate of Cinergy) from January 1995 to April 2000.  On June 11, 2002, NewPower Holdings, Inc. and its affiliates, TNPC Holdings, Inc. and the NewPower Company, filed a petition for relief under Chapter 11 of The United States Bankruptcy Code.

202

(9)	Prior to joining Cinergy, Mr. Murphy was Vice President and Chief Risk Officer of Enron Europe, Ltd. (a non-affiliate of Cinergy) from January 2001 to July 2002.  Prior to that, he was Vice President of Market Risk of Enron Corporation (a non-affiliate of Cinergy) from March 1997 to December 2000.
(10)	Prior to joining Cinergy, Mr. Newton was Senior Vice President, Chief Administrative Officer of LG&E (a non-affiliate of Cinergy) from January 1999 to May 2002.  Prior to that, he was Senior Vice President, Human Resources and Administration of LG&E from May 1998 to January 1999.  Prior to joining LG&E, he was Senior Vice President, Human Resources of Venator Group Inc.’s (a non-affiliate of Cinergy) Champs Sports Division from August 1997 to April 1998.
(11)	Prior to joining Cinergy, Mr. Reising was Chief Financial Officer of Focal Communications Corporation (a non-affiliate of Cinergy) from February 2001 to January 2002.  Prior to that, he was Chief Financial Officer of Derivon (a non-affiliate of Cinergy) from May 2000 to February 2001.  Prior to that, he was Chief Financial Officer of Bell Canada (a non-affiliate of Cinergy) from May 1999 to May 2000.  Prior to that, he was Chief Financial Officer of Matav (a non-affiliate of Cinergy) from January 1997 to May 1999.  On December 19, 2002, Focal Communications filed a petition for relief under Chapter 11 of The United States Bankruptcy Code.
(12)	In March 1997, Mr. Turner was appointed Vice President of Cinergy Services, Inc., (Services) having responsibility for the coordination of transition issues across all corporate subsidiaries in the move for full customer choice.  Beginning in April 1998 until January 2000, Mr. Turner had full responsibility for Cinergy’s Government and Regulatory Affairs Department.  Mr. Turner served as Vice President of Customer Services from January 2000 until July 2000.
(13)	Prior to joining Cinergy, Mr. Verhagen served as Senior Vice President, Human Resources and Administration of United Dominion Industries Ltd. (United Dominion; a non-affiliate of Cinergy), a diversified manufacturer of industrial test equipment in Charlotte, North Carolina, from 1998 to 2000.  From 1993 to 1998 he served as Vice President, Human Resources of United Dominion.

203

ITEM 11.  EXECUTIVE COMPENSATION

Information in response to this item for Cinergy Corp. and CG&E is incorporated by reference from Cinergy Corp.’s definitive Proxy Statement for the 2003 Annual Meeting of the Shareholders.

All CG&E directors currently are employees of Cinergy Corp. or CG&E, and receive no compensation for their services as directors.

Information in response to this item for PSI is incorporated by reference from PSI’s 2003 Information Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

Information in response to this item for Cinergy Corp. is incorporated by reference from its definitive Proxy Statement for the 2003 Annual Meeting of Shareholders.

Cinergy Corp. owns all outstanding shares of common stock of CG&E, CG&E’s only voting security.  Pursuant to Section 13(d) of the Securities Exchange Act of 1934 (Exchange Act), a beneficial owner of a security is any person who directly or indirectly has or shares voting or investment power over such security.  No person or group is known by the management of CG&E to be the beneficial owner of more than 5 percent of any series of CG&E’s class of cumulative preferred stock as of December 31, 2002.

CG&E’s directors and executive officers did not beneficially own shares of any series of the class of CG&E’s cumulative preferred stock as of January 31, 2003.  The beneficial ownership of Cinergy Corp. common stock by each director and named executive officer of CG&E as of January 31, 2003, is set forth in the following table:

Name of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)	Percent of Class
Michael J. Cyrus	296,419 shares		*
R. Foster Duncan	84,993 shares		*
William J. Grealis	381,143 shares		*
James E. Rogers	1,572,308 shares		*
James L. Turner	64,795 shares		*
All directors and executive officers as a group (15 persons)	2,621,204 shares	1.55	%

*Less than 1%

(1)Includes shares which there is a right to acquire within 60 days pursuant to the exercise of stock options in the following amounts:  Mr. Cyrus - 191,100; Mr. Duncan - 80,000; Mr. Grealis - 226,731; Mr. Rogers - 1,170,135;  Mr. Turner - 47,300; and all directors and executive officers as a group - 1,856,784.

Information in response to this item for PSI is incorporated by reference from its 2003 Information Statement.

204

The following table reflects Cinergy’s equity compensation plan information as of December 31, 2002:

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders
Cinergy Corp. 1996 Long-Term Incentive Plan	7,417,726	$	29.13	5,685,385
Cinergy Corp. Retirement Plan for Directors	—	N/A		175,000
Cinergy Corp. Directors’ Equity Compensation Plan	—	N/A		75,000
Cinergy Corp. Directors’ Deferred Compensation Plan	—	N/A		200,000
Cinergy Corp. Stock Option Plan	1,443,534	$	28.75	1,318,500
Cinergy Corp. Performance Shares Plan	—	N/A		736,751
Equity compensation plans not approved by security holders
Cinergy Corp. Employee Stock Purchase Savings Plan	218,170	$	32.78	1,651,420
Cinergy Corp. UK Sharesave Scheme	6,012	24.66		59,989
Cinergy Corp. 401(k) Excess Plan	N/A	N/A		52,825
Director, Officer and Key Employee Stock Purchase Program	N/A	N/A		—
Cinergy Corp. 2001 Long-Term Incentive Compensation Sub-Scheme	1,250	$	33.61	6,998,750

The following information describes the equity compensation plans that have not been approved by shareholders.

Cinergy Corp. Employee Stock Purchase and Savings Plan

The Cinergy Corp. Employee Stock Purchase and Savings Plan allows essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature.  Under the Employee Stock Purchase and Savings Plan, after-tax funds are withheld from a participant’s compensation during a 26-month offering period and are deposited in an interest-bearing account.  At the end of the offering period, participants may apply amounts deposited in the account, plus interest, toward the purchase of shares of common stock.  The purchase price is equal to 95 percent of the fair market value of a share of common stock on the first date of the offering period.  Any funds not applied toward the purchase of shares are returned to the participant.  A participant may elect to terminate participation in the plan at any time.  Participation also will terminate if the participant’s employment ceases.  Upon termination of participation, all funds, including interest, are returned to the participant without penalty.  The sixth (current) offering period began May 1, 2001, and ends June 30, 2003.  The purchase price for all shares under this offering is $32.78.

205

UK Sharesave Scheme

The UK Sharesave Scheme allows essentially all full-time, regular UK employees working a minimum of 25 hours per week to purchase shares of common stock pursuant to a stock option feature. Under the UK Sharesave Scheme, after-tax funds are withheld from a participant’s compensation during a 36-month or 60-month offering period, at the election of the participants, and are deposited in an account. At the end of the offering period, participants may apply amounts deposited in the account toward the purchase of shares of common stock. The purchase price cannot be less than 80 percent of the average market price at date of grant or shortly prior to the grant. Any funds not applied toward the purchase of shares are returned to the participant. A participant may elect to terminate participation in the plan at any time. Participation also will terminate if the participant’s employment ceases. Upon termination of participation, all funds are returned to the participant without penalty although, in certain specified circumstances, options may be exercised early on a pro-rata basis.

Cinergy Corp. 401(k) Excess Plan

The Cinergy Corp. 401(k) Excess Plan provides a select group of key senior management employees with the opportunity to defer on a pre-tax basis a portion of their annual base salary in excess of the amount that can be deferred pursuant to current law under Cinergy Corp.’s qualified 401(k) plan.  The plan also provides for certain Company contributions.  Amounts contributed to the plan are credited to a bookkeeping account established for each participant.  Each such account is credited with earnings, gains and losses based on the performance of investment funds selected by the participants in a manner similar to Cinergy Corp.’s qualified 401(k) plan.  One available investment fund credits amounts to participant accounts based on the performance of Cinergy Corp. common stock.  A participant’s account is generally distributed following his or her termination of employment in a single lump sum or in annual installments over a period of up to 10 years.

Director, Officer and Key Employee Stock Purchase Program

In December 1999, Cinergy Corp. adopted the Director, Officer, and Key Employee Stock Purchase Program (Stock Purchase Program).  The purpose of the Stock Purchase Program is to facilitate the purchase and ownership of Cinergy Corp.’s common stock by its directors, officers, and key employees, thereby further aligning their interests with those of its shareholders.  In February 2000, Cinergy Corp. purchased approximately 1.6 million shares of common stock on behalf of the participants at an average price of $24.82 per share.  Participants had the option of financing the purchases through a five-year credit facility arranged by Cinergy Corp. with a bank.  Each participant is obligated to repay the bank any loan principal, interest, and prepayment fees, and each has assigned his or her dividend rights on the purchased shares to the bank to be applied to interest payments as due on the loan.  Cinergy Services, Inc., and in part, Cinergy Corp., have guaranteed repayment to the bank of 100 percent of each participant’s loan obligations and the associated interest, and each participant has agreed to indemnify the guarantor for any payments made by it under the guaranty on the participant’s behalf.  A participant’s obligations to the bank are unsecured and no restrictions are placed on the participant’s ability to sell, pledge, or otherwise encumber or dispose of his or her purchased shares.

Cinergy Corp. 2001 Long-Term Incentive Compensation Sub-Scheme

The Cinergy Corp. 2001 Long-Term Incentive Compensation Sub-Scheme was adopted in 2001.  The purpose of this plan was to allow certain United Kingdom (UK) employees to receive similar benefits as provided under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan while taking into consideration the unique issues of the UK taxation laws.  Under this plan, the eligible employees may be granted incentive and non-qualified stock options.  These stock options are granted to participants with an option price equal to or greater than the fair market value on the grant date, and generally with a vesting period of either three or five years.  The vesting period begins on the grant date and all options expire within 10 years from that date.

206

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this item for Cinergy Corp. and CG&E is incorporated by reference from Cinergy Corp.’s definitive Proxy Statement for the 2003 Annual Meeting of Shareholders.

Information in response to this item for PSI is incorporated by reference from PSI’s 2003 Information Statement.

ITEM 14.  CONTROLS AND PROCEDURES

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision, and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this annual report, and, based upon this evaluation, our chief executive officer and chief financial officer have concluded that these controls and procedures are adequate to ensure that information requiring disclosure is communicated to management in a timely manner and reported within the timeframe specified by the SEC’s rules and forms.

There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of our most recent evaluation.

207

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND SCHEDULES

Refer to the page captioned “Index to Financial Statements and Financial Statement Schedules” for an index of the financial statements and financial statement schedules included in this report.

REPORTS ON FORM 8-K

None

EXHIBITS

The documents listed below are being filed or have previously been filed on behalf of Cinergy Corp., CG&E, PSI, and The Union Light, Heat and Power Company (ULH&P) and are incorporated herein by reference from the documents indicated and made a part hereof.  Exhibits not identified as previously filed are filed herewith:

Exhibit Designation	Registrant(s)(1)	Nature of Exhibit	Previously Filed as Exhibit to:
Articles of Incorporation /By-laws
3-a	Cinergy Corp.	Certificate of Incorporation of Cinergy Corp., a Delaware corporation, as amended May 10, 2001.	Cinergy Corp. March 31, 2001, Form 10-Q
3-b	Cinergy Corp.	By-Laws of Cinergy Corp., as amended on May 2, 2002.	Cinergy Corp. March 31, 2002, Form 10-Q
3-c	CG&E	Amended Articles of Incorporation of CG&E effective October 23, 1996.	CG&E September 30, 1996, Form 10-Q
3-d	CG&E	Regulations of CG&E, as amended, April 25, 1996.	CG&E March 31, 1996, Form 10-Q
3-e	PSI	Amended Articles of Consolidation of PSI, as amended April 20, 1995.	PSI June 30, 1995, Form 10-Q
3-f	PSI	Amendment to Article D of the Amended Articles of Consolidation of PSI, effective July 10, 1997.	Cinergy Corp. 1997 Form 10-K
3-g	PSI	By-Laws of PSI, as amended to December 17, 1996.	PSI March 31, 1997, Form 10-Q
3-h	ULH&P	Restated Articles of Incorporation made effective May 7, 1976.	ULH&P Form 8-K, May 1976
3-i	ULH&P	By-Laws of ULH&P, as amended on May 26, 1999.
3-j	ULH&P	Amendment to Restated Articles of Incorporation of ULH&P (Article Third) and Amendment to the By-Laws of ULH&P (Article 1), both effective July 24, 1997.	Cinergy Corp. 1997 Form 10-K
Instruments defining the rights of holders, incl. Indentures
4-a	Cinergy Corp. PSI	Original Indenture (First Mortgage Bonds) dated September 1, 1939, between PSI and The First National Bank of Chicago, as Trustee, and LaSalle National Bank, as Successor Trustee.	Exhibit A-Part 3 in File No. 70-258 Supplemental Indenture dated March 30, 1984

208

Exhibit Designation	Registrant(s)(1)	Nature of Exhibit	Previously Filed as Exhibit to:
4-b	Cinergy Corp. PSI	Twenty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated September 1, 1978.	File No. 2-62543
4-c	Cinergy Corp. PSI	Thirty-fifth Supplemental Indenture between PSI and The First National Bank of Chicago dated March 30, 1984.	PSI 1984 Form 10-K
4-d	Cinergy Corp. PSI	Forty-second Supplemental Indenture between PSI and LaSalle National Bank dated August 1, 1988.	PSI 1988 Form 10-K
4-e	Cinergy Corp. PSI	Forty-fourth Supplemental Indenture between PSI and LaSalle National Bank dated March 15, 1990.	PSI 1990 Form 10-K
4-f	Cinergy Corp. PSI	Forty-fifth Supplemental Indenture between PSI and LaSalle National Bank dated March 15, 1990.	PSI 1990 Form 10-K
4-g	Cinergy Corp. PSI	Forty-sixth Supplemental Indenture between PSI and LaSalle National Bank dated June 1, 1990.	PSI 1991 Form 10-K
4-h	Cinergy Corp. PSI	Forty-seventh Supplemental Indenture between PSI and LaSalle National Bank dated July 15, 1991.	PSI 1991 Form 10-K
4-i	Cinergy Corp. PSI	Forty-eighth Supplemental Indenture between PSI and LaSalle National Bank dated July 15, 1992.	PSI 1992 Form 10-K
4-j	Cinergy Corp. PSI	Forty-ninth Supplemental Indenture between PSI and LaSalle National Bank dated February 15, 1993.	PSI 1992 Form 10-K
4-k	Cinergy Corp. PSI	Fiftieth Supplemental Indenture between PSI and LaSalle National Bank dated February 15, 1993.	PSI 1992 Form 10-K
4-l	Cinergy Corp. PSI	Fifty-first Supplemental Indenture between PSI and LaSalle National Bank dated February 1, 1994.	PSI 1993 Form 10-K
4-m	Cinergy Corp. PSI	Fifty-second Supplemental Indenture between PSI and LaSalle National Bank, as Trustee, dated as of April 30, 1999.	PSI March 31, 1999, Form 10-Q
4-n	Cinergy Corp. PSI	Fifty-third Supplemental Indenture between PSI and LaSalle National Bank dated June 15, 2001.	Cinergy Corp. June 30, 2001, Form 10-Q
4-o	Cinergy Corp. PSI	Indenture (Secured Medium-term Notes, Series A), dated July 15, 1991, between PSI and LaSalle National Bank, as Trustee.	PSI Form 10-K/A, Amendment No. 2, dated July 15, 1993
4-p	Cinergy Corp. PSI	Indenture (Secured Medium-term Notes, Series B), dated July 15, 1992, between PSI and LaSalle National Bank, as Trustee.	PSI Form 10-K/A, Amendment No. 2, dated July 15, 1993
4-q	Cinergy Corp. PSI	Loan Agreement between PSI and the City of Princeton, Indiana dated as of November 7, 1996.	PSI September 30, 1996, Form 10-Q
4-r	Cinergy Corp. PSI	Loan Agreement between PSI and the City of Princeton, Indiana dated as of February 1, 1997.	Cinergy Corp. 1996 Form 10-K
4-s	Cinergy Corp. PSI	Indenture dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee.	Cinergy Corp. 1996 Form 10-K
4-t	Cinergy Corp. PSI	First Supplemental Indenture dated November 15, 1996, between PSI and The Fifth Third Bank, as Trustee.	Cinergy Corp. 1996 Form 10-K
4-u	Cinergy Corp. PSI	Third Supplemental Indenture dated as of March 15, 1998, between PSI and The Fifth Third Bank, as Trustee.	Cinergy Corp. 1997 Form 10-K
4-v	Cinergy Corp. PSI	Fourth Supplemental Indenture dated as of August 5, 1998, between PSI and The Fifth Third Bank, as Trustee.	PSI June 30, 1998, Form 10-Q
4-w	Cinergy Corp. PSI	Fifth Supplemental Indenture dated as of December 15, 1998, between PSI and The Fifth Third Bank, as Trustee.	PSI 1998 Form 10-K
4-x	Cinergy Corp. PSI	Sixth Supplemental Indenture dated as of April 30, 1999, between PSI and Fifth Third Bank, as Trustee.	PSI March 31, 1999, Form 10-Q
4-y	Cinergy Corp. PSI	Seventh Supplemental Indenture dated as of October 20, 1999, between PSI and Fifth Third Bank, as Trustee.	PSI September 30, 1999, Form 10-Q
4-z	Cinergy Corp. PSI	Unsecured Promissory Note dated October 14, 1998, between PSI and the Rural Utilities Service.	PSI 1998 Form 10-K
4-aa	Cinergy Corp. PSI	Loan Agreement between PSI and the Indiana Development Finance Authority dated as of July 15, 1998.	PSI June 30, 1998, Form 10-Q
4-bb	Cinergy Corp. PSI	Loan Agreement between PSI and the Indiana Development Finance Authority dated as of May 1, 2000.	PSI June 30, 2000, Form 10-Q
4-cc	Cinergy Corp. CG&E	Original Indenture (First Mortgage Bonds) between CG&E and The Bank of New York (as Trustee) dated as of August 1, 1936.	CG&E Registration Statement No. 2-2374
4-dd	Cinergy Corp. CG&E	Fourteenth Supplemental Indenture between CG&E and The Bank of New York dated as of November 2, 1972.	CG&E Registration Statement No. 2-60961
4-ee	Cinergy Corp. CG&E	Thirty-third Supplemental Indenture between CG&E and The Bank of New York dated as of September 1, 1992.	CG&E Registration Statement No. 33-53578
4-ff	Cinergy Corp. CG&E	Thirty-fourth Supplemental Indenture between CG&E and The Bank of New York dated as of October 1, 1993.	CG&E September 30, 1993, Form 10-Q

209

Exhibit Designation	Registrant(s)(1)	Nature of Exhibit	Previously Filed as Exhibit to:
4-gg	Cinergy Corp. CG&E	Thirty-fifth Supplemental Indenture between CG&E and The Bank of New York dated as of January 1, 1994.	CG&E Registration Statement No. 33-52335
4-hh	Cinergy Corp. CG&E	Thirty-sixth Supplemental Indenture between CG&E and The Bank of New York dated as of February 15, 1994.	CG&E Registration Statement No. 33-52335
4-ii	Cinergy Corp. CG&E	Thirty-seventh Supplemental Indenture between CG&E and The Bank of New York dated as of October 14, 1996.	Cinergy Corp. 1996 Form 10-K
4-jj	Cinergy Corp. CG&E	Thirty-eighth Supplemental Indenture between CG&E and The Bank of New York dated as of February 1, 2001.	Cinergy Corp. March 31, 2001, Form 10-Q
4-kk	Cinergy Corp. CG&E	Loan Agreement between CG&E and the County of Boone, Kentucky dated as of February 1, 1985.	CG&E 1984 Form 10-K
4-ll	Cinergy Corp. CG&E	Repayment Agreement between CG&E and The Dayton Power and Light Company dated as of December 23, 1992.	CG&E 1992 Form 10-K
4-mm	Cinergy Corp. CG&E	Loan Agreement between CG&E and the County of Boone, Kentucky dated as of January 1, 1994.	CG&E 1993 Form 10-K
4-nn	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of December 1, 1985.	CG&E 1985 Form 10-K
4-oo	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of September 13, 1995.	CG&E September 30, 1995, Form 10-Q
4-pp	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Water Development Authority dated as of January 1, 1994.	CG&E 1993 Form 10-K
4-qq	Cinergy Corp. CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of January 1, 1994.	CG&E 1993 Form 10-K
4-rr	CG&E	Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated August 1, 2001.	Cinergy Corp. September 30, 2001, Form 10-Q
4-ss	Cinergy Corp. CG&E	Original Indenture (Unsecured Debt Securities) between CG&E and The Fifth Third Bank dated as of May 15, 1995.	CG&E Form 8-A dated July 24, 1995
4-tt	Cinergy Corp. CG&E	First Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 1, 1995.	CG&E June 30, 1995, Form 10-Q
4-uu	Cinergy Corp. CG&E	Second Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 30, 1995.	CG&E Form 8-A dated July 24, 1995
4-vv	Cinergy Corp. CG&E	Third Supplemental Indenture between CG&E and The Fifth Third Bank dated as of October 9, 1997.	CG&E September 30, 1997, Form 10-Q
4-ww	Cinergy Corp. CG&E	Fourth Supplemental Indenture between CG&E and The Fifth Third Bank dated as of April 1, 1998.	CG&E March 31, 1998, Form 10-Q
4-xx	Cinergy Corp. CG&E	Fifth Supplemental Indenture between CG&E and The Fifth Third Bank dated as of June 9, 1998.	CG&E June 30, 1998, Form 10-Q
4-yy	Cinergy Corp. CG&E ULH&P	Original Indenture (First Mortgage Bonds) between ULH&P and The Bank of New York dated as of February 1, 1949.	ULH&P Registration Statement No. 2-7793
4-zz	Cinergy Corp. CG&E ULH&P	Fifth Supplemental Indenture between ULH&P and The Bank of New York dated as of January 1, 1967.	CG&E Registration Statement No. 2-60961
4-aaa	Cinergy Corp. CG&E ULH&P	Thirteenth Supplemental Indenture between ULH&P and The Bank of New York dated as of August 1, 1992.	ULH&P 1992 Form 10-K
4-bbb	Cinergy Corp. CG&E ULH&P	Original Indenture (Unsecured Debt Securities) between ULH&P and The Fifth Third Bank dated as of July 1, 1995.	ULH&P June 30, 1995, Form 10-Q
4-ccc	Cinergy Corp. CG&E ULH&P	First Supplemental Indenture between ULH&P and The Fifth Third Bank dated as of July 15, 1995.	ULH&P June 30, 1995, Form 10-Q
4-ddd	Cinergy Corp. CG&E ULH&P	Second Supplemental Indenture between ULH&P and The Fifth Third Bank dated as of April 30, 1998.	ULH&P March 31, 1998, Form 10-Q
4-eee	Cinergy Corp. CG&E ULH&P	Third Supplemental Indenture between ULH&P and The Fifth Third Bank dated as of December 8, 1998.	ULH&P 1998 Form 10-K
4-fff	Cinergy Corp. CG&E ULH&P	Fourth Supplemental Indenture between ULH&P and The Fifth Third Bank, as Trustee, dated as of September 17, 1999.	ULH&P September 30, 1999, Form 10-Q
4-ggg	Cinergy Corp.	Base Indenture dated as of October 15, 1998, between Global Resources and The Fifth Third Bank, as Trustee.	Cinergy Corp. September 30, 1998, Form 10-Q

210

Exhibit Designation	Registrant(s)(1)	Nature of Exhibit	Previously Filed as Exhibit to:
4-hhh	Cinergy Corp.	First Supplemental Indenture dated as of October 15, 1998, between Global Resources and The Fifth Third Bank, as Trustee.	Cinergy Corp. September 30, 1998, Form 10-Q
4-iii	Cinergy Corp.	Indenture dated as of December 16, 1998, between Cinergy Corp. and The Fifth Third Bank.	Cinergy Corp. 1998 Form 10-K
4-jjj	Cinergy Corp.	Indenture between Cinergy Corp. and The Fifth Third Bank, as Trustee, dated as of April 15, 1999.	Cinergy Corp. March 31, 1999, Form 10-Q
4-kkk	Cinergy Corp.	Indenture between Cinergy Corp. and The Fifth Third Bank, as Trustee, dated September 12, 2001.	Cinergy Corp. September 30, 2001, Form 10-Q
4-lll	Cinergy Corp.	First Supplemental Indenture between Cinergy Corp. and The Fifth Third Bank, as Trustee, dated September 12, 2001.	Cinergy Corp. September 30, 2001, Form 10-Q
4-mmm	Cinergy Corp.	Second Supplemental Indenture, dated December 18, 2001, between Cinergy Corp. and The Fifth Third Bank, as Trustee.	Cinergy Corp. Form 8-K, December 19, 2001
4-nnn	Cinergy Corp.	Rights Agreement between Cinergy Corp. and The Fifth Third Bank, as Rights Agent, dated October 16, 2000.	Cinergy Corp. Registration Statement on Form 8-A dated October 16, 2000
4-ooo	Cinergy Corp.	Purchase Contract Agreement, dated December 18, 2001, between Cinergy Corp. and The Bank of New York, as Purchase Contract Agent.	Cinergy Corp. Form 8-K, December 19, 2001
4-ppp	Cinergy Corp.	Pledge Agreement, dated December 18, 2001, among Cinergy Corp., JP Morgan Chase Bank, as Collateral Agent, Custodial Agent and Securities Intermediary, and The Bank of New York, as Purchase Contract Agent.	Cinergy Corp. Form 8-K, December 19, 2001
4-qqq	Cinergy Corp. CG&E	Thirty-ninth Supplemental Indenture dated as of September 1, 2002, between CG&E and The Bank of New York, as Trustee.	Cinergy Corp. September 30, 2002, Form 10-Q
4-rrr	Cinergy Corp. PSI	Fifty-fourth Supplemental Indenture dated as of September 1, 2002, between PSI and LaSalle Bank National Association, as Trustee.	Cinergy Corp. September 30, 2002, Form 10-Q
4-sss	Cinergy Corp. CG&E	Sixth Supplemental Indenture between CG&E and Fifth Third Bank dated as of September 15, 2002.	Cinergy Corp. September 30, 2002, Form 10-Q
4-ttt	Cinergy Corp. PSI	Loan Agreement between PSI and the Indiana Development Finance Authority dated as of September 1, 2002.	Cinergy Corp. September 30, 2002, Form 10-Q
4-uuu	Cinergy Corp. PSI	Loan Agreement between PSI and the Indiana Development Finance Authority dated as of September 1, 2002.	Cinergy Corp. September 30, 2002, Form 10-Q
4-vvv	Cinergy Corp. CG&E	Loan Agreement between CG&E and the Ohio Air Quality Development Authority dated as of September 1, 2002.	Cinergy Corp. September 30, 2002, Form 10-Q
4-www	Cinergy Corp.	First Amendment to Rights Agreement, dated August 28, 2002, effective September 16, 2002, between Cinergy Corp. and The Fifth Third Bank, as Rights Agent.	Cinergy Corp. Form 8-A/A, Amendment No. 1, filed September 16, 2002
Material contracts
10-a	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated October 24, 1994, among CG&E, Cinergy Corp., PSI Resources, Inc., and PSI, and Jackson H. Randolph.	Cinergy Corp. 1994 Form 10-K
10-b	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated December 30, 1999, among Services, CG&E, and PSI, and James E. Rogers.	Cinergy Corp. 1999 Form 10-K
10-c	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated October 11, 2002, among Cinergy Corp., Services, CG&E, and PSI, and William J. Grealis.
10-d	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated October 1, 2002, among Cinergy Corp., Services, CG&E, and PSI, and Donald B. Ingle, Jr.
10-e	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated September 12, 2002, among Cinergy Corp., Services, CG&E, and PSI, and Michael J. Cyrus.
10-f	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated September 24, 2002, among Cinergy Corp., Services, CG&E, and PSI, and James L. Turner.
10-g	Cinergy Corp. CG&E PSI	Amended and Restated Employment Agreement dated January 1, 2002, among Cinergy Corp., Services, CG&E, and PSI, and R. Foster Duncan.
10-h	Cinergy Corp. CG&E	Employment Agreement dated May 15, 2001, among Cinergy Corp. and CG&E, and J. Joseph Hale, Jr.	Cinergy Corp. June 30, 2001, Form 10-Q

211

Exhibit Designation	Registrant(s)(1)	Nature of Exhibit	Previously Filed as Exhibit to:
10-i	Cinergy Corp.	Employment Agreement dated May 15, 2001, between Cinergy Corp. and M. Stephen Harkness.	Cinergy Corp. June 30, 2001, Form 10-Q
10-j	Cinergy Corp. CG&E PSI	Employment Agreement dated May 15, 2001, among Cinergy Corp., CG&E, and PSI, and Bernard F. Roberts.	Cinergy Corp. June 30, 2001, Form 10-Q
10-k	Cinergy Corp.	Amended and Restated Separation and Retirement Agreement and Waiver and Release of Liability dated February 15, 2002, between Cinergy Corp., and Larry E. Thomas.	Cinergy Corp. 2001 Form 10-K
10-l	Cinergy Corp.	Separation and Retirement Agreement and Waiver and Release of Liability dated October 8, 2002 between Cinergy Corp. and Donald B. Ingle, Jr.
10-m	Cinergy Corp. PSI	Deferred Compensation Agreement, effective as of January 1, 1992, between PSI and James E. Rogers.	PSI Form 10-K/A, Amendment No. 1, dated April 29, 1993
10-n	Cinergy Corp. PSI	Split Dollar Life Insurance Agreement, effective as of January 1, 1992, between PSI and James E. Rogers.	PSI Form 10-K/A, Amendment No. 1, dated April 29, 1993
10-o	Cinergy Corp. PSI	First Amendment to Split Dollar Life Insurance Agreement between PSI and James E. Rogers dated December 11, 1992.	PSI Form 10-K/A, Amendment No. 1, dated April 29, 1993
10-p	Cinergy Corp. CG&E	Deferred Compensation Agreement between CG&E and Jackson H. Randolph dated January 1, 1992.	CG&E 1992 Form 10-K
10-q	Cinergy Corp. CG&E	Split Dollar Insurance Agreement, effective as of May 1, 1993, between CG&E and Jackson H. Randolph.	Cinergy Corp. 1994 Form 10-K
10-r	Cinergy Corp. CG&E	Amended and Restated Supplemental Retirement Income Agreement between CG&E and Jackson H. Randolph dated January 1, 1995.	Cinergy Corp. 1995 Form 10-K
10-s	Cinergy Corp. CG&E	Amended and Restated Supplemental Executive Retirement Income Agreement between CG&E and certain executive officers.	Cinergy Corp. 1997 Form 10-K
10-t	Cinergy Corp.	Cinergy Corp. Supplemental Executive Retirement Plan amended and restated effective January 1, 1999, adopted October 15, 1998.	Cinergy Corp. 1999 Form 10-K
10-u	Cinergy Corp.	1997 Amendments to Various Compensation and Benefit Plans of Cinergy Corp., adopted January 30, 1997.	Cinergy Corp. 1997 Form 10-K
10-v	Cinergy Corp.	Cinergy Corp. Stock Option Plan, adopted October 18, 1994, effective October 24, 1994.	Cinergy Corp. Form S-8, filed October 19, 1994
10-w	Cinergy Corp.	Amendment to Cinergy Corp. Stock Option Plan, amended October 22, 1996, effective November 1, 1996.	Cinergy Corp. September 30, 1996, Form 10-Q
10-x	Cinergy Corp.	Amended and Restated Cinergy Corp. Annual Incentive Plan, effective January 25, 2002.	Cinergy Corp. 2001 Form 10-K
10-y	Cinergy Corp.	Cinergy Corp. Employee Stock Purchase and Savings Plan, adopted October 18, 1994, effective October 24, 1994.	Cinergy Corp. Form S-8, filed October 19, 1994
10-z	Cinergy Corp.	Amendment to Cinergy Corp. Employee Stock Purchase and Savings Plan, adopted April 26, 1996, effective January 1, 1996.	Cinergy Corp. June 30, 1996, Form 10-Q
10-aa	Cinergy Corp.	Amendment to Cinergy Corp. Employee Stock Purchase and Savings Plan, adopted October 22, 1996, effective November 1, 1996.	Cinergy Corp. September 30, 1996, Form 10-Q
10-bb	Cinergy Corp.	Cinergy Corp. UK Sharesave Scheme, adopted and effective December 16, 1999.	Cinergy Corp. 1999 Form 10-K
10-cc	Cinergy Corp.	Cinergy Corp. Directors’ Deferred Compensation Plan, adopted October 18, 1994, effective October 24, 1994.	Cinergy Corp. Form S-8, filed October 19, 1994
10-dd	Cinergy Corp.	Amendment to Cinergy Corp. Directors’ Deferred Compensation Plan, adopted October 22, 1996.	Cinergy Corp. September 30, 1996, Form 10-Q
10-ee	Cinergy Corp.	Cinergy Corp. Retirement Plan for Directors, amended and restated effective January 1, 1999, adopted October 15, 1998.	Cinergy Corp. Schedule 14A Definitive Proxy Statement filed March 12, 1999
10-ff	Cinergy Corp.	Cinergy Corp. Directors’ Equity Compensation Plan adopted October 15, 1998, effective January 1, 1999.	Cinergy Corp. Schedule 14ADefinitive Proxy Statement filed March 12, 1999
10-gg	Cinergy Corp.	Cinergy Corp. Executive Supplemental Life Insurance Program adopted October 18, 1994, effective October 24, 1994, consisting of Defined Benefit Deferred Compensation Agreement, Executive Supplemental Life Insurance Program Split Dollar Agreement I, and Executive Supplemental Life Insurance Program Split Dollar Agreement II.	Cinergy Corp. 1994 Form 10-K
10-hh	Cinergy Corp.	Amended and Restated Cinergy Corp. 1996 Long-term Incentive Compensation Plan, effective January 25, 2002.	Cinergy Corp. 2001 Form 10-K

212

Exhibit Designation	Registrant(s)(1)	Nature of Exhibit	Previously Filed as Exhibit to:
10-ii	Cinergy Corp.	Cinergy Corp. 401(k) Excess Plan, effective January 1, 1997, adopted December 17, 1996.	Cinergy Corp. 1996 Form 10-K
10-jj	Cinergy Corp.	Amendment to Cinergy Corp. 401(k) Excess Plan, adopted January 24, 2002, effective January 1, 2002.	Cinergy Corp. Form S-8, filed January 31, 2002
10-kk	Cinergy Corp.	Amendment to Cinergy Corp. 401(k) Excess Plan, adopted December 18, 2002, effective January 1, 2003.
10-ll	Cinergy Corp.	Cinergy Corp. Nonqualified Deferred Incentive Compensation Plan, effective January 1, 1997, adopted December 17, 1996.	Cinergy Corp. 1996 Form 10-K
10-mm	Cinergy Corp.	Amendment to Cinergy Corp. Nonqualified Deferred Incentive Compensation Plan, adopted December 18, 2002, effective January 1, 2002.
10-nn	Cinergy Corp.	Cinergy Corp. Director, Officer and Key Employee Stock Purchase Program, effective January 7, 2000, adopted December 10, 1999.	Cinergy Corp. 1999 Form 10-K
10-oo	Cinergy Corp.	Cinergy Corp. Non-Union Employees’ Pension Plan adopted December 18, 2002, amended and restated effective January 1, 2003.
10-pp	Cinergy Corp.	Cinergy Corp. Non-Union Employees’ Severance Opportunity Plan as amended and restated effective June 1, 2001, adopted May 30, 2001.	Cinergy Corp. June 30, 2001, Form 10-Q
10-qq	Cinergy Corp.	Amendment to the Amended and Restated Separation and Retirement Agreement and Waiver and Release of Liability, between Cinergy Corp. and Larry E. Thomas.	Cinergy Corp. March 31, 2002, Form 10-Q
10-rr	Cinergy Corp.	Second Amendment to the Amended and Restated Separation and Retirement Agreement and Waiver and Release of Liability, between Cinergy Corp. and Larry E. Thomas.	Cinergy Corp. June 30, 2002, Form 10-Q
10-ss	Cinergy Corp.	Amended and Restated Cinergy Corp. Non-Union Employees’ 401(k) Plan, adopted December 18, 2002, effective January 1, 2003.
Subsidiaries of the registrant
21	Cinergy Corp. CG&E PSI	Subsidiaries of Cinergy Corp., CG&E, and PSI
Consent of experts and counsel
23	Cinergy Corp. CG&E PSI ULH&P	Independent Auditors' Consent
Power of attorney
24	Cinergy Corp. CG&E PSI ULH&P	Power of Attorney

(1)	Regulation S-K 229.10(d) requires Registrants to identify the physical location, by SEC file number reference, of all documents that are incorporated by reference and have been on file with the SEC for more than five years.  The SEC file number references for Cinergy and its subsidiaries, which are registrants are provided below:
	Cinergy Corp. in file number 1-11377
	CG&E in file number 1-1232
	PSI in file number 1-3543
	ULH&P in file number 2-7793
	Each registrant hereby undertakes to furnish to the SEC upon request a copy of any long-term debt instrument not listed above.

213

CINERGY CORP. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(in thousands)

Col. A	Col. B		Col. C				Col. D				Col. E
Description	Balance at Beginning of Period		Additions				Deductions				Balance at Close of Period
			Charged to Expenses		Charged to Other Accounts		For Purposes for Which Reserves Were Created		Other
Accumulated Provisions Deducted from Applicable Assets
Allowance for Doubtful Accounts
2002	$	34,110	$	7,883	$	9,270	$	34,867	$	22	$	16,374
2001	$	29,951	$	39,693	$	5,254	$	40,788	$	—	$	34,110
2000	$	26,811	$	22,746	$	4,486	$	24,092	$	—	$	29,951

214

THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(in thousands)

Col. A	Col. B		Col. C				Col. D				Col. E
Description	Balance at Beginning of Period		Additions				Deductions				Balance at Close of Period
			Charged to Expenses		Charged to Other Accounts		For Purposes for Which Reserves Were Created		Other
Accumulated Provisions Deducted from Applicable Assets
Allowance for Doubtful Accounts
2002	$	25,874	$	2,029	$	6,096	$	28,057	$	—	$	5,942
2001	$	19,044	$	30,166	$	4,089	$	27,425	$	—	$	25,874
2000	$	16,740	$	14,056	$	4,486	$	16,238	$	—	$	19,044

215

PSI ENERGY, INC. AND SUBSIDIARY

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(in thousands)

Col. A	Col. B		Col. C				Col. D				Col. E
Description	Balance at Beginning of Period		Additions				Deductions				Balance at Close of Period
			Charged to Expenses		Charged to Other Accounts		For Purposes for Which Reserves Were Created		Other
Accumulated Provisions Deducted from Applicable Assets
Allowance for Doubtful Accounts
2002	$	6,773	$	2,310	$	3,174	$	6,579	$	22	$	5,656
2001	$	9,317	$	8,339	$	1,165	$	12,048	$	—	$	6,773
2000	$	9,934	$	7,088	$	—	$	7,705	$	—	$	9,317

216

THE UNION LIGHT, HEAT AND POWER COMPANY

SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(in thousands)

Col. A	Col. B		Col. C				Col. D				Col. E
Description	Balance at Beginning of Period		Additions				Deductions				Balance at Close of Period
			Charged to Expenses		Charged to Other Accounts		For Purposes for Which Reserves Were Created		Other
Accumulated Provisions Deducted from Applicable Assets
Allowance for Doubtful Accounts
2002	$	1,196	$	392	$	2,383	$	3,887	$	—	$	84
2001	$	1,492	$	3,050	$	4	$	3,350	$	—	$	1,196
2000	$	1,513	$	2,555	$	746	$	3,322	$	—	$	1,492

217

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company each duly has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants

Date:  February 27, 2003
	By	/s/ James E. Rogers
			James E. Rogers
			Chief Executive Officer

218

Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons on behalf of the indicated registrants and in the capacities and on the dates indicated:

Signature			Title	Date
Cinergy Corp.
Phillip R. Cox*			Director of Cinergy Corp.
George C. Juilfs*			Director of Cinergy Corp.
Thomas E. Petry*			Director of Cinergy Corp.
Mary L. Schapiro*			Director of Cinergy Corp.
John J. Schiff, Jr.*			Director of Cinergy Corp.
Philip R. Sharp*			Director of Cinergy Corp.
Dudley S. Taft*			Director of Cinergy Corp.
Cinergy Corp. and PSI
Michael G. Browning*			Director of Cinergy Corp.
CG&E and ULH&P
James L. Turner*			Vice President and Director of CG&E and ULH&P
PSI
Douglas F. Esamann*			Director of PSI
Cinergy Corp., CG&E, PSI, and ULH&P
	/s/ James E. Rogers		Chairman, Chief Executive Officer,	February 27, 2003
		James E. Rogers	and Director of Cinergy Corp., CG&E, PSI, and ULH&P (Principal Executive Officer)
	/s/ R. Foster Duncan		Executive Vice President and Chief	February 27, 2003
		R. Foster Duncan	Financial Officer of Cinergy Corp., CG&E, PSI, and ULH&P and Director of CG&E and ULH&P (Principal Financial Officer)
	/s/ Bernard F. Roberts		Vice President and Comptroller of	February 27, 2003
		Bernard F. Roberts	Cinergy Corp., CG&E, PSI, and ULH&P (Principal Accounting Officer)

219

*The undersigned, by signing his name hereto, does hereby execute this Form 10-K on behalf of the officers and directors of the registrant indicated above by asterisks, pursuant to powers of attorney duly executed by such officers and directors and incorporated by reference as an exhibit to this Form 10-K.

/s/ James E. Rogers

James E. Rogers
Attorney-In-Fact

February 27, 2003

/s/ R. Foster Duncan

R. Foster Duncan
Attorney-In-Fact

February 27, 2003

220

I, James E. Rogers, certify that:

1. I have reviewed this annual report on Form 10-K of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this annual report;

4. The registrants’ other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrants’ disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants’ other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants’ ability to record, process, summarize and report financial data and have identified for the registrants’ auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal controls; and

6. The registrants’ other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003

/s/  James E. Rogers

Chief Executive Officer

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I, R. Foster Duncan, certify that:

1. I have reviewed this annual report on Form 10-K of Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this annual report;

4. The registrants’ other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrants’ disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants’ other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants’ ability to record, process, summarize and report financial data and have identified for the registrants’ auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal controls; and

6. The registrants’ other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 27, 2003

/s/ R. Foster Duncan

Chief Financial Officer

222

EX-3.I

Exhibit 3.i

THE UNION LIGHT, HEAT AND POWER COMPANY

BY-LAWS

ADOPTED BY SHAREHOLDERS, APRIL 27, 1948

AMENDED BY BOARD OF DIRECTORS, MAY 3, 1950

AMENDED BY SHAREHOLDERS, MAY 2, 1984

AMENDED BY SHAREHOLDERS, MAY 3, 1989

AMENDED BY SHAREHOLDERS, JUNE 16, 1995

AMENDED BY SHAREHOLDERS, MAY 8, 1996

AMENDED EFFECTIVE JULY 24, 1997

AMENDED BY SHAREHOLDERS, MAY 26, 1999

TABLE OF CONTENTS

BY-LAWS
THE UNION LIGHT, HEAT AND POWER COMPANY
ARTICLE I
Offices
Section	1.	Offices
ARTICLE II
Shareholders’ Meetings
Section	1.	Annual Meeting
	2.	Notice of Annual Meeting
	3.	Special Meetings
	4.	Notice of Special Meeting
	5.	Waiver of Notice
	6.	Quorum
	7.	Voting
	8.	Written Consent of Shareholders in Lieu of Meeting
ARTICLE III
Board of Directors
Section	1.	Number of Directors, Tenure, Vacancies
	2.	Annual Organization Meeting
	3.	Regular Meetings
	4.	Special Meetings
	5.	Notice of Meetings
	6.	Quorum
	7.	Compensation of Directors
	8.	Executive Committee
	9.	Other Committees
	10.	Actions of Board
ARTICLE IV
Officers
Section	1.	Officers
	2.	Subordinate Officers
	3.	Chairman of the Board
	4.	Vice Chairman
	5.	Chief Executive Officer
	6.	Chief Operating Officer
	7.	President

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	8.	Vice Presidents
	9.(a).	Secretary
	9.(b).	Assistant Secretaries
	10.(a).	Treasurer
	10.(b).	Assistant Treasurers
	11.(a).	Comptroller
	11.(b).	Assistant Comptrollers
ARTICLE V
Indemnification of Directors, Officers, Employees, and Agents
Section	1.	Definitions
	2.	Indemnification
	3.	Mandatory Indemnification
	4.	Advance for Expenses
	5.	Determination and Authorization of Indemnification
	6.	Indemnification of Officers, Employees, and Agents
	7.	Insurance
	8.	Application of this Article
ARTICLE VI
Capital Stock
Section	1.	Form and Execution of Certificates
	2.	Transfer of Shares
	3.	Appointment of Transfer Agents and Registrars
	4.	Closing of Transfer Books or Taking Record of Shareholders
	5.	Lost Stock Certificates
ARTICLE VII
Dividends
Section	1.	Dividends
ARTICLE VIII
Fiscal Year
Section	1.	Fiscal Year

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ARTICLE IX
Contracts, Checks, Notes, etc.
Section	1.	Contracts, Checks, Notes, etc
ARTICLE X
Notice and Waiver of Notice
Section	1.	Notice and Waiver of Notice
ARTICLE XI
Corporate Seal
Section	1.	Corporate Seal
ARTICLE XII
Amendment
Section	1.	Amendment

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BY-LAWS
OF

THE UNION LIGHT, HEAT AND POWER COMPANY

ARTICLE I

Offices

Section 1.  Offices.  The registered office of the Corpora­tion shall be located in the City of Louisville, Jefferson County, Commonwealth of Kentucky.  The Corporation may establish branch offices and conduct and carry on business at such other places within or without the Commonwealth of Kentucky as the Board of Directors may from time to time fix or designate, and any business conducted or carried on at such other place or places shall be as binding and effectual as if transacted at the registered office of the Corporation.

ARTICLE II

Shareholders’ Meetings

Section 1.  Annual Meeting.  The annual meeting of the shareholders may be held either within or without the Commonwealth of Kentucky, at such place, time, and date designated by the Board of Directors, for the election of directors, the consideration of the reports to be laid before the meeting and the transaction of such other business as may be brought before the meeting.

Section 2.  Notice of Annual Meeting.  Notice of the annual meeting shall be given in writing to each shareholder entitled to vote thereat, at such address as appears on the records of the Corporation at least ten (10) days, and not more than forty (40) days prior to the meeting.

Section 3.  Special Meetings.  Special meetings of the shareholders may be called at any time by the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, or President, or by a majority of the members of the Board of Directors acting with or without a meeting, or by the persons who hold in the aggregate one-fifth of all the shares outstanding and entitled to vote thereat, upon notice in writing, stating the time, place and purpose of the meeting.  Business transacted at all special meetings shall be confined to the objects stated in the call.

Section 4.  Notice of Special Meeting.  Notice of a special meeting, in writing, stating the time, place and purpose thereof, shall be given to each shareholder entitled to vote thereat, not less than ten (10) nor more than thirty-five (35) days after the receipt of said request.

Section 5.  Waiver of Notice.  Notice of any shareholders' meeting may be waived in writing by any shareholder at any time before or after the meeting.

Section 6.  Quorum.  At any meeting of the shareholders, the holders of a majority of the shares of stock of the Corporation, issued and outstanding, and entitled to vote, present in person or by proxy, shall constitute a quorum for all purposes, unless otherwise specified by law or the Articles of Incorporation.

If, however, such majority shall not be present or repre­sented at any meeting of the shareholders, the shareholders entitled to vote, present in person or by proxy, shall have power to adjourn the meeting from time to time without further notice, other than by announcement at the meeting, until the requisite amount of voting stock shall be present.  At any such adjourned meeting, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called.

Section 7.  Voting.  At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such shareholder and bearing a date not more than eleven (11) months prior to said meeting, unless some other definite period of validity shall be expressly provided therein.

Each shareholder shall have one (1) vote for each share of stock having voting power, registered in his or her name on the books of the Corporation, at the date fixed for determination of persons entitled to vote at the meeting or, if no date has been fixed, then at the date of the meeting.  Cumulative voting shall be permitted only as expressly required by statute.

A complete list of shareholders entitled to vote at the shareholders' meetings, arranged in alphabetical order, with the address and the number of voting shares held by each, shall be produced on the request of any shareholder, and such list shall be prima facie evidence of the ownership of shares and of the right of shareholders to vote, when certified by the Secretary or by the agent of the Corporation having charge of the transfer of shares.

Section 8.  Written Consent of Shareholders in Lieu of Meeting.  Any action required or permitted by statute, the Restated Articles of Incorporation of the Corporation, or these By-Laws, to be taken at any annual or special meeting of shareholders of the Corporation, may be taken without a meeting, without prior notice, and without a vote, if a written consent in lieu of a meeting, setting forth the actions so taken, shall be signed by all the shareholders entitled to vote thereon.  Any such written consent may be given by one or any number of substantially concurrent written instruments of substantially similar tenor signed by such shareholders, in person or by attorney or proxy duly appointed in writing, and filed with the records of the Corporation.  Any such written consent shall be effective as of the effective date thereof as specified therein.

ARTICLE III

Board of Directors

Section 1.  Number of Directors, Tenure, Vacancies.  The business and affairs of the Corporation shall be managed and controlled by a Board of Directors (who need not be shareholders) consisting of not less than three (3) persons and not more than seven (7), the exact number of which may be fixed or changed either by the affirmative vote of the majority of the shares represented and entitled to vote at any meeting of the shareholders called for the purpose of electing directors, or by the affirmative vote of the majority of the directors then in office at any stated or special meeting of the Board of Directors; provided, however, that the board may be subject to certain limitations as expressly provided for under and pursuant to Kentucky Revised Statutes §271B.8-030(2), or such similar successor governing statute.  Directors shall be elected annually by the shareholders at the annual meeting, and each director shall hold office until his successor shall have been elected and qualified.  Any director may resign at any time.  Vacancies

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occurring in the Board of Directors shall be filled by the remaining members of the board.  A director thus elected to fill any vacancy shall hold office for the unexpired term of his predecessor and until his successor is elected and qualifies.  Any director may be removed at any time by the affirmative vote of a majority of the stock then issued and entitled to vote at a special meeting of shareholders called for the purpose.

Section 2.  Annual Organization Meeting.  Immediately after each annual election, the newly-elected directors may meet forthwith (either within or without the State of Kentucky) for the purpose of organization, the election of officers and the transaction of other business.  If a majority of the directors be then present no prior notice of such meeting shall be required to be given.  The place and time of such first meeting may, however, be fixed by written consent of all the directors, or by three (3) days written notice given by the Secretary of the Corporation.

Section 3.  Regular Meetings.  Regular meetings of the Board of Directors may be held at such time and place (either within or without the State of Kentucky), and upon such notice, as the Board of Directors may from time to time determine.

Section 4.  Special Meetings.  Special meetings of the Board of Directors may be called by the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, or President, or may be called by the written request of two (2) members of the Board of Directors.

Section 5.  Notice of Meetings.  Notice of meetings shall be given to each director in accordance with Article X, Section 1, of these By-Laws.

Section 6.  Quorum.  A majority of the Board of Directors shall constitute a quorum for the transaction of business, but a majority of those present at the time and place of any meeting, although less than a quorum, may adjourn the same from time to time, without notice, until a quorum be had.  The act of a majority of the directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors.

Section 7.  Compensation of Directors.  Each director of the Corporation (other than directors who are salaried officers of the Corporation or of The Cincinnati Gas & Electric Company or any of its affiliates) shall be entitled to receive as compensation for services such amounts as may be determined from time to time by the Board of Directors in form either in fees for attendance at the meeting of the Board of Directors, or by payment at the rate of a fixed sum per month, or both.  The same payment may also be made to anyone other than a director officially called to attend any such meeting.

Section 8.  Executive Committee.  The Board of Directors may, by resolution passed by a majority of the whole Board, designate annually three (3) of their number to constitute an Executive Committee, who to the extent provided in the resolution, shall exercise in the intervals between the meetings of the Board of Directors the powers of the Board in the management of the business and affairs of the Corporation.

The Executive Committee may act by a majority of its members at a meeting or by a writing signed by all of its members.

All action by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action.

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Non-employee members of such Executive Committee shall be entitled to receive such fees and compensation as the Board of Directors may determine.

Section 9.  Other Committees.  The Board of Directors may also appoint such other standing or temporary committees from time to time as they may see fit, delegating to such committees all or any part of their own powers.  The members of such committees shall be entitled to receive such fees as the Board may determine.

Section 10.  Actions of Board.  Unless otherwise provided by the Restated Articles of Incorporation of the Corporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors of the Corporation, or of any committee(s) thereof, may be taken without a meeting, if all the members of the Board of Directors, or of such committee(s), as the case may be, consent thereto in writing, and such writing(s) is filed with the minutes of proceedings of the Board of Directors, or of such committee(s), of the Corporation.  Any such written consent to action of the Board of Directors, or of such committee(s), shall be effectuated by the signature of the member lastly consenting thereto in writing, unless the consent otherwise specifies a prior or subsequent effective date.

ARTICLE IV

Officers

Section 1.  Officers. The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer, a Comptroller, and may consist of a Vice Chairman, a Chief Operating Officer, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, or one or more Assistant Comptrollers, all of whom shall be elected by the Board of Directors, and shall hold office for one year and until their successors are chosen and qualified.

Any two or more offices may be held by the same person, except that the duties of the President and Secretary shall not be performed by the same person.  All vacancies occurring among any of the above offices shall be filled by the Board of Directors.  Any officer may be removed with or without cause by the affirmative vote of a majority of the number of Directors at any meeting of the Board of Directors.

Section 2.  Subordinate Officers.  The Board of Directors may appoint such other officers and agents with such powers and duties as they shall deem necessary.

Section 3.  The Chairman of the Board.  The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and, in the absence or inability to act of the Chief Executive Officer, meetings of shareholders and shall, subject to the Board’s direction and control, be the Board’s representative and medium of communication, and shall perform such other duties as may from time to time be assigned to the Chairman of the Board by the Board of Directors.  The Chairman of the Board shall direct the long-term strategic planning process of the Corporation and shall also lend his or her expertise to such other officers as may be requested from time to time by such officers.  The Chairman shall be a member of the Executive Committee.

Section 4.  The Vice Chairman.  The Vice Chairman of the Board, if there be one, shall be a director and shall preside at meetings of the Board of Directors in the absence or inability to act

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of the Chairman of the Board or meetings of shareholders in the absence or inability to act of the Chief Executive Officer and the Chairman of the Board.  The Vice Chairman shall perform such other duties as may from time to time be assigned to him or her by the Board of Directors.  The Vice Chairman shall be a member of the Executive Committee.

Section 5.  The Chief Executive Officer.  The Chief Executive Officer shall be a director and shall preside at all meetings of the shareholders, and, in the absence or inability to act of the Chairman of the Board and the Vice Chairman, at all meetings of the Board of Directors.  The Chief Executive Officer shall from time to time report to the Board of Directors all matters within his or her knowledge which the interests of the Corporation may require be brought to their notice.  The Chief Executive Officer shall be the chairman of the Executive Committee and ex officio a member of all standing committees.

Section 6.  The Chief Operating Officer.  The Chief Operating Officer of the Corporation, if there be one, shall have general and active management and direction of the affairs of the Corporation, shall have supervision of all departments and of all officers of the Corporation, shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect, and shall have the general powers and duties of supervision and management usually vested in the office of a Chief Operating Officer of a corporation.  Unless otherwise provided, all corporate officers and functions shall report directly to the Chief Operating Officer, if there be one, or, if not, to the Chief Executive Officer.

Section 7.  The President.  The President shall have such duties as may be delegated by the Board of Directors, Chief Executive Officer or Chief Operating Officer.

Section 8.  The Vice Presidents.  The Vice Presidents shall perform such duties as the Board of Directors shall, from time to time, require.  In the absence or incapacity of the President, the Vice President designated by the Board of Directors or Executive Committee, Chief Executive Officer, Chief Operating Officer, or President shall exercise the powers and duties of the President.

Section 9(a).  The Secretary.  The Secretary shall attend all meetings of the Board of Directors, of the Executive Committee and of the shareholders and act as clerk thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing committees when required.

The Secretary shall keep in safe custody the seal of the Corporation, and, whenever authorized by the Board of Directors or the Executive Committee, affix the seal to any instrument requiring the same.

The Secretary shall see that proper notice is given of all meetings of the shareholders of the Corporation and of the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors, Chief Executive Officer, Chief Operating Officer or President.

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(b) Assistant Secretaries.  At the request of the Secretary, or in his or her absence or inability to act, the Assistant Secretary or, if there be more than one, the Assistant Secretary designated by the Secretary, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions of the Secretary.  The Assistant Secretaries shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Secretary.

Section 10(a).  The Treasurer.  The Treasurer shall be the financial officer of the Corporation, shall keep full and accurate accounts of all collections, receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuables in the name and to the credit of the Corporation, in such depositories as may be directed by the Board of Directors, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, Chief Executive Officer, Chief Operating Officer, or President, taking proper vouchers therefor, and shall render to the Chief Executive Officer, Chief Operating Officer, or President, and directors at all regular meetings of the Board, or whenever they may require it, and to the annual meeting of the shareholders, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation.

The Treasurer shall also perform such other duties as the Board of Directors may from time to time require.

If required by the Board of Directors, the Treasurer shall give the Corporation a bond in a form and in a sum with surety satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and the restoration to the Corporation in the case of his or her death, resignation or removal from office of all books, papers, vouchers, money and other property of whatever kind in his or her possession belonging to the Corporation.

(b) Assistant Treasurers.  At the request of the Treasurer, or in his or her absence or inability to act, the Assistant Treasurer or, if there be more than one, the Assistant Treasurer designated by the Treasurer, shall perform the duties of the Treasurer and when so acting shall have all the powers of and be subject to all the restrictions of the Treasurer.  The Assistant Treasurers shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Treasurer.

Section 11(a).  The Comptroller.  The Comptroller shall have control over all accounts and records of the Corporation pertaining to moneys, properties, materials and supplies. He or she shall have executive direction over the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. He or she shall have such other powers and duties as are incident to the office of Comptroller of a corporation and shall be subject at all times to the direction and control of the Board of Directors, Chief Executive Officer, Chief Operating Officer, President and a Vice President.

(b) Assistant Comptrollers.  At the request of the Comptroller, or in his or her absence or inability to act, the Assistant Comptroller or, if there be more than one, the Assistant Comptroller designated by the Comptroller, shall perform the duties of the Comptroller and when so acting shall have all the powers of and be subject to all the restrictions of the Comptroller.  The Assistant Comptrollers shall perform such other duties as may from time to time be assigned to them by the Board of Directors, Chief Executive Officer, Chief Operating Officer, President, or Comptroller.

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ARTICLE V

Indemnification of Directors, Officers, Employees, and Agents

Section 1.  Definitions.  As used in this Article:

A.            "Corporation" includes any domestic or foreign predecessor entity of the Corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction.

B.            "Director" means an individual who is or was a Director of the Corporation or an individual who, while a Director of the Corporation, is or was serving at the Corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise.  A Director shall be considered to be serving an employee benefit plan at the Corporation's request if his or her duties to the Corporation also impose duties on, or otherwise involve services by, him or her to the plan or to participants in or beneficiaries of the plan.  "Director" includes, unless the context requires otherwise, the estate or personal representative of a Director.

C.            "Expenses" include counsel fees.

D.            "Liability" means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding.

E.             "Official capacity" means:

(1)  When used with respect to a Director, the office of Director in the Corporation, and

(2)  When used with respect to an individual other than a Director, as contemplated in Section 6, the office in the Corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the Corporation.  "Official capacity" shall not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise.

F.             "Party" includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.

G.            "Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.

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Section 2. Indemnification.

A.            Except as provided in subsection (D) of this Section, the Corporation shall indemnify an individual made a party to a proceeding because he or she is or was a Director against liability incurred in the proceeding if:

(1)  He or she conducted himself or herself in good faith; and

(2)  He or she reasonably believed:

(a)  In the case of conduct in his or her official capacity with the Corporation, that his or her conduct was in its best interest; and

(b)    In all other cases, that his or her conduct was at least not opposed to its best interests; and

(3)  In the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.

B.            A Director's conduct with respect to an employee benefit plan for a purpose he or she reasonably believed to be in the interests of the participants in and beneficiaries of the plan shall be conduct that satisfies the requirement of subsection A(2)(b) of this Section.

C.            The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not be, of itself, determinative that the Director did not meet the standard of conduct described in this Section.

D.            The Corporation may not indemnify a Director under this Section:

(1)  In connection with a proceeding by or in the right of the Corporation in which the Director was adjudged liable to the Corporation; or

(2)  In connection with any other proceeding charging improper personal benefit to him or her, whether or not involving action in his or her official capacity, in which he or she was adjudged liable on the basis that personal benefit was improperly received by him or her.

E.             Indemnification permitted under this Section in connection with a proceeding by or in the right of the Corporation shall be limited to reasonable expenses incurred in connection with the proceeding.

Section 3.  Mandatory Indemnification.  Unless limited by the Articles of Incorporation, the Corporation shall indemnify a Director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she is or was a Director of the Corporation against reasonable expenses incurred by him or her in connection with the proceeding.

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Section 4.  Advance for Expenses.

A.            The Corporation may pay for or reimburse the reasonable expenses incurred by a Director who is a party to a proceeding in advance of final disposition of the proceeding if:

(1)  The Director furnishes the Corporation a written affirmation of his or her good faith belief that he or she has met the standard of conduct described in Section 2;

(2)  The Director furnishes the Corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct; and

(3)  A determination is made that the facts then known to those making the determination would not preclude indemnification under this article.

B.            The undertaking required by subsection A(2) of this Section shall be an unlimited general obligation of the Director but shall not be required to be secured and may be accepted without reference to financial ability to make repayment.

C.            Determinations and authorizations of payments under this Section shall be made in the manner specified in Section 5.

Section 5.  Determination and Authorization of Indemnification.

A.            The Corporation shall not indemnify a Director under Section 2 of this Article unless authorized in the specific case after a determination has been made that indemnification of the Director is permissible in the circumstances because he or she has met the standard of conduct set forth in Section 2.

B.            The determination shall be made:

(1)  By the Board of Directors by majority vote of a quorum consisting of Directors not at the time parties to the proceeding;

(2)  If a quorum cannot be obtained under subsection B(1) of this Section, by majority vote of a committee duly designated by the Board of Directors (in which designation Directors who are parties may participate), consisting solely of two or more Directors not at the time parties to the proceeding;

(3)  By special legal counsel:

(a)  Selected by the Board of Directors or its committee in the manner prescribed in subsection B(1) and (2) of this Section; or

(b)  If a quorum of the Board of Directors cannot be obtained under subsection B(1) of this Section and a committee cannot be designated under subsection B(2) of this Section, selected by majority vote of the full Board of Directors (in which selection Directors who are parties may participate); or

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(4)  By the shareholders, but shares owned by or voted under the control of Directors who are at the time parties to the proceeding shall not be voted on the determination.

C.            Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection B(3) of this Section to select counsel.

Section 6.  Indemnification of Officers, Employees, and Agents.  Unless the Corporation's Articles of Incorporation provide otherwise:

A.            An officer of the Corporation who is not a Director shall be entitled to mandatory indemnification under Section 3, and is entitled to apply for court-ordered indemnification under the Kentucky Business Corporation Act, in each case to the same extent as a Director;

B.            The Corporation may indemnify and advance expenses under this Article to an officer, employee, or agent of the Corporation who is not a Director to the same extent as to a Director; and

C.            The Corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a Director to the extent, consistent with public policy, that may be provided by the Articles of Incorporation, By-Laws, general or specific action of the Board of Directors, or contract.

Section 7.  Insurance.  The Corporation may purchase and maintain insurance on behalf of an individual who is or was a Director, officer, employee, or agent of the Corporation, or who, while a Director, officer, employee, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by him or her in that capacity or arising from his or her status as a Director, officer, employee, or agent, whether or not the Corporation would have power to indemnify him or her against the same liability under Section 2 or Section 3.

Section 8.  Application of this Article.

A.            The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the By-Laws, any agreement, vote of shareholders or disinterested Directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.

B.            This Article shall not limit the Corporation's power to pay or reimburse expenses incurred by a Director in connection with his or her appearance as a witness at a proceeding at a time when he or she has not been made a named defendant or respondent to the proceeding.

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ARTICLE VI

Capital Stock

Section 1.  Form and Execution of Certificates.  The certificates for shares of the capital stock of the Corporation shall be of such form and content, not inconsistent with the law and the Articles of Incorporation, as shall be approved by the Board of Directors.  The certificates shall be signed by (1) either the Chairman, Chief Executive Officer, President or a Vice President, and (2) any one of the following officers:  Secretary or Assistant Secretary, Treasurer or Assistant Treasurer.  All certificates shall be consecutively numbered in each class of shares.  The name and address of the person owning the shares represented thereby, with the number of shares and the date of issue, shall be entered on the Corporation’s books.

Section 2.  Transfer of Shares.  Transfer of shares shall be made upon the books of the Corporation or respective Transfer Agents designated to transfer each class of stock, and before a new certificate is issued the old certificates shall be surrendered for cancellation.

Section 3.  Appointment of Transfer Agents and Registrars.  The Board of Directors may appoint one or more transfer agents or one or more registrars or both, and may require all stock certificates to bear the signature of either or both.  When any such certificate is signed, by a transfer agent or registrar, the signatures of the corporate officers and the corporate seal, if any, upon such certificate may be facsimiles, engraved or printed.

In case any officer designated for the purpose, who has signed or whose facsimile signature has been used on any such certificate, shall, from any cause, cease to be such officer before the certificate has been delivered by the Corporation, the certificate may nevertheless be adopted by the Corporation and be issued and delivered as though the person had not ceased to be such officer.

Section 4.  Closing of Transfer Books or Taking Record of Shareholders.  The Board of Directors may fix a time not exceeding forty (40) days preceding the date of any meeting of shareholders or any dividend payment date or any date for the allotment of rights as a record date for the determination of the shareholders entitled to notice of such meeting or to vote thereat or to receive such dividends or rights as the case may be; or the Board of Directors may close the books of the Corporation against transfer of shares during the whole or any part of such period.

Section 5.  Lost Stock Certificates.  In the case of a lost stock certificate, a new stock certificate may be issued in its place upon proof of such loss, destruction or mutilation and upon the giving of a satisfactory bond of indemnity to the Corporation and/or to the transfer agent and registrar of such stock, if any, in such sum and under such terms as the Board of Directors may provide.

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ARTICLE VII

Dividends

Section 1.  Dividends.   Dividends may be declared by the Board of Directors (or the Executive Committee, if there be one and the authority to declare dividends is delegated to the Executive Committee by the Board of Directors) and paid in cash, shares, or other property out of the annual net income to the Corporation or out of its net assets in excess of its capital, computed in accordance with the state statute and subject to the conditions and limitations imposed by the Articles of Incorporation.

No dividends shall be paid to the holders of any class of shares in violation of the rights of the holders of any other class of shares.

Before payment of any dividends or making distribution of any profits, there may be set apart out of the excess of assets available for dividends such sum or sums as the Board of Directors (or Executive Committee, if there be one and the authority to declare dividends or make distributions is delegated to the Executive Committee) from time to time in its absolute discretion thinks proper as a reserve fund for any purpose.

ARTICLE VIII

Fiscal Year

Section 1.  Fiscal Year.  The fiscal year of the Corporation shall begin on the first day of January and terminate on the thirty-first day of December in each year.

ARTICLE IX

Contracts, Checks, Notes, etc.

Section 1. Contracts, Checks, Notes, etc.  All contracts and agreements authorized by the Board of Directors and all bonds and notes shall, unless otherwise directed by the Board of Directors or unless otherwise required by law, be signed by (1) either the Chairman, Vice Chairman, Chief Executive Officer, Chief Operating Officer, President, or a Vice President, and (2) any one of the following officers:  Secretary or Assistant Secretary, Treasurer or Assistant Treasurer.  The Board of Directors may by resolution adopted at any meeting designate officers of the Corporation who may in the name of the Corporation execute checks, drafts and orders for the payment of money in its behalf and, in the discretion of the Board of Directors, such officers may be so authorized to sign such checks singly without necessity for counter-signature.

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ARTICLE X

Notice and Waiver of Notice

Section 1.  Notice and Waiver of Notice.  Any notice required to be given by these By-Laws to a Director or officer may be given in writing, personally served or through the United States Mail, or by telephone, telegram, cablegram or radiogram, and such notice shall be deemed to be given at the time when the same shall be thus transmitted.  Any notice required to be given by these By-Laws may be waived by the person entitled to such notice.

ARTICLE XI

Corporate Seal

Section 1.  Corporate Seal.  The corporate seal of the Corporation shall consist of a metallic stamp, circular in form, bearing in its center the word "Seal", and on the outer edge the name of the Corporation.

ARTICLE XII

Amendment

Section 1.  Amendment.  These By-Laws may be amended or repealed at any meeting of the shareholders of the Corporation by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, or, without a meeting, by the written consent of the holders of record of shares entitling them to exercise a two-thirds majority of the voting power on such proposal.

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EX-10.C

Exhibit 10.c

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made and entered into as of the 11^th day of October, 2002 (the “Effective Date”), by and between Cinergy and William J. Grealis      (the “Executive”).  This Agreement replaces and supersedes any and all prior employment agreements between Cinergy and the Executive.  The capitalized words and terms used throughout this Agreement are defined in Section 11.

Recitals

A.The Executive is currently serving as Executive Vice President of the Company, and Cinergy desires to secure the continued employment of the Executive in accordance with this Agreement.

B.The Executive is willing to continue to remain in the employ of Cinergy on the terms and conditions set forth in this Agreement.

C.The parties intend that this Agreement will replace and supersede any and all prior employment agreements between Cinergy (or any component company or business unit of Cinergy) and the Executive.

Agreement

In consideration of the mutual promises, covenants and agreements set forth below, the parties agree as follows:

1.Employment and Term.

a.Cinergy agrees to employ the Executive, and the Executive agrees to remain in the employ of Cinergy, in accordance with the terms and provisions of this Agreement, for the Employment Period set forth in Section 1b.  The parties agree that the Company will be responsible for carrying out all of the promises, covenants, and agreements of Cinergy set forth in this Agreement.

b.The Employment Period of this Agreement will commence as of the Effective Date and continue until December 31, 2004; provided that, commencing on December 31, 2002, and on each subsequent December 31, the Employment Period will be extended for one (1) additional year unless either party gives the other party written notice not to extend this Agreement at least ninety (90) days before the extension would otherwise become effective.

2.Duties and Powers of Executive.

a.Position.  The Executive will serve Cinergy as Executive Vice President of the Company and he will have such responsibilities, duties, and authority as are customary for someone of that position and such additional duties, consistent with

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his position, as may be assigned to him from time to time during the Employment Period by the Board of Directors or the Chief Executive Officer.  Executive shall devote substantially all of Executive’s business time, efforts and attention to the performance of Executive’s duties under this Agreement; provided, however, that this requirement shall not preclude Executive from reasonable participation in civic, charitable or professional activities or the management of Executive’s passive investments, so long as such activities do not materially interfere with the performance of Executive’s duties under this Agreement.

b.Place of Performance.  In connection with the Executive’s employment, the Executive will be based at the principal executive offices of Cinergy, 221 East Fourth Street, Cincinnati, Ohio.  Except for required business travel to an extent substantially consistent with the present business travel obligations of Cinergy executives who have positions of authority comparable to that of the Executive, the Executive will not be required to relocate to a new principal place of business that is more than thirty (30) miles from such location.

3.Compensation.  The Executive will receive the following compensation for his services under this Agreement.

a.Salary.  The Executive’s Annual Base Salary, payable in pro rata installments not less often than semi-monthly, will be at the annual rate of not less than $550,008.  Any increase in the Annual Base Salary will not serve to limit or reduce any other obligation of Cinergy under this Agreement.  The Annual Base Salary will not be reduced except for across-the-board salary reductions similarly affecting all Cinergy management personnel.  If Annual Base Salary is increased or reduced during the Employment Period, then such adjusted salary will thereafter be the Annual Base Salary for all purposes under this Agreement.

b.Retirement, Incentive, Welfare Benefit Plans and Other Benefits.

(i)During the Employment Period, the Executive will be eligible, and Cinergy will take all necessary action to cause the Executive to become eligible, to participate in short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to other senior executives of Cinergy who are considered Tier II executives for compensation purposes, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing.

(ii)Supplemental Retirement Benefit.

(1)Amount, Form, Timing and Method of Payment.  Upon Executive’s termination of employment (for any reason) with Cinergy, the Executive will be entitled and fully vested in a supplemental retirement benefit in an amount which, when expressed as an annual amount payable during the life of the

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Executive, shall equal the excess of (1) 60% of the Executive’s Highest Average Earnings over (2) his total aggregate annual benefit, payable in the form of a single life annuity to the Executive, under all Executive Retirement Plans.  Except as described below, the form (e.g., the 100% joint and survivor annuity form of benefit), timing, and method of payment of the supplemental retirement benefit payable under this Paragraph will be the same as those elected by the Executive under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(2)Death Benefit.  If the Executive dies prior to his retirement from Cinergy, and if his Spouse, on the date of his death, is living on the date the first installment of the supplemental retirement benefit would be payable under this Paragraph, the Spouse will be entitled to receive the supplemental retirement benefit as a Spouse’s benefit.  The form, timing, and method of payment of any Spouse’s benefit under this Paragraph will be the same as those applicable to the Spouse under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(3)Special Payment Election Effective Upon a Change in Control.  Notwithstanding the foregoing, the Executive may make a special payment election with respect to his supplemental retirement benefit (if any) in accordance with the following provisions:

(A)The Executive may elect, on a form provided by Cinergy, to receive a single lump sum cash payment in an amount equal to the Actuarial Equivalent (as defined below) of his supplemental retirement benefit (or the Actuarial Equivalent of the remaining payments to be made in connection with his supplemental retirement benefit in the event that payment of his supplemental retirement benefit has already commenced) payable no later than 30 days after the later of the occurrence of a Change in Control or the date of his termination of employment.

(B)Such special payment election shall become operative only upon the occurrence of a Change in Control and only if the Executive’s termination of employment occurs either (1) prior to the occurrence of a Change in Control or (2) during the 24-month period commencing upon the occurrence of a Change in Control.  Once operative, such special payment

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election shall override any other payment election made by the Executive with respect to his supplemental retirement benefit.

(C)In order to be effective, a special payment election (or withdrawal of that election) must be made either prior to the occurrence of a Potential Change in Control or, with the consent of Cinergy, during the 30-day period commencing upon the occurrence of a Potential Change in Control.  In the event that a Potential Change in Control occurs and subsequently ceases to exist, other than as a result of a Change in Control, such Potential Change in Control shall be disregarded for purposes of this Section.

(D)In the event that the Executive makes a special payment election and pursuant to that election he becomes entitled to receive a single lump sum cash payment pursuant to this Section payable prior to the commencement of his supplemental retirement benefit in another form of payment, the Actuarial Equivalent of his supplemental retirement benefit shall be calculated based on the following assumptions:

(I)The form of payment for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be a single life annuity;

(II)The commencement date for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be the first day of the calendar month coincident with or next following his termination of employment;

(III)The term “Actuarial Equivalent” has the meaning given to that term in the Pension Plan with respect to lump sum payments; and

(IV)The amount of the Executive’s supplemental retirement benefit shall not be actuarially reduced for early commencement.

(E)In the event that the Executive makes a special payment election and pursuant to that election he is entitled to receive a single lump sum cash payment payable after the commencement of his supplemental retirement benefit in

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another form of payment, his lump sum cash payment shall be equal to the Actuarial Equivalent (as that term is used in the Pension Plan with respect to lump sum payments) of the remaining payments to be made in connection with his supplemental retirement benefit.

(iii)Upon his retirement, the Executive will be eligible for comprehensive medical and dental benefits which are not materially different from the benefits provided to retirees under the Cinergy Corp. Welfare Benefits Program or any similar program or successor to that program.  For purposes of determining the amount of the monthly premiums due from the Executive, the Executive will receive from Cinergy the maximum subsidy available as of the date of his retirement to an active Cinergy employee with the same medical benefits classification/eligibility as the Executive’s medical benefits classification/eligibility on the date of his retirement.

(iv)The Executive will be a participant in the Annual Incentive Plan and will be paid pursuant to the terms and conditions of that plan, subject to the following: (1) The maximum annual bonus shall be not less than one hundred five percent (105%) of the Executive’s Annual Base Salary (the “Maximum Annual Bonus”); and (2) The target annual bonus shall be not less than sixty percent (60%) of the Executive’s Annual Base Salary (the “Target Annual Bonus”).

(v)The Executive will be a participant in the Long-Term Incentive Plan (the “LTIP”), and the Executive’s annualized target award opportunity under the LTIP will be equal to no less than ninety percent (90%) of his Annual Base Salary (the “Target LTIP Bonus”).

(vi)For purposes of Sections 3b(iv) and 3b(v), the Executive’s Annual Base Salary for any calendar year shall be increased by the amount of any Nonelective Employer Contributions made on behalf of the Executive during such calendar year under the 401(k) Excess Plan.

c.Fringe Benefits and Perquisites.  During the Employment Period, the Executive will be entitled to the following additional fringe benefits in accordance with the terms and conditions of Cinergy’s policies and practices for such fringe benefits:

(i)Cinergy will furnish to the Executive an automobile appropriate for the Executive’s level of position, or, at Cinergy’s discretion, a cash allowance of equivalent value.  Cinergy will also pay all of the related expenses for gasoline, insurance, maintenance, and repairs, or provide for such expenses within the cash allowance.  All benefits provided pursuant to this Section 3c(i) shall be provided in accordance with generally applicable procedures established from time to time by Cinergy in its sole discretion.

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(ii)Cinergy will pay the initiation fee and the annual dues, assessments, and other membership charges of the Executive for membership in a country club selected by the Executive.

(iii)Cinergy will provide paid vacation for four (4) weeks per year (or such longer period for which Executive is otherwise eligible under Cinergy’s policy).

(iv)Cinergy will furnish to the Executive annual financial planning and tax preparation services, provided, however, that the cost to Cinergy of such services shall not exceed $15,000 during any thirty-six (36) consecutive month period.  Notwithstanding the preceding sentence, in the event any  payment to the Executive pursuant to this Section 3c(iv) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 3c(iv).

(v)Cinergy will provide other fringe benefits in accordance with Cinergy plans, practices, programs, and policies in effect from time to time, commensurate with his position and at least comparable to those received by other Cinergy Tier II executives.

d.Expenses.  Cinergy agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board of Directors.

e.Relocation Benefits.  Following termination of the Executive’s employment for any reason (other than death), the Executive will be entitled to reimbursement from Cinergy for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Relocation Program.  Notwithstanding the foregoing, if the Executive becomes employed by another employer and is eligible to receive relocation benefits under another employer-provided plan, any benefits provided to the Executive under this Section 3e will be secondary to those provided under the other employer-provided relocation plan.  The Executive must report to Cinergy any such relocation benefits that he actually receives under another employer-provided plan.

f.Stock Options and Stock Appreciation Rights.  Notwithstanding Section 5d, upon the occurrence of a Change in Control, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock

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Related Documents, become immediately exercisable.  If the Executive terminates employment for any reason during the twenty-four (24) month period commencing upon the occurrence of a Change in Control, notwithstanding Section 5d, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock Related Documents, remain exercisable in accordance with their terms but in no event for a period less than the lesser of (i) three months following such termination of employment or (ii) the remaining term of such stock option or stock appreciation right (which remaining term shall be determined without regard to such termination of employment).

4.Termination of Employment.

a.Death.  The Executive’s employment will terminate automatically upon the Executive’s death during the Employment Period.

b.By Cinergy for Cause.  Cinergy may terminate the Executive’s employment during the Employment Period for Cause.  For purposes of this Employment Agreement, “Cause” means the following:

(i)The willful and continued failure by the Executive to substantially perform the Executive’s duties with Cinergy (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) that, if curable, has not been cured within 30 days after the Board of Directors or the Chief Executive Officer has delivered to the Executive a written demand for substantial performance, which demand specifically identifies the manner in which the Executive has not substantially performed his duties.  This event will constitute Cause even if the Executive issues a Notice of Termination for Good Reason pursuant to Section 4d after the Board of Directors or Chief Executive Officer delivers a written demand for substantial performance.

(ii)The breach by the Executive of the confidentiality provisions set forth in Section 9.

(iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on Cinergy.  For purposes of this definition of Cause, no act, or failure to act, on the Executive’s part will be deemed “willful” unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of Cinergy.

(iv)Notwithstanding the foregoing, Cinergy shall be deemed to have not terminated the employment of the Executive for Cause unless and until there shall have been delivered to the Executive a copy of a resolution

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duly adopted by the affirmative vote of not less than a majority of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard by the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in this Section 4b and specifying the particulars thereof in detail.

c.By Cinergy Without Cause.  Cinergy may, upon at least 30 days advance written notice to the Executive, terminate the Executive’s employment during the Employment Period for a reason other than Cause, but the obligations placed upon Cinergy in Section 5 will apply.

d.By the Executive for Good Reason.  The Executive may terminate his employment during the Employment Period for Good Reason.  For purposes of this Agreement, “Good Reason” means the following:

(i)(1) A reduction in the Executive’s Annual Base Salary, except for across-the-board salary reductions similarly affecting all Cinergy management personnel, (2) a reduction in the amount of the Executive’s Maximum Annual Bonus under the Annual Incentive Plan, except for across-the-board Maximum Annual Bonus reductions similarly affecting all Cinergy management personnel, or (3) a reduction in any other benefit or payment described in Section 3 of this Agreement, except for changes to the employee benefits programs generally affecting Cinergy management personnel, provided that those changes, in the aggregate, will not result in a material adverse change with respect to the benefits to which the Executive was entitled as of the Effective Date.

(ii)(1) The material reduction without his consent of the Executive’s title, authority, duties, or responsibilities from those in effect immediately prior to the reduction, (2) in the event the Executive is or becomes a member of the Board during the Employment Period, the failure by Cinergy without the consent of the Executive to nominate the Executive for re-election to the Board, or (3) a material adverse change in the Executive’s reporting responsibilities.

(iii)Any breach by Cinergy of any other material provision of this Agreement (including but not limited to the place of performance as specified in Section 2b).

(iv)The Executive’s disability due to physical or mental illness or injury that precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience.

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(v)A failure by the Company to require any successor entity to the Company specifically to assume in writing all of the Company’s obligations to the Executive under this Agreement.

                For purposes of determining whether Good Reason exists with respect to a Qualifying Termination occurring on or within 24 months following a Change in Control, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.

e.By the Executive Without Good Reason.  The Executive may terminate his employment without Good Reason upon prior written notice to the Company.

f.Notice of Termination.  Any termination of the Executive’s employment by Cinergy or by the Executive during the Employment Period (other than a termination due to the Executive’s death) will be communicated by a written Notice of Termination to the other party to this Agreement in accordance with Section 12b.  For purposes of this Agreement, a “Notice of Termination” means a written notice that specifies the particular provision of this Agreement relied upon and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for terminating the Executive’s employment under the specified provision.  The failure by the Executive or Cinergy to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause will not waive any right of the Executive or Cinergy under this Agreement or preclude the Executive or Cinergy from asserting that fact or circumstance in enforcing rights under this Agreement.

g.The Executive acknowledges and agrees that he shall not sell or otherwise dispose of any shares of Company stock acquired pursuant to the exercise of a stock option, other than shares sold in order to pay an option exercise price or the related tax withholding obligation, until 90 days after the Date of Termination.  Notwithstanding the foregoing, Cinergy, in its sole discretion, may waive the restrictions contained in the previous sentence.

5.Obligations of Cinergy Upon Termination.

a.Certain Terminations.

(i)If a Qualifying Termination occurs during the Employment Period, Cinergy will pay to the Executive a lump sum amount, in cash, equal to the sum of the following Accrued Obligations:

(1)the pro-rated portion of the Executive’s Annual Base Salary payable through the Date of Termination, to the extent not previously paid.

(2)any amount payable to the Executive under the Annual Incentive Plan in respect of the most recently completed fiscal year, to the extent not theretofore paid.

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(3)an amount equal to the AIP Benefit for the fiscal year that includes the Date of Termination multiplied by a fraction, the numerator of which is the number of days from the beginning of that fiscal year to and including the Date of Termination and the denominator of which is three hundred and sixty-five (365).  The AIP Benefit component of the calculation will be equal to the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, determined by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable.

(4)the Accrued Obligations described in this Section 5a(i) will be paid within thirty (30) days after the Date of Termination.  These Accrued Obligations are payable to the Executive regardless of whether a Change in Control has occurred.

(ii)In the event of a Qualifying Termination either prior to the occurrence of a Change in Control, or more than twenty-four (24) months following the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations, and Cinergy will have the following additional obligations described in this Section 5a(ii); provided, however, that each of the benefits described below in this Section 5a(ii) shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum amount, in cash, equal to three (3) times the sum of the Annual Base Salary and the Annual Bonus.  For this purpose, the Annual Base Salary will be at the rate in effect at the time Notice of Termination is given (without giving effect to any reduction in Annual Base Salary, if any, prior to the termination, other than across-the-board reductions), and shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which the Executive’s Qualifying Termination occurs, and the Annual Bonus will be the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, calculated

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by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable; provided, however that for purposes of this Section 5a(ii)(1)(B), the Annual Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus for the year in which the Date of Termination occurs.  This lump sum will be paid within thirty (30) days after the expiration of the revocation period contained in the Waiver and Release.

(2)Subject to Clauses (A), (B) and (C) below, Cinergy will provide, until the end of the Employment Period, medical and dental benefits to the Executive and/or the Executive’s dependents at least equal to those that would have been provided if the Executive’s employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing).  The benefits described in the preceding sentence will be in accordance with the medical and welfare benefit plans, practices, programs, or policies of Cinergy (the “M&W Plans”) as then currently in effect and applicable generally to other Cinergy senior executives and their families.  In the event that any medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B).

(A)If, as of the Executive’s Date of Termination, the Executive meets the eligibility requirements for Cinergy’s retiree medical and welfare benefit plans, the provision of those retiree medical and welfare benefit plans to the Executive will satisfy Cinergy’s obligation under this Section 5a(ii)(2).

(B)If, as of the Executive’s Date of Termination, the provision to the Executive of the M&W Plan benefits described in this Section 5a(ii)(2) would either (1) violate the terms of the M&W Plans (or any related insurance policies) or (2) violate any of the Code’s nondiscrimination requirements applicable to the M&W Plans, then Cinergy, in its sole

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discretion, may elect to pay the Executive, in lieu of the M&W Plan benefits described under this Section 5a(ii)(2), a lump sum cash payment equal to the total monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy for the Executive under the M&W Plans from the Date of Termination through the end of the Employment Period.  Nothing in this Clause will affect the Executive’s right to elect COBRA continuation coverage under a M&W Plan in accordance with applicable law, and Cinergy will make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.

(C)If the Executive becomes employed by another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, any benefits provided to the Executive under the M&W Plans will be secondary to those provided under the other employer-provided plan during the Executive’s applicable period of eligibility.

(3)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(ii)(3) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(ii)(3).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(iii)In the event of a Qualifying Termination during the twenty-four (24) month period beginning upon the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations listed in Sections 5a(i)(1) and (2), Cinergy will pay the Accrued Obligations listed in Section 5a(i)(3) (but only if such Qualifying Termination occurs after the calendar year in which occurs such Change in Control) and Cinergy will have the following additional obligations described in this Section 5a(iii); provided, however, that each of the benefits described below in this Section 5a(iii)

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shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the higher of (x) the sum of the Executive’s current Annual Base Salary and Target Annual Bonus and (y) the sum of the Executive’s Annual Base Salary in effect immediately prior to the Change in Control and the Change in Control Bonus.  For purposes of the preceding sentence, the Executive’s Annual Base Salary on any given date shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which such date occurs.  For purposes of this Agreement, the Change in Control Bonus shall mean the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the Change in Control, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year in which occurs the Date of Termination, calculated by projecting Cinergy’s performance and other applicable goals and objective for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable, provided, however, that  for purposes of this Section 5a(iii)(1)(B), such Change in Control Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus.  This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.  Nothing in this Section 5a(iii)(1) shall preclude the Executive from receiving the amount, if any, to which he is entitled in accordance with the terms of the Annual Incentive Plan for the fiscal year that includes the Date of Termination.

(2)Cinergy will pay to the Executive the lump sum present value of any benefits under the Executive Supplemental Life Program under the terms of the applicable plan or program as of the Date of Termination, calculated as if the Executive was fully vested as of the Date of Termination. The lump sum present value, assuming commencement at age 50 or the Executive’s age as of the Date of Termination if later, will be determined using the interest rate applicable to lump sum payments in the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan for the plan

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year that includes the Date of Termination. To the extent no such interest rate is provided therein, the annual interest rate applicable under Section 417(e)(3) of the Code, or any successor provision thereto, for the second full calendar month preceding the first day of the calendar year that includes the Date of Termination will be used. This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(3)The Executive shall be fully vested in his accrued benefits as of the Date of Termination under the Executive Retirement Plans, and his aggregate accrued benefits thereunder and under Section 3b(ii) of this Agreement will be calculated, and he will be treated for all purposes, as if he was credited with three (3) additional years of age and service as of the Date of Termination, provided, however, that to the extent a calculation is made regarding the actuarial equivalent amount of any alternate form of benefit, the Executive will not be credited with three additional years of age for purposes of such calculation.  However, Cinergy will not commence payment of such benefits prior to the date that the Executive has attained, or is treated (after taking into account the preceding sentence) as if he had attained, age 50.

(4)For a thirty-six (36) month period after the Date of Termination, Cinergy will arrange to provide to the Executive and/or the Executive’s dependents life, disability, accident, and health insurance benefits substantially similar to those that the Executive and/or the Executive’s dependents are receiving immediately prior to the Notice of Termination at a substantially similar cost to the Executive (without giving effect to any reduction in those benefits subsequent to a Change in Control that constitutes Good Reason), except for any benefits that were waived by the Executive in writing.  If Cinergy arranges to provide the Executive and/or the Executive’s dependents with life, disability, accident, and health insurance benefits, those benefits will be reduced to the extent comparable benefits are actually received by or made available to the Executive and/or the Executive’s dependents during the thirty-six (36) month period following the Executive’s Date of Termination.  The Executive must report to Cinergy any such benefits that he or his dependents actually receives or that are made available to him or his dependents.  In lieu of the benefits described in the preceding sentences, Cinergy, in its sole discretion, may elect to pay to the Executive a lump sum cash payment equal to thirty-six (36) times the monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy to provide those benefits to the Executive and/or the Executive’s dependents. 

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Nothing in this Section 5a(iii)(4) will affect the Executive’s right to elect COBRA continuation coverage in accordance with applicable law, and Cinergy will provide the benefits or make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.  In the event that any benefits or payments provided pursuant to this Section 5a(iii)(4) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefits or payments provided pursuant to this Section 5a(iii)(4).

(5)In lieu of any and all other rights with respect to the automobile assigned by Cinergy to the Executive, Cinergy will provide the Executive with a lump sum payment in the amount of $50,000.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(5) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(5).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(6)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(6) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(6).  Such payment will be transferred to the Executive within thirty (30) days

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of the expiration of the revocation period contained in the Waiver and Release.

(7)Cinergy will provide annual dues and assessments of the Executive for membership in a country club selected by the Executive until the end of the Employment Period.

(8)Cinergy will provide outplacement services suitable to the Executive’s position until the end of the Employment Period or, if earlier, until the first acceptance by the Executive of an offer of employment.  At the Executive’s discretion, 15% of Annual Base Salary may be paid in lieu of outplacement services, which payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

                For purposes of this Section 5a(iii), the Executive will be deemed to have incurred a Qualifying Termination upon a Change in Control if the Executive’s employment is terminated prior to a Change in Control, without Cause at the direction of a Person who has entered into an agreement with Cinergy, the consummation of which will constitute a Change in Control, or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event that constitutes Good Reason occurs at the direction of such a Person.

b.Termination by Cinergy for Cause or by the Executive Other Than for Good Reason.  Subject to the provisions of Section 7, and notwithstanding any other provisions of this Agreement, if the Executive’s employment is terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, Cinergy will have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations, plus any other earned but unpaid compensation, in each case to the extent not previously paid.

c.Certain Tax Consequences.

(i)In the event that any benefits paid or payable to the Executive or for his benefit pursuant to the terms of this Agreement or any other plan or arrangement in connection with, or arising out of, his employment with Cinergy or a change in ownership or effective control of Cinergy or of a substantial portion of its assets (a “Payment” or “Payments”) would be subject to any Excise Tax, then the Executive will 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, penalties, additional tax, or similar items imposed with respect thereto and the Excise Tax), including any 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 or assessable against the Executive due to the Payments.

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(ii)Subject to the provisions of Section 5c, all determinations required to be made under this Section 5c, 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 the Accounting Firm, which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return.  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 5c, shall be paid by Cinergy to the Executive within five (5) days of the receipt of the Accounting Firm’s determination.  Any determination by the Accounting Firm shall be binding upon Cinergy 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 Cinergy should have been made (“Underpayment”), consistent with the calculations required to be made hereunder.  In the event of any Underpayment, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Cinergy to or for the benefit of the Executive, and Cinergy shall indemnify and hold harmless the Executive for any such Underpayment, on an after-tax basis, including interest and penalties with respect thereto.  In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Code Section 1274(b)(2)(B).

(iii)The value of any non-cash benefits or any deferred payment or benefit paid or payable to the Executive will be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).  For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and applicable state and local income taxes at the highest

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marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes that would be obtained from deduction of those state and local taxes.

(iv)Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Accounting Firm’s determination, an Excise Tax will be imposed on any Payment or Payments, Cinergy will pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Cinergy has actually withheld from the Payment or Payments in accordance with law.

d.Value Creation Plan and Stock Options.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlement to restricted shares and performance shares under the Value Creation Plan and any stock options granted under the Cinergy Corp. Stock Option Plan, the LTIP or any other stock option plan will be determined under the terms of the appropriate plan and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of any such plan, administrative guideline or written agreement shall not be amended in a manner that would adversely affect the Executive with respect to awards granted to the Executive prior to the Change in Control.

e.Benefit Plans in General.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlements, if any, under all benefit plans of Cinergy, including but not limited to the Deferred Compensation Plan, 401(k) Excess Plan, Cinergy Corp. Supplemental Executive Retirement Plan and any vacation policy, shall be determined under the terms of such plans, policies and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of such plans and policies and any applicable administrative guidelines and written agreements shall not be amended in a manner that would adversely affect the Executive with respect to benefits earned by the Executive prior to the Change in Control.

f.Other Fees and Expenses.  Cinergy will also reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive (i) in successfully disputing a Qualifying Termination that entitles the Executive to Severance Benefits or (ii) in reasonably disputing whether or not Cinergy has terminated his employment for Cause.  Payment will be made within five (5) business days after delivery of the Executive’s written request for payment accompanied by such evidence of fees and expenses incurred as Cinergy reasonably may require.

6.Non-Exclusivity of Rights.  Nothing in this Agreement will prevent or limit the Executive’s continuing or future participation in any benefit, plan, program, policy, or practice provided by Cinergy and for which the Executive may qualify, except with respect to any benefit to which the Executive has waived his rights in writing or any plan,

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program, policy, or practice that expressly excludes the Executive from participation.  In addition, nothing in this Agreement will limit or otherwise affect the rights the Executive may have under any other contract or agreement with Cinergy entered into after the Effective Date.  Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy, or practice of, or any contract or agreement entered into after the Effective Date with Cinergy, at or subsequent to the Date of Termination, will be payable in accordance with that benefit, plan, program, policy or practice, or that contract or agreement, except as explicitly modified by this Agreement.  Notwithstanding the above, in the event that the Executive receives Severance Benefits under Section 5a(ii) or 5a(iii), (a) the Executive shall not be entitled to any benefits under any severance plan of Cinergy, including but not limited to the Severance Opportunity Plan for Non-Union Employees of Cinergy Corp. and (b) if the Executive receives such Severance Benefits as a result of his termination for Good Reason, as that term is defined in Section 4d(iv), Cinergy’s obligations under Sections 5a(ii) and 5a(iii) shall be reduced by the amount of any benefits payable to the Executive under any short-term or long-term disability plan of Cinergy, the amount of which shall be determined by Cinergy in good faith.

7.Full Settlement:  Mitigation.  Except as otherwise provided herein, Cinergy’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right, or action that Cinergy may have against the Executive or others.  In no event will the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 3e, 5a(ii)(2) and 5a(iii)(4), those amounts will not be reduced simply because the Executive obtains other employment.  If the Executive finally prevails on the substantial claims brought with respect to any dispute between Cinergy and the Executive as to the interpretation, terms, validity, or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, Cinergy agrees to pay all reasonable legal fees and expenses that the Executive may reasonably incur as a result of that dispute.

8.Arbitration.  The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to the Executive’s employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such a dispute is arbitrable, shall be settled by arbitration.  This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims.  The Executive will still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim will be submitted to arbitration instead of a court or jury.  The arbitration proceeding will be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made, and such proceeding will be adjudicated in the state of Ohio in accordance with the laws of the state of Ohio.  The decision of the

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arbitrator(s), including determination of the amount of any damages suffered, will be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns.  Each party will bear its own expenses in the arbitration for arbitrators’ fees and attorneys’ fees, for its witnesses, and for other expenses of presenting its case.  Other arbitration costs, including administrative fees and fees for records or transcripts, will be borne equally by the parties.  Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, Cinergy will reimburse or pay all legal fees and expenses that the Executive may reasonably incur as a result of the dispute as required by Section 7.

9.Confidential Information.  The Executive will hold in a fiduciary capacity for the benefit of Cinergy, as well as all of Cinergy’s successors and assigns, all secret, confidential information, knowledge, or data relating to Cinergy, and its affiliated businesses, that the Executive obtains during the Executive’s employment by Cinergy or any of its affiliated companies, and that has not been or subsequently becomes public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement).  During the Employment Period and thereafter, the Executive will not, without Cinergy’s prior written consent or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge, or data to anyone other than Cinergy and those designated by it.  The Executive understands that during the Employment Period, Cinergy may be required from time to time to make public disclosure of the terms or existence of the Executive’s employment relationship to comply with various laws and legal requirements.  In addition to all other remedies available to Cinergy in law and equity, this Agreement is subject to termination by Cinergy for Cause under Section 4b in the event the Executive violates any provision of this Section.

10.Successors.

a.This Agreement is personal to the Executive and, without Cinergy’s prior written consent, cannot be assigned by the Executive other than Executive’s designation of a beneficiary of any amounts payable hereunder after the Executive’s death.  This Agreement will inure to the benefit of and be enforceable by the Executive’s legal representatives.

b.This Agreement will inure to the benefit of and be binding upon Cinergy and its successors and assigns.

c.Cinergy 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 Cinergy to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Cinergy would be required to perform it if no succession had taken place.  Cinergy’s failure to obtain such an assumption and agreement prior to the effective date of a succession will be a breach of this Agreement and will entitle the Executive to compensation from Cinergy in the same amount and on the same terms as if the Executive were to

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terminate his employment for Good Reason upon a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective will be deemed the Date of Termination.

11.Definitions.  As used in this Agreement, the following terms, when capitalized, will have the following meanings:

a.Accounting Firm.  “Accounting Firm” means Cinergy’s independent auditors.

b.Accrued Obligations.  “Accrued Obligations” means the accrued obligations described in Section 5a(i).

c.Agreement.  “Agreement” means this Employment Agreement between Cinergy and the Executive.

d.AIP Benefit.  “AIP Benefit” means the Annual Incentive Plan benefit described in Section 5a(i).

e.Annual Base Salary.  “Annual Base Salary” means, except where otherwise specified herein, the annual base salary payable to the Executive pursuant to Section 3a.

f.Annual Bonus.  “Annual Bonus” has the meaning set forth in Section 5a(ii)(1).

g.Annual Incentive Plan.  “Annual Incentive Plan” means the Cinergy Corp. Annual Incentive Plan or any similar plan or successor to the Annual Incentive Plan.

h.Board of Directors or Board.  “Board of Directors” or “Board” means the board of directors of the Company.

i.COBRA.  “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

j.Cause.  “Cause” has the meaning set forth in Section 4b.

k.Change in Control.  A “Change in Control” will be deemed to have occurred if any of the following events occur, after the Effective Date:

(i)Any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (“1934 Act”)), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing more than twenty percent (20%) of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a beneficial owner in connection with a transaction described in Clause (1) of Paragraph (ii) below; or

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(ii)There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, partnership or other entity, other than (1) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to that merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the combined voting power of the securities of the Company or the surviving entity or its parent outstanding immediately after the merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such a Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities; or

(iii)During any period of two (2) consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election, or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or

(iv)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to the sale.

l.Change in Control Bonus.  “Change in Control Bonus” has the meaning set forth in Section 5a(iii)(1).

m.Chief Executive Officer.  “Chief Executive Officer” means the individual who, at any relevant time, is then serving as the chief executive officer of the Company.

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n.Cinergy.  “Cinergy” means the Company, its subsidiaries, and/or its affiliates, and any successors to the foregoing.

o.Code.  “Code” means the Internal Revenue Code of 1986, as amended, and interpretive rules and regulations.

p.Company.  “Company” means Cinergy Corp.

q.Date of Termination.  “Date of Termination” means:

(i)if the Executive’s employment is terminated by Cinergy for Cause, or by the Executive with Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice, as the case may be;

(ii)if the Executive’s employment is terminated by the Executive without Good Reason, thirty (30) days after the date on which the Executive notifies Cinergy of the termination;

(iii)if the Executive’s employment is terminated by Cinergy other than for Cause, thirty (30) days after the date on which Cinergy notifies the Executive of the termination; and

(iv)if the Executive’s employment is terminated by reason of death, the date of death.

r.Deferred Compensation Plan.  “Deferred Compensation Plan” means the Cinergy Corp. Non-Qualified Deferred Incentive Compensation Plan or any similar plan or successor to that plan.

s.Effective Date.  “Effective Date” has the meaning given to that term in the first paragraph of this Agreement.

t.Employment Period.  “Employment Period” has the meaning set forth in Section 1b.

u.Excise Tax.  “Excise Tax” means any excise tax imposed by Code section 4999, together with any interest, penalties, additional tax or similar items that are incurred by the Executive with respect to the excise tax imposed by Code section 4999.

v.Executive.  “Executive” has the meaning given to that term in the first paragraph of this Agreement.

w.Executive Retirement Plans.  “Executive Retirement Plans” means the Pension Plan, the Cinergy Corp. Supplemental Executive Retirement Plan and the Cinergy Corp. Excess Pension Plan or any similar plans or successors to those plans.

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x.Executive Supplemental Life Program.  “Executive Supplemental Life Program” means the Cinergy Corp. Executive Supplemental Life Insurance Program or any similar program or successor to the Executive Supplemental Life Program.

y.401(k) Excess Plan.  “401(k) Excess Plan” means the Cinergy Corp. 401(k) Excess Plan, or any similar plan or successor to that plan.

z.Good Reason.  “Good Reason” has the meaning set forth in Section 4d.

aa.Gross-Up Payment.  “Gross-Up Payment” has the meaning set forth in Section 5c.

bb.Highest Average Earnings.  “Highest Average Earnings” shall have the meaning given to such term in the Cinergy Corp. Supplemental Executive Retirement Plan.  For purposes of clarity, the parties hereto acknowledge and agree that the Executive’s Highest Average Earnings for any year shall not include any benefits received by the Executive pursuant to Section 5 of this Agreement, other than pursuant to Section 5a(i) of this Agreement.

cc.Long-Term Incentive Plan or LTIP.  “Long-Term Incentive Plan” or “LTIP” means the long-term incentive plan implemented under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan or any successor to that plan.

dd.M&W Plans.  “M&W Plans” has the meaning set forth in Section 5a(ii)(2).

ee.Maximum Annual Bonus.  “Maximum Annual Bonus” has the meaning set forth in Section 3b.

ff.Nonelective Employer Contribution. “Nonelective Employer Contribution” has the meaning set forth in the 401(k) Excess Plan.

gg.Notice of Termination.  “Notice of Termination” has the meaning set forth in Section 4f.

hh.Payment or Payments.  “Payment” or “Payments” has the meaning set forth in Section 5c.

ii.Pension Plan.  “Pension Plan” means the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan.

jj.Person.  “Person” has the meaning set forth in paragraph 3(a)(9) of the 1934 Act, as modified and used in subsections 13(d) and 14(d) of the 1934 Act; however, a Person will not include the following:

(i)Cinergy or any of its subsidiaries or affiliates;

(ii)A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or its subsidiaries or affiliates;

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(iii)An underwriter temporarily holding securities pursuant to an offering of those securities; or

(iv)A corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

kk.Potential Change in Control.  A “Potential Change in Control” means any period during which any of the following circumstances exist:

(i)The Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; provided that a Potential Change in Control shall cease to exist upon the expiration or other termination of such agreement; or

(ii)The Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; provided that a Potential Change in Control shall cease to exist when the Company or such Person publicly announces that it no longer has such an intention; or

(iii)Any Person who is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company’s then outstanding securities, increases such Person’s beneficial ownership of such securities by an amount equal to five percent (5%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)The Board of Directors adopts a resolution to the effect that, for purposes hereof, a Potential Change in Control has occurred.

Notwithstanding anything herein to the contrary, a Potential Change in Control shall cease to exist not later than the date that (i) the Board of Directors determines that the Potential Change in Control no longer exists, or (ii) a Change in Control occurs.

ll.Qualifying Termination.  “Qualifying Termination” means (i) the termination by Cinergy of the Executive’s employment with Cinergy during the Employment Period other than a termination for Cause or (ii) the termination by the Executive of the Executive’s employment with Cinergy during the Employment Period for Good Reason.

mm.Relocation Program.  “Relocation Program” means the Cinergy Corp. Relocation Program, or any similar program or successor to that program, as in effect on the date of the Executive’s termination of employment.

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nn.Severance Benefits.  “Severance Benefits” means the payments and benefits payable to the Executive pursuant to Section 5.

oo.Spouse.  “Spouse” means the Executive’s lawfully married spouse.  For this purpose, common law marriage or a similar arrangement will not be recognized unless otherwise required by federal law.

pp.Stock Related Documents.  “Stock Related Documents” means the LTIP, the Cinergy Corp. Stock Option Plan, and the Value Creation Plan and any applicable administrative guidelines and written agreements relating to those plans.

qq.Target Annual Bonus.  “Target Annual Bonus” has the meaning set forth in Section 3b.

rr.Target LTIP Bonus.  “Target LTIP Bonus” has the meaning set forth in Section 3b.

ss.Value Creation Plan.  “Value Creation Plan” means the Value Creation Plan or any similar plan, or successor plan of the LTIP.

tt.Waiver and Release.  “Waiver and Release” means a waiver and release, in substantially the form attached to this Agreement as Exhibit A.

12.Miscellaneous.

a.This Agreement will be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws.  The captions of this Agreement are not part of its provisions and will have no force or effect.  This Agreement may not be amended, modified, repealed, waived, extended, or discharged except by an agreement in writing signed by the party against whom enforcement of the amendment, modification, repeal, waiver, extension, or discharge is sought.  Only the Chief Executive Officer or his designee will have authority on behalf of Cinergy to agree to amend, modify, repeal, waive, extend, or discharge any provision of this Agreement.

b.All notices and other communications under this Agreement will be in writing and will be given by hand delivery to the other party or by Federal Express or other comparable national or international overnight delivery service, addressed in the name of such party at the following address, whichever is applicable:

If to the Executive:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960

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If to Cinergy:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960
Attn: Chief Executive Officer

or to such other address as either party has furnished to the other in writing in accordance with this Agreement.  All notices and communications will be effective when actually received by the addressee.

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

d.Cinergy may withhold from any amounts payable under this Agreement such federal, state, or local taxes as are required to be withheld pursuant to any applicable law or regulation.

e.The Executive’s or Cinergy’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or Cinergy may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4d or the right of Cinergy to terminate the Executive’s employment for Cause pursuant to Section 4b, will not be deemed to be a waiver of that provision or right or any other provision or right of this Agreement.

f.References in this Agreement to the masculine include the feminine unless the context clearly indicates otherwise.

g.This instrument contains the entire agreement of the Executive and Cinergy with respect to the subject matter of this Agreement; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3b and the Stock Related Documents, all promises, representations, understandings, arrangements, and prior agreements are merged into this Agreement and accordingly superseded.

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

i.Cinergy and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy with respect to all aspects pertaining to the administration and interpretation of this Agreement.

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IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the Effective Date.

CINERGY SERVICES, INC.
By:	/s/ James E. Rogers
	James E. Rogers
	Chairman and
	Chief Executive Officer
EXECUTIVE
/s/ William J. Grealis
William J. Grealis

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EXHIBIT A

*****

WAIVER AND RELEASE AGREEMENT

THIS WAIVER AND RELEASE AGREEMENT (this “Waiver and Release”) is entered into by and between William J. Grealis (the “Executive”) and Cinergy Corp.  (“Cinergy”) (collectively, the “Parties”).

WHEREAS, the Parties have entered into the Employment Agreement dated                                (the “Employment Agreement”);

WHEREAS, the Executive’s employment has been terminated in accordance with the terms of the Employment Agreement;

WHEREAS, the Executive is required to sign this Waiver and Release in order to receive the payment of certain compensation under the Employment Agreement following termination of employment; and

WHEREAS, Cinergy has agreed to sign this Waiver and Release.

NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.This Waiver and Release is effective on the date hereof and will continue in effect as provided herein.

2.In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 5 of the Employment Agreement (the “Severance Benefits”), which the Executive acknowledges are in addition to payment and benefits to which the Executive would be entitled to but for the Employment Agreement, the Executive, on behalf of himself, his heirs, representatives, agents and assigns hereby COVENANTS NOT TO SUE OR OTHERWISE VOLUNTARILY PARTICIPATE IN ANY LAWSUIT AGAINST, FULLY RELEASES, INDEMNIFIES, HOLDS HARMLESS, and OTHERWISE FOREVER DISCHARGES (i) Cinergy, (ii) its subsidiary or affiliated entities, (iii) all of their present or former directors, officers, employees, shareholders, and agents as well as (iv) all predecessors, successors and assigns thereof (the persons listed in clauses (i) through (iv) hereof shall be referred to collectively as the “Company”) from any and all actions, charges, claims, demands, damages or liabilities of any kind or character whatsoever, known or unknown, which Executive now has or may have had through the effective date of this Waiver and Release.  Executive acknowledges and understands that he is not hereby prevented from filing a charge of discrimination with the Equal Employment Opportunity Commission or any state-equivalent agency or otherwise participate in any proceedings before such Commissions.  Executive also acknowledges and understands that in the event he does

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file such a charge, he shall be entitled to no remuneration, damages, back pay, front pay, or compensation whatsoever from the Company as a result of such charge.

3.Without limiting the generality of the foregoing release, it shall include:  (i) all claims or potential claims arising under any federal, state or local laws relating to the Parties’ employment relationship, including any claims Executive may have under the Civil Rights Acts of 1866 and 1964, as amended, 42 U.S.C. §§ 1981 and 2000(e) et seq.; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12,101 et seq.; the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq.; the Ohio Civil Rights Act, Chapter 4112 et seq.; and any other federal, state or local law governing the Parties’ employment relationship; (ii) any claims on account of, arising out of or in any way connected with Executive’s employment with the Company or leaving of that employment; (iii) any claims alleged or which could have been alleged in any charge or complaint against the Company; (iv) any claims relating to the conduct of any employee, officer, director, agent or other representative of the Company; (v) any claims of discrimination or harassment on any basis; (vi) any claims arising from any legal restrictions on an employer’s right to separate its employees; (vii) any claims for personal injury, compensatory or punitive damages or other forms of relief; and (viii) all other causes of action sounding in contract, tort or other common law basis, including: (a) the breach of any alleged oral or written contract; (b) negligent or intentional misrepresentations; (c) wrongful discharge; (d) just cause dismissal; (e) defamation; (f) interference with contract or business relationship; or (g) negligent or intentional infliction of emotional distress.

4.The Parties acknowledge that it is their mutual and specific intent that the above waiver fully complies with the requirements of the Older Workers Benefit Protection Act (29 U.S.C. § 626) and any similar law governing release of claims.  Accordingly, Executive hereby acknowledges that:

(a)He has carefully read and fully understands all of the provisions of this Waiver and Release and that he has entered into this Waiver and Release knowingly and voluntarily after extensive negotiations and having consulted with his counsel;

(b)The Severance Benefits offered in exchange for Executive’s release of claims exceed in kind and scope that to which he would have otherwise been legally entitled;

(c)Prior to signing this Waiver and Release, Executive had been advised in writing by this Waiver and Release as well as other writings to seek counsel from, and has in fact had an opportunity to consult with, an attorney of his choice concerning its terms and conditions; and

(d)He has been offered at least twenty-one (21) days within which to review and consider this Waiver and Release.

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5.The Parties agree that this Waiver and Release shall not become effective and enforceable until the date this Waiver and Release is signed by both Parties or seven (7) calendar days after its execution by Executive, whichever is later.  Executive may revoke this Waiver and Release for any reason by providing written notice of such intent to Cinergy within seven (7) days after he has signed this Waiver and Release, thereby forfeiting Executive’s right to receive any Severance Benefits provided hereunder and rendering this Waiver and Release null and void in its entirety.

6.The Executive hereby affirms and acknowledges his continued obligations to comply with the post-termination covenants contained in his Employment Agreement, including but not limited to, the Confidential Information provisions of Section 9 of the Employment Agreement.  Executive acknowledges that the restrictions contained therein are valid and reasonable in every respect, are necessary to protect the Company’s legitimate business interests and hereby affirmatively waives any claim or defense to the contrary.

7.Executive specifically agrees and understands that the existence and terms of this Waiver and Release are strictly CONFIDENTIAL and that such confidentiality is a material term of this Waiver and Release.  Accordingly, except as required by law or unless authorized to do so by Cinergy in writing, Executive agrees that he shall not communicate, display or otherwise reveal any of the contents of this Waiver and Release to anyone other than his spouse, primary legal counsel or financial advisor, provided, however, that they are first advised of the confidential nature of this Waiver and Release and Executive obtains their agreement to be bound by the same.  Cinergy agrees that Executive may respond to legitimate inquiries regarding his employment with Cinergy by stating that he voluntarily resigned to pursue other opportunities, that the Parties terminated their relationship on an amicable basis and that the Parties have entered into a confidential Waiver and Release that prohibits him from further discussing the specifics of his separation.  Nothing contained herein shall be construed to prevent Executive from discussing or otherwise advising subsequent employers of the existence of any obligations as set forth in his Employment Agreement.  Further, nothing contained herein shall be construed to limit or otherwise restrict the Company’s ability to disclose the terms and conditions of this Waiver and Release as may be required by business necessity.

8.In the event that Executive breaches or threatens to breach any provision of this Waiver and Release, he agrees that Cinergy shall be entitled to seek any and all equitable and legal relief provided by law, specifically including immediate and permanent injunctive relief.  Executive hereby waives any claim that Cinergy has an adequate remedy at law.  In addition, and to the extent not prohibited by law, Executive agrees that Cinergy shall be entitled to an award of all costs and attorneys’ fees incurred by Cinergy in any successful effort to enforce the terms of this Waiver and Release.  Executive agrees that the foregoing relief shall not be construed to limit or otherwise restrict Cinergy’s ability to pursue any other remedy provided by law, including the recovery of any actual, compensatory or punitive damages.  Moreover, if Executive pursues any claims against the Company subject to the foregoing Waiver and Release, Executive agrees to immediately reimburse the Company for the value of all benefits received under this Waiver and Release to the fullest extent permitted by law.

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9.Cinergy hereby releases the Executive, his heirs, representatives, agents and assigns from any and all known claims, causes of action, grievances, damages and demands of any kind or nature based on acts or omissions committed by the Executive during and in the course of his employment with Cinergy provided such act or omission was committed in good faith and occurred within the scope of his normal duties and responsibilities.

10.The Parties acknowledge that this Waiver and Release is entered into solely for the purpose of ending their employment relationship on an amicable basis and shall not be construed as an admission of liability or wrongdoing by either Party and that both Cinergy and Executive have expressly denied any such liability or wrongdoing.

11.Each of the promises and obligations shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, assigns and successors in interest of each of the Parties.

12.The Parties agree that each and every paragraph, sentence, clause, term and provision of this Waiver and Release is severable and that, if any portion of this Waiver and Release should be deemed not enforceable for any reason, such portion shall be stricken and the remaining portion or portions thereof should continue to be enforced to the fullest extent permitted by applicable law.

13.This Waiver and Release shall be governed by and interpreted in accordance with the laws of the State of Ohio without regard to any applicable state’s choice of law provisions.

14.Executive represents and acknowledges that in signing this Waiver and Release he does not rely, and has not relied, upon any representation or statement made by Cinergy or by any of Cinergy’s employees, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Waiver and Release other than those specifically contained herein.

15.This Waiver and Release represents the entire agreement between the Parties concerning the subject matter hereof, shall supercede any and all prior agreements which may otherwise exist between them concerning the subject matter hereof (specifically excluding, however, the post-termination obligations contained in any existing Employment Agreement or other legally-binding document), and shall not be altered, amended, modified or otherwise changed except by a writing executed by both Parties.

16.Cinergy Corp. and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy Corp. with respect to all aspects pertaining to the administration and interpretation of this Waiver and Release.

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PLEASE READ CAREFULLY.  WITH RESPECT TO THE EXECUTIVE, THIS

WAIVER AND RELEASE INCLUDES A COMPLETE RELEASE OF ALL KNOWN

AND UNKNOWN CLAIMS.

IN WITNESS WHEREOF, the Parties have themselves signed, or caused a duly authorized agent thereof to sign, this Waiver and Release on their behalf and thereby acknowledge their intent to be bound by its terms and conditions.

EXECUTIVE		CINERGY SERVICES, INC.
Signed:	/s/ William J. Grealis	By:	/s/ James E. Rogers
Printed:	William J. Grealis	Title:		Chairman and Chief Executive Officer
Dated:		Dated:

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EX-10.D

Exhibit 10.d

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made and entered into as of the 1^st day of October, 2002 (the “Effective Date”), by and between Cinergy and Donald B. Ingle, Jr. (the “Executive”).  This Agreement replaces and supersedes any and all prior employment agreements between Cinergy and the Executive.  The capitalized words and terms used throughout this Agreement are defined in Section 11.

Recitals

A.            The Executive is currently serving as Vice President of the Company and President of Power Technology and Infrastructure Services, and Cinergy desires to secure the continued employment of the Executive in accordance with this Agreement.

B.            The Executive is willing to continue to remain in the employ of Cinergy on the terms and conditions set forth in this Agreement.

C.            The parties intend that this Agreement will replace and supersede any and all prior employment agreements between Cinergy (or any component company or business unit of Cinergy) and the Executive.

Agreement

In consideration of the mutual promises, covenants and agreements set forth below, the parties agree as follows:

1.Employment and Term.

a.Cinergy agrees to employ the Executive, and the Executive agrees to remain in the employ of Cinergy, in accordance with the terms and provisions of this Agreement, for the Employment Period set forth in Section 1b.  The parties agree that the Company will be responsible for carrying out all of the promises, covenants, and agreements of Cinergy set forth in this Agreement.

b.The Employment Period of this Agreement will commence as of the Effective Date and continue until December 31, 2004; provided that, commencing on December 31, 2002, and on each subsequent December 31, the Employment Period will be extended for one (1) additional year unless either party gives the other party written notice not to extend this Agreement at least ninety (90) days before the extension would otherwise become effective.

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2.Duties and Powers of Executive.

a.Position.  The Executive will serve Cinergy as Vice President of the Company and President of Power Technology and Infrastructure Services and he will have such responsibilities, duties, and authority as are customary for someone of that position and such additional duties, consistent with his position, as may be assigned to him from time to time during the Employment Period by the Board of Directors, the Chief Executive Officer, or the senior executive officer to whom he directly reports.  Executive shall devote substantially all of Executive’s business time, efforts and attention to the performance of Executive’s duties under this Agreement; provided, however, that this requirement shall not preclude Executive from reasonable participation in civic, charitable or professional activities or the management of Executive’s passive investments, so long as such activities do not materially interfere with the performance of Executive’s duties under this Agreement.

b.Place of Performance.  In connection with the Executive’s employment, the Executive will be based at 15679 Villoresi Way, Naples, Florida.  Except for required business travel to an extent substantially consistent with the present business travel obligations of Cinergy executives who have positions of authority comparable to that of the Executive, the Executive will not be required to relocate to a new principal place of business that is more than thirty (30) miles from such location.

3.Compensation.  The Executive will receive the following compensation for his services under this Agreement.

a.Salary.  The Executive’s Annual Base Salary, payable in pro rata installments not less often than semi-monthly, will be at the annual rate of not less than $425,004.  Any increase in the Annual Base Salary will not serve to limit or reduce any other obligation of Cinergy under this Agreement.  The Annual Base Salary will not be reduced except for across-the-board salary reductions similarly affecting all Cinergy management personnel.  If Annual Base Salary is increased or reduced during the Employment Period, then such adjusted salary will thereafter be the Annual Base Salary for all purposes under this Agreement.

b.Retirement, Incentive, Welfare Benefit Plans and Other Benefits.

(i)During the Employment Period, the Executive will be eligible, and Cinergy will take all necessary action to cause the Executive to become eligible, to participate in short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to other senior executives of Cinergy who are considered Tier II executives for compensation purposes, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing.

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(ii)Supplemental Retirement Benefit.

(1)Amount, Form, Timing and Method of Payment.  The Executive will be entitled and fully vested in a supplemental retirement benefit in an amount which, when expressed as an annual amount payable during the life of the Executive, shall equal the excess of (1) 60% of the Executive’s Highest Average Earnings times a fraction, the numerator of which is the Executive’s Years of Participation and the denominator of which is 35 over (2) his total aggregate annual benefit, payable in the form of a single life annuity to the Executive, under all Executive Retirement Plans.  If, however, the Executive’s employment is terminated following a Change in Control, for any reason other than Cause, the Executive will be entitled to a supplemental retirement benefit in an amount which, when expressed as an annual amount payable during the life of the Executive, shall equal the excess of (1) 60% of the Executive’s Highest Average Earnings over (2) his total aggregate annual benefit, payable in the form of a single life annuity to the Executive, under all Executive Retirement Plans.  Except as described below, the form (e.g., the 100% joint and survivor annuity form of benefit), timing, and method of payment of the supplemental retirement benefit payable under this Paragraph will be the same as those elected by the Executive under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(2)Death Benefit.  If the Executive dies prior to his retirement from Cinergy, and if his Spouse, on the date of his death, is living on the date the first installment of the supplemental retirement benefit would be payable under this Paragraph, the Spouse will be entitled to receive the supplemental retirement benefit as a Spouse’s benefit.  The form, timing, and method of payment of any Spouse’s benefit under this Paragraph will be the same as those applicable to the Spouse under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(3)Special Payment Election Effective Upon a Change in Control.  Notwithstanding the foregoing, the Executive may make a special payment election with respect to his supplemental retirement benefit (if any) in accordance with the following provisions:

(A)The Executive may elect, on a form provided by Cinergy, to receive a single lump sum cash payment in an amount

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equal to the Actuarial Equivalent (as defined below) of his supplemental retirement benefit (or the Actuarial Equivalent of the remaining payments to be made in connection with his supplemental retirement benefit in the event that payment of his supplemental retirement benefit has already commenced) payable no later than 30 days after the later of the occurrence of a Change in Control or the date of his termination of employment.

(B)Such special payment election shall become operative only upon the occurrence of a Change in Control and only if the Executive’s termination of employment occurs either (1) prior to the occurrence of a Change in Control or (2) during the 24-month period commencing upon the occurrence of a Change in Control.  Once operative, such special payment election shall override any other payment election made by the Executive with respect to his supplemental retirement benefit.

(C)In order to be effective, a special payment election (or withdrawal of that election) must be made either prior to the occurrence of a Potential Change in Control or, with the consent of Cinergy, during the 30-day period commencing upon the occurrence of a Potential Change in Control.  In the event that a Potential Change in Control occurs and subsequently ceases to exist, other than as a result of a Change in Control, such Potential Change in Control shall be disregarded for purposes of this Section.

(D)In the event that the Executive makes a special payment election and pursuant to that election he becomes entitled to receive a single lump sum cash payment pursuant to this Section payable prior to the commencement of his supplemental retirement benefit in another form of payment, the Actuarial Equivalent of his supplemental retirement benefit shall be calculated based on the following assumptions:

(I)The form of payment for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be a single life annuity;

(II)The commencement date for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be the first day of the calendar month

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coincident with or next following his termination of employment;

(III)The term “Actuarial Equivalent” has the meaning given to that term in the Pension Plan with respect to lump sum payments; and

(IV)The amount of the Executive’s supplemental retirement benefit shall not be actuarially reduced for early commencement.

(E)In the event that the Executive makes a special payment election and pursuant to that election he is entitled to receive a single lump sum cash payment payable after the commencement of his supplemental retirement benefit in another form of payment, his lump sum cash payment shall be equal to the Actuarial Equivalent (as that term is used in the Pension Plan with respect to lump sum payments) of the remaining payments to be made in connection with his supplemental retirement benefit.

(iii)Upon his retirement on or after having attained age 50, the Executive will be eligible for comprehensive medical and dental benefits which are not materially different from the benefits provided to retirees under the Cinergy Corp. Welfare Benefits Program or any similar program or successor to that program.  For purposes of determining the amount of the monthly premiums due from the Executive, the Executive will receive from Cinergy the maximum subsidy available as of the date of his retirement to an active Cinergy employee with the same medical benefits classification/eligibility as the Executive’s medical benefits classification/eligibility on the date of his retirement.

(iv)The Executive will be a participant in the Annual Incentive Plan and will be paid pursuant to the terms and conditions of that plan, subject to the following: (1) The maximum annual bonus shall be not less than seventy  percent (70%) of the Executive’s Annual Base Salary (the “Maximum Annual Bonus”); and (2) The target annual bonus shall be not less than forty percent (40%) of the Executive’s Annual Base Salary (the “Target Annual Bonus”).

(v)The Executive will be a participant in the Long-Term Incentive Plan (the “LTIP”), and the Executive’s annualized target award opportunity under the LTIP will be equal to no less than ninety percent (90%) of his Annual Base Salary (the “Target LTIP Bonus”).

(vi)For purposes of Sections 3b(iv) and 3b(v), the Executive’s Annual Base Salary for any calendar year shall be increased by the amount of any

5

Nonelective Employer Contributions made on behalf of the Executive during such calendar year under the 401(k) Excess Plan.

c.Fringe Benefits and Perquisites.  During the Employment Period, the Executive will be entitled to the following additional fringe benefits in accordance with the terms and conditions of Cinergy’s policies and practices for such fringe benefits:

(i)Cinergy will furnish to the Executive an automobile appropriate for the Executive’s level of position, or, at Cinergy’s discretion, a cash allowance of equivalent value.  Cinergy will also pay all of the related expenses for gasoline, insurance, maintenance, and repairs, or provide for such expenses within the cash allowance.  All benefits provided pursuant to this Section 3c(i) shall be provided in accordance with generally applicable procedures established from time to time by Cinergy in its sole discretion.

(ii)Cinergy will pay the initiation fee and the annual dues, assessments, and other membership charges of the Executive for membership in a country club selected by the Executive.

(iii)Cinergy will provide paid vacation for four (4) weeks per year (or such longer period for which Executive is otherwise eligible under Cinergy’s policy).

(iv)Cinergy will furnish to the Executive annual financial planning and tax preparation services, provided, however, that the cost to Cinergy of such services shall not exceed $15,000 during any thirty-six (36) consecutive month period.  Notwithstanding the preceding sentence, in the event any  payment to the Executive pursuant to this Section 3c(iv) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 3c(iv).

(v)Cinergy will provide other fringe benefits in accordance with Cinergy plans, practices, programs, and policies in effect from time to time, commensurate with his position and at least comparable to those received by other Cinergy Tier II executives.

d.Expenses.  Cinergy agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board of Directors.

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e.Relocation Benefits.  Following termination of the Executive’s employment for any reason (other than death), the Executive will be entitled to reimbursement from Cinergy for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Relocation Program.  Notwithstanding the foregoing, if the Executive becomes employed by another employer and is eligible to receive relocation benefits under another employer-provided plan, any benefits provided to the Executive under this Section 3e will be secondary to those provided under the other employer-provided relocation plan.  The Executive must report to Cinergy any such relocation benefits that he actually receives under another employer-provided plan.

f.Stock Options and Stock Appreciation Rights.  Notwithstanding Section 5d, upon the occurrence of a Change in Control, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock Related Documents, become immediately exercisable.  If the Executive terminates employment for any reason during the twenty-four (24) month period commencing upon the occurrence of a Change in Control, notwithstanding Section 5d, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock Related Documents, remain exercisable in accordance with their terms but in no event for a period less than the lesser of (i) three months following such termination of employment or (ii) the remaining term of such stock option or stock appreciation right (which remaining term shall be determined without regard to such termination of employment).

4.Termination of Employment.

a.Death.  The Executive’s employment will terminate automatically upon the Executive’s death during the Employment Period.

b.By Cinergy for Cause.  Cinergy may terminate the Executive’s employment during the Employment Period for Cause.  For purposes of this Employment Agreement, “Cause” means the following:

(i)The willful and continued failure by the Executive to substantially perform the Executive’s duties with Cinergy (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) that, if curable, has not been cured within 30 days after the Board of Directors or the Chief Executive Officer has delivered to the Executive a written demand for substantial performance, which demand specifically identifies the manner in which the Executive has not substantially performed his duties.  This event will constitute Cause even if the Executive issues a Notice of Termination for Good Reason pursuant to Section 4d after the Board of Directors or Chief Executive Officer delivers a written demand for substantial performance.

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(ii)The breach by the Executive of the confidentiality provisions set forth in Section 9.

(iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on Cinergy.  For purposes of this definition of Cause, no act, or failure to act, on the Executive’s part will be deemed “willful” unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of Cinergy.

(iv)Notwithstanding the foregoing, Cinergy shall be deemed to have not terminated the employment of the Executive 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 a majority of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard by the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in this Section 4b and specifying the particulars thereof in detail.

c.By Cinergy Without Cause.  Cinergy may, upon at least 30 days advance written notice to the Executive, terminate the Executive’s employment during the Employment Period for a reason other than Cause, but the obligations placed upon Cinergy in Section 5 will apply.

d.By the Executive for Good Reason.  The Executive may terminate his employment during the Employment Period for Good Reason.  For purposes of this Agreement, “Good Reason” means the following:

(i)(1) A reduction in the Executive’s Annual Base Salary, except for across-the-board salary reductions similarly affecting all Cinergy management personnel, (2) a reduction in the amount of the Executive’s Maximum Annual Bonus under the Annual Incentive Plan, except for across-the-board Maximum Annual Bonus reductions similarly affecting all Cinergy management personnel, or (3) a reduction in any other benefit or payment described in Section 3 of this Agreement, except for changes to the employee benefits programs generally affecting Cinergy management personnel, provided that those changes, in the aggregate, will not result in a material adverse change with respect to the benefits to which the Executive was entitled as of the Effective Date.

(ii)(1) The material reduction without his consent of the Executive’s title, authority, duties, or responsibilities from those in effect immediately prior to the reduction, (2) in the event the Executive is or becomes a member of

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the Board during the Employment Period, the failure by Cinergy without the consent of the Executive to nominate the Executive for re-election to the Board, or (3) a material adverse change in the Executive’s reporting responsibilities.

(iii)Any breach by Cinergy of any other material provision of this Agreement (including but not limited to the place of performance as specified in Section 2b).

(iv)The Executive’s disability due to physical or mental illness or injury that precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience.

(v)A failure by the Company to require any successor entity to the Company specifically to assume in writing all of the Company’s obligations to the Executive under this Agreement.

For purposes of determining whether Good Reason exists with respect to a Qualifying Termination occurring on or within 24 months following a Change in Control, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.

e.By the Executive Without Good Reason.  The Executive may terminate his employment without Good Reason upon prior written notice to the Company.

f.Notice of Termination.  Any termination of the Executive’s employment by Cinergy or by the Executive during the Employment Period (other than a termination due to the Executive’s death) will be communicated by a written Notice of Termination to the other party to this Agreement in accordance with Section 12b.  For purposes of this Agreement, a “Notice of Termination” means a written notice that specifies the particular provision of this Agreement relied upon and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for terminating the Executive’s employment under the specified provision.  The failure by the Executive or Cinergy to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause will not waive any right of the Executive or Cinergy under this Agreement or preclude the Executive or Cinergy from asserting that fact or circumstance in enforcing rights under this Agreement.

g.The Executive acknowledges and agrees that he shall not sell or otherwise dispose of any shares of Company stock acquired pursuant to the exercise of a stock option, other than shares sold in order to pay an option exercise price or the related tax withholding obligation, until 90 days after the Date of Termination.  Notwithstanding the foregoing, Cinergy, in its sole discretion, may waive the restrictions contained in the previous sentence.

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5.Obligations of Cinergy Upon Termination.

a.Certain Terminations.

(i)If a Qualifying Termination occurs during the Employment Period, Cinergy will pay to the Executive a lump sum amount, in cash, equal to the sum of the following Accrued Obligations:

(1)the pro-rated portion of the Executive’s Annual Base Salary payable through the Date of Termination, to the extent not previously paid.

(2)any amount payable to the Executive under the Annual Incentive Plan in respect of the most recently completed fiscal year, to the extent not theretofore paid.

(3)an amount equal to the AIP Benefit for the fiscal year that includes the Date of Termination multiplied by a fraction, the numerator of which is the number of days from the beginning of that fiscal year to and including the Date of Termination and the denominator of which is three hundred and sixty-five (365).  The AIP Benefit component of the calculation will be equal to the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, determined by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable.

(4)the Accrued Obligations described in this Section 5a(i) will be paid within thirty (30) days after the Date of Termination.  These Accrued Obligations are payable to the Executive regardless of whether a Change in Control has occurred.

(ii)In the event of a Qualifying Termination either prior to the occurrence of a Change in Control, or more than twenty-four (24) months following the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations, and Cinergy will have the following additional obligations described in this Section 5a(ii); provided, however, that each of the benefits described below in this Section 5a(ii) shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum amount, in cash, equal to three (3) times the sum of the Annual Base Salary and the

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Annual Bonus.  For this purpose, the Annual Base Salary will be at the rate in effect at the time Notice of Termination is given (without giving effect to any reduction in Annual Base Salary, if any, prior to the termination, other than across-the-board reductions), and shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which the Executive’s Qualifying Termination occurs, and the Annual Bonus will be the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, calculated by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable; provided, however that for purposes of this Section 5a(ii)(1)(B), the Annual Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus for the year in which the Date of Termination occurs.  This lump sum will be paid within thirty (30) days after the expiration of the revocation period contained in the Waiver and Release.

(2)Subject to Clauses (A), (B) and (C) below, Cinergy will provide, until the end of the Employment Period, medical and dental benefits to the Executive and/or the Executive’s dependents at least equal to those that would have been provided if the Executive’s employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing).  The benefits described in the preceding sentence will be in accordance with the medical and welfare benefit plans, practices, programs, or policies of Cinergy (the “M&W Plans”) as then currently in effect and applicable generally to other Cinergy senior executives and their families.  In the event that any medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal

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to the medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B).

(A)If, as of the Executive’s Date of Termination, the Executive meets the eligibility requirements for Cinergy’s retiree medical and welfare benefit plans, the provision of those retiree medical and welfare benefit plans to the Executive will satisfy Cinergy’s obligation under this Section 5a(ii)(2).

(B)If, as of the Executive’s Date of Termination, the provision to the Executive of the M&W Plan benefits described in this Section 5a(ii)(2) would either (1) violate the terms of the M&W Plans (or any related insurance policies) or (2) violate any of the Code’s nondiscrimination requirements applicable to the M&W Plans, then Cinergy, in its sole discretion, may elect to pay the Executive, in lieu of the M&W Plan benefits described under this Section 5a(ii)(2), a lump sum cash payment equal to the total monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy for the Executive under the M&W Plans from the Date of Termination through the end of the Employment Period.  Nothing in this Clause will affect the Executive’s right to elect COBRA continuation coverage under a M&W Plan in accordance with applicable law, and Cinergy will make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.

(C)If the Executive becomes employed by another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, any benefits provided to the Executive under the M&W Plans will be secondary to those provided under the other employer-provided plan during the Executive’s applicable period of eligibility.

(3)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(ii)(3) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes

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for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(ii)(3).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(iii)In the event of a Qualifying Termination during the twenty-four (24) month period beginning upon the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations listed in Sections 5a(i)(1) and (2), Cinergy will pay the Accrued Obligations listed in Section 5a(i)(3) (but only if such Qualifying Termination occurs after the calendar year in which occurs such Change in Control) and Cinergy will have the following additional obligations described in this Section 5a(iii); provided, however, that each of the benefits described below in this Section 5a(iii) shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the higher of (x) the sum of the Executive’s current Annual Base Salary and Target Annual Bonus and (y) the sum of the Executive’s Annual Base Salary in effect immediately prior to the Change in Control and the Change in Control Bonus.  For purposes of the preceding sentence, the Executive’s Annual Base Salary on any given date shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which such date occurs.  For purposes of this Agreement, the Change in Control Bonus shall mean the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the Change in Control, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year in which occurs the Date of Termination, calculated by projecting Cinergy’s performance and other applicable goals and objective for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable, provided, however, that  for purposes of this Section 5a(iii)(1)(B), such Change in Control Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus.  This

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lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.  Nothing in this Section 5a(iii)(1) shall preclude the Executive from receiving the amount, if any, to which he is entitled in accordance with the terms of the Annual Incentive Plan for the fiscal year that includes the Date of Termination.

(2)Cinergy will pay to the Executive the lump sum present value of any benefits under the Executive Supplemental Life Program under the terms of the applicable plan or program as of the Date of Termination, calculated as if the Executive was fully vested as of the Date of Termination. The lump sum present value, assuming commencement at age 50 or the Executive’s age as of the Date of Termination if later, will be determined using the interest rate applicable to lump sum payments in the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan for the plan year that includes the Date of Termination. To the extent no such interest rate is provided therein, the annual interest rate applicable under Section 417(e)(3) of the Code, or any successor provision thereto, for the second full calendar month preceding the first day of the calendar year that includes the Date of Termination will be used. This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(3)The Executive shall be fully vested in his accrued benefits as of the Date of Termination under the Executive Retirement Plans, and his aggregate accrued benefits thereunder and under Section 3b(ii) of this Agreement will be calculated, and he will be treated for all purposes, as if he was credited with three (3) additional years of age and service as of the Date of Termination, provided, however, that to the extent a calculation is made regarding the actuarial equivalent amount of any alternate form of benefit, the Executive will not be credited with three additional years of age for purposes of such calculation.  However, Cinergy will not commence payment of such benefits prior to the date that the Executive has attained, or is treated (after taking into account the preceding sentence) as if he had attained, age 50.

(4)For a thirty-six (36) month period after the Date of Termination, Cinergy will arrange to provide to the Executive and/or the Executive’s dependents life, disability, accident, and health insurance benefits substantially similar to those that the Executive and/or the Executive’s dependents are receiving immediately prior to the Notice of Termination at a substantially similar cost to the Executive (without giving effect to any reduction in those benefits subsequent to a Change in Control that constitutes Good Reason),

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except for any benefits that were waived by the Executive in writing.  If Cinergy arranges to provide the Executive and/or the Executive’s dependents with life, disability, accident, and health insurance benefits, those benefits will be reduced to the extent comparable benefits are actually received by or made available to the Executive and/or the Executive’s dependents during the thirty-six (36) month period following the Executive’s Date of Termination.  The Executive must report to Cinergy any such benefits that he or his dependents actually receives or that are made available to him or his dependents.  In lieu of the benefits described in the preceding sentences, Cinergy, in its sole discretion, may elect to pay to the Executive a lump sum cash payment equal to thirty-six (36) times the monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy to provide those benefits to the Executive and/or the Executive’s dependents.  Nothing in this Section 5a(iii)(4) will affect the Executive’s right to elect COBRA continuation coverage in accordance with applicable law, and Cinergy will provide the benefits or make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.  In the event that any benefits or payments provided pursuant to this Section 5a(iii)(4) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefits or payments provided pursuant to this Section 5a(iii)(4).

(5)In lieu of any and all other rights with respect to the automobile assigned by Cinergy to the Executive, Cinergy will provide the Executive with a lump sum payment in the amount of $50,000.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(5) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(5).  Such payment will be transferred to the Executive within thirty (30) days of the

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expiration of the revocation period contained in the Waiver and Release.

(6)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(6) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(6).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(7)Cinergy will provide annual dues and assessments of the Executive for membership in a country club selected by the Executive until the end of the Employment Period.

(8)Cinergy will provide outplacement services suitable to the Executive’s position until the end of the Employment Period or, if earlier, until the first acceptance by the Executive of an offer of employment.  At the Executive’s discretion, 15% of Annual Base Salary may be paid in lieu of outplacement services, which payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

For purposes of this Section 5a(iii), the Executive will be deemed to have incurred a Qualifying Termination upon a Change in Control if the Executive’s employment is terminated prior to a Change in Control, without Cause at the direction of a Person who has entered into an agreement with Cinergy, the consummation of which will constitute a Change in Control, or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event that constitutes Good Reason occurs at the direction of such a Person.

b.Termination by Cinergy for Cause or by the Executive Other Than for Good Reason.  Subject to the provisions of Section 7, and notwithstanding any other provisions of this Agreement, if the Executive’s employment is terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, Cinergy will have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations, plus any other earned but unpaid compensation, in each case to the extent not previously paid.

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c.Certain Tax Consequences.

(i)In the event that any benefits paid or payable to the Executive or for his benefit pursuant to the terms of this Agreement or any other plan or arrangement in connection with, or arising out of, his employment with Cinergy or a change in ownership or effective control of Cinergy or of a substantial portion of its assets (a “Payment” or “Payments”) would be subject to any Excise Tax, then the Executive will 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, penalties, additional tax, or similar items imposed with respect thereto and the Excise Tax), including any 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 or assessable against the Executive due to the Payments.

(ii)Subject to the provisions of Section 5c, all determinations required to be made under this Section 5c, 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 the Accounting Firm, which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return.  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 5c, shall be paid by Cinergy to the Executive within five (5) days of the receipt of the Accounting Firm’s determination.  Any determination by the Accounting Firm shall be binding upon Cinergy 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 Cinergy should have been made (“Underpayment”), consistent with the calculations required to be made hereunder.  In the event of any Underpayment, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Cinergy to or for the benefit of the Executive, and Cinergy shall indemnify and hold harmless the Executive for any such Underpayment, on an after-tax basis, including interest and penalties with respect thereto.  In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall repay to the Company, at the time that the amount of such reduction in

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Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Code Section 1274(b)(2)(B).

(iii)The value of any non-cash benefits or any deferred payment or benefit paid or payable to the Executive will be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).  For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and applicable state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes that would be obtained from deduction of those state and local taxes.

(iv)Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Accounting Firm’s determination, an Excise Tax will be imposed on any Payment or Payments, Cinergy will pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Cinergy has actually withheld from the Payment or Payments in accordance with law.

d.Value Creation Plan and Stock Options.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlement to restricted shares and performance shares under the Value Creation Plan and any stock options granted under the Cinergy Corp. Stock Option Plan, the LTIP or any other stock option plan will be determined under the terms of the appropriate plan and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of any such plan, administrative guideline or written agreement shall not be amended in a manner that would adversely affect the Executive with respect to awards granted to the Executive prior to the Change in Control.

e.Benefit Plans in General.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlements, if any, under all benefit plans of Cinergy, including but not limited to the Deferred Compensation Plan, 401(k) Excess Plan, Cinergy Corp. Supplemental Executive Retirement Plan and any vacation policy, shall be determined under the terms of such plans, policies and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of such plans and policies and any applicable administrative guidelines and written

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agreements shall not be amended in a manner that would adversely affect the Executive with respect to benefits earned by the Executive prior to the Change in Control.

f.Other Fees and Expenses.  Cinergy will also reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive (i) in successfully disputing a Qualifying Termination that entitles the Executive to Severance Benefits or (ii) in reasonably disputing whether or not Cinergy has terminated his employment for Cause.  Payment will be made within five (5) business days after delivery of the Executive’s written request for payment accompanied by such evidence of fees and expenses incurred as Cinergy reasonably may require.

6.Non-Exclusivity of Rights.  Nothing in this Agreement will prevent or limit the Executive’s continuing or future participation in any benefit, plan, program, policy, or practice provided by Cinergy and for which the Executive may qualify, except with respect to any benefit to which the Executive has waived his rights in writing or any plan, program, policy, or practice that expressly excludes the Executive from participation.  In addition, nothing in this Agreement will limit or otherwise affect the rights the Executive may have under any other contract or agreement with Cinergy entered into after the Effective Date.  Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy, or practice of, or any contract or agreement entered into after the Effective Date with Cinergy, at or subsequent to the Date of Termination, will be payable in accordance with that benefit, plan, program, policy or practice, or that contract or agreement, except as explicitly modified by this Agreement.  Notwithstanding the above, in the event that the Executive receives Severance Benefits under Section 5a(ii) or 5a(iii), (a) the Executive shall not be entitled to any benefits under any severance plan of Cinergy, including but not limited to the Severance Opportunity Plan for Non-Union Employees of Cinergy Corp. and (b) if the Executive receives such Severance Benefits as a result of his termination for Good Reason, as that term is defined in Section 4d(iv), Cinergy’s obligations under Sections 5a(ii) and 5a(iii) shall be reduced by the amount of any benefits payable to the Executive under any short-term or long-term disability plan of Cinergy, the amount of which shall be determined by Cinergy in good faith.

7.Full Settlement:  Mitigation.  Except as otherwise provided herein, Cinergy’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right, or action that Cinergy may have against the Executive or others.  In no event will the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 3e, 5a(ii)(2) and 5a(iii)(4), those amounts will not be reduced simply because the Executive obtains other employment.  If the Executive finally prevails on the substantial claims brought with respect to any dispute between Cinergy and the Executive as to the interpretation, terms, validity, or enforceability of (including any dispute about the amount of any payment pursuant to)

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this Agreement, Cinergy agrees to pay all reasonable legal fees and expenses that the Executive may reasonably incur as a result of that dispute.

8.Arbitration.  The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to the Executive’s employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such a dispute is arbitrable, shall be settled by arbitration.  This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims.  The Executive will still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim will be submitted to arbitration instead of a court or jury.  The arbitration proceeding will be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made, and such proceeding will be adjudicated in the state of Ohio in accordance with the laws of the state of Ohio.  The decision of the arbitrator(s), including determination of the amount of any damages suffered, will be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns.  Each party will bear its own expenses in the arbitration for arbitrators’ fees and attorneys’ fees, for its witnesses, and for other expenses of presenting its case.  Other arbitration costs, including administrative fees and fees for records or transcripts, will be borne equally by the parties.  Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, Cinergy will reimburse or pay all legal fees and expenses that the Executive may reasonably incur as a result of the dispute as required by Section 7.

9.Confidential Information.  The Executive will hold in a fiduciary capacity for the benefit of Cinergy, as well as all of Cinergy’s successors and assigns, all secret, confidential information, knowledge, or data relating to Cinergy, and its affiliated businesses, that the Executive obtains during the Executive’s employment by Cinergy or any of its affiliated companies, and that has not been or subsequently becomes public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement).  During the Employment Period and thereafter, the Executive will not, without Cinergy’s prior written consent or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge, or data to anyone other than Cinergy and those designated by it.  The Executive understands that during the Employment Period, Cinergy may be required from time to time to make public disclosure of the terms or existence of the Executive’s employment relationship to comply with various laws and legal requirements.  In addition to all other remedies available to Cinergy in law and equity, this Agreement is subject to termination by Cinergy for Cause under Section 4b in the event the Executive violates any provision of this Section.

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10.Successors.

a.This Agreement is personal to the Executive and, without Cinergy’s prior written consent, cannot be assigned by the Executive other than Executive’s designation of a beneficiary of any amounts payable hereunder after the Executive’s death.  This Agreement will inure to the benefit of and be enforceable by the Executive’s legal representatives.

b.This Agreement will inure to the benefit of and be binding upon Cinergy and its successors and assigns.

c.Cinergy 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 Cinergy to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Cinergy would be required to perform it if no succession had taken place.  Cinergy’s failure to obtain such an assumption and agreement prior to the effective date of a succession will be a breach of this Agreement and will entitle the Executive to compensation from Cinergy in the same amount and on the same terms as if the Executive were to terminate his employment for Good Reason upon a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective will be deemed the Date of Termination.

11.Definitions.  As used in this Agreement, the following terms, when capitalized, will have the following meanings:

a.Accounting Firm.  “Accounting Firm” means Cinergy’s independent auditors.

b.Accrued Obligations.  “Accrued Obligations” means the accrued obligations described in Section 5a(i).

c.Agreement.  “Agreement” means this Employment Agreement between Cinergy and the Executive.

d.AIP Benefit.  “AIP Benefit” means the Annual Incentive Plan benefit described in Section 5a(i).

e.Annual Base Salary.  “Annual Base Salary” means, except where otherwise specified herein, the annual base salary payable to the Executive pursuant to Section 3a.

f.Annual Bonus.  “Annual Bonus” has the meaning set forth in Section 5a(ii)(1).

g.Annual Incentive Plan.  “Annual Incentive Plan” means the Cinergy Corp. Annual Incentive Plan or any similar plan or successor to the Annual Incentive Plan.

h.Board of Directors or Board.  “Board of Directors” or “Board” means the board of directors of the Company.

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i.COBRA.  “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

j.Cause.  “Cause” has the meaning set forth in Section 4b.

k.Change in Control.  A “Change in Control” will be deemed to have occurred if any of the following events occur, after the Effective Date:

(i)Any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (“1934 Act”)), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing more than twenty percent (20%) of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a beneficial owner in connection with a transaction described in Clause (1) of Paragraph (ii) below; or

(ii)There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, partnership or other entity, other than (1) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to that merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the combined voting power of the securities of the Company or the surviving entity or its parent outstanding immediately after the merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such a Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities; or

(iii)During any period of two (2) consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election, or nomination for election was

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previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or

(iv)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to the sale.

l.Change in Control Bonus.  “Change in Control Bonus” has the meaning set forth in Section 5a(iii)(1).

m.Chief Executive Officer.  “Chief Executive Officer” means the individual who, at any relevant time, is then serving as the chief executive officer of the Company.

n.Cinergy.  “Cinergy” means the Company, its subsidiaries, and/or its affiliates, and any successors to the foregoing.

o.Code.  “Code” means the Internal Revenue Code of 1986, as amended, and interpretive rules and regulations.

p.Company.  “Company” means Cinergy Corp.

q.Date of Termination.  “Date of Termination” means:

(i)if the Executive’s employment is terminated by Cinergy for Cause, or by the Executive with Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice, as the case may be;

(ii)if the Executive’s employment is terminated by the Executive without Good Reason, thirty (30) days after the date on which the Executive notifies Cinergy of the termination;

(iii)if the Executive’s employment is terminated by Cinergy other than for Cause, thirty (30) days after the date on which Cinergy notifies the Executive of the termination; and

(iv)if the Executive’s employment is terminated by reason of death, the date of death.

r.Deferred Compensation Plan.  “Deferred Compensation Plan” means the Cinergy Corp. Non-Qualified Deferred Incentive Compensation Plan or any similar plan or successor to that plan.

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s.Effective Date.  “Effective Date” has the meaning given to that term in the first paragraph of this Agreement.

t.Employment Period.  “Employment Period” has the meaning set forth in Section 1b.

u.Excise Tax.  “Excise Tax” means any excise tax imposed by Code section 4999, together with any interest, penalties, additional tax or similar items that are incurred by the Executive with respect to the excise tax imposed by Code section 4999.

v.Executive.  “Executive” has the meaning given to that term in the first paragraph of this Agreement.

w.Executive Retirement Plans.  “Executive Retirement Plans” means the Pension Plan, the Cinergy Corp. Supplemental Executive Retirement Plan and the Cinergy Corp. Excess Pension Plan or any similar plans or successors to those plans.

x.Executive Supplemental Life Program.  “Executive Supplemental Life Program” means the Cinergy Corp. Executive Supplemental Life Insurance Program or any similar program or successor to the Executive Supplemental Life Program.

y.401(k) Excess Plan.  “401(k) Excess Plan” means the Cinergy Corp. 401(k) Excess Plan, or any similar plan or successor to that plan.

z.Good Reason.  “Good Reason” has the meaning set forth in Section 4d.

aa.Gross-Up Payment.  “Gross-Up Payment” has the meaning set forth in Section 5c.

bb.Highest Average Earnings.  “Highest Average Earnings” shall have the meaning given to such term in the Cinergy Corp. Supplemental Executive Retirement Plan.  For purposes of clarity, the parties hereto acknowledge and agree that the Executive’s Highest Average Earnings for any year shall not include any benefits received by the Executive pursuant to Section 5 of this Agreement, other than pursuant to Section 5a(i) of this Agreement.

cc.Long-Term Incentive Plan or LTIP.  “Long-Term Incentive Plan” or “LTIP” means the long-term incentive plan implemented under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan or any successor to that plan.

dd.M&W Plans.  “M&W Plans” has the meaning set forth in Section 5a(ii)(2).

ee.Maximum Annual Bonus.  “Maximum Annual Bonus” has the meaning set forth in Section 3b.

ff.Nonelective Employer Contribution. “Nonelective Employer Contribution” has the meaning set forth in the 401(k) Excess Plan.

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gg.Notice of Termination.  “Notice of Termination” has the meaning set forth in Section 4f.

hh.Payment or Payments.  “Payment” or “Payments” has the meaning set forth in Section 5c.

ii.Pension Plan.  “Pension Plan” means the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan.

jj.Person.  “Person” has the meaning set forth in paragraph 3(a)(9) of the 1934 Act, as modified and used in subsections 13(d) and 14(d) of the 1934 Act; however, a Person will not include the following:

(i)Cinergy or any of its subsidiaries or affiliates;

(ii)A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or its subsidiaries or affiliates;

(iii)An underwriter temporarily holding securities pursuant to an offering of those securities; or

(iv)A corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

kk.Potential Change in Control.  A “Potential Change in Control” means any period during which any of the following circumstances exist:

(i)The Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; provided that a Potential Change in Control shall cease to exist upon the expiration or other termination of such agreement; or

(ii)The Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; provided that a Potential Change in Control shall cease to exist when the Company or such Person publicly announces that it no longer has such an intention; or

(iii)Any Person who is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company’s then outstanding securities, increases such Person’s beneficial ownership of such securities by an amount equal to five percent (5%) or more of the combined voting power of the Company’s then outstanding securities; or

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(iv)The Board of Directors adopts a resolution to the effect that, for purposes hereof, a Potential Change in Control has occurred.

Notwithstanding anything herein to the contrary, a Potential Change in Control shall cease to exist not later than the date that (i) the Board of Directors determines that the Potential Change in Control no longer exists, or (ii) a Change in Control occurs.

ll.Qualifying Termination.  “Qualifying Termination” means (i) the termination by Cinergy of the Executive’s employment with Cinergy during the Employment Period other than a termination for Cause or (ii) the termination by the Executive of the Executive’s employment with Cinergy during the Employment Period for Good Reason.

mm.Relocation Program.  “Relocation Program” means the Cinergy Corp. Relocation Program, or any similar program or successor to that program, as in effect on the date of the Executive’s termination of employment.

nn.Severance Benefits.  “Severance Benefits” means the payments and benefits payable to the Executive pursuant to Section 5.

oo.Spouse.  “Spouse” means the Executive’s lawfully married spouse.  For this purpose, common law marriage or a similar arrangement will not be recognized unless otherwise required by federal law.

pp.Stock Related Documents.  “Stock Related Documents” means the LTIP, the Cinergy Corp. Stock Option Plan, and the Value Creation Plan and any applicable administrative guidelines and written agreements relating to those plans.

qq.Target Annual Bonus.  “Target Annual Bonus” has the meaning set forth in Section 3b.

rr.Target LTIP Bonus.  “Target LTIP Bonus” has the meaning set forth in Section 3b.

ss.Value Creation Plan.  “Value Creation Plan” means the Value Creation Plan or any similar plan, or successor plan of the LTIP.

tt.Waiver and Release.  “Waiver and Release” means a waiver and release, in substantially the form attached to this Agreement as Exhibit A.

uu.Years of Participation.  The Executive’s “Years of Participation” will equal the lesser of (i) 35 or (ii) 25 plus two additional years for each of the Executive’s birthdays that he has reached since his 50^th birthday.

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12.Miscellaneous.

a.This Agreement will be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws.  The captions of this Agreement are not part of its provisions and will have no force or effect.  This Agreement may not be amended, modified, repealed, waived, extended, or discharged except by an agreement in writing signed by the party against whom enforcement of the amendment, modification, repeal, waiver, extension, or discharge is sought.  Only the Chief Executive Officer or his designee will have authority on behalf of Cinergy to agree to amend, modify, repeal, waive, extend, or discharge any provision of this Agreement.

b.All notices and other communications under this Agreement will be in writing and will be given by hand delivery to the other party or by Federal Express or other comparable national or international overnight delivery service, addressed in the name of such party at the following address, whichever is applicable:

If to the Executive:
15679 Villoresi Way
Naples, Florida 34110

If to Cinergy:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960
Attn: Chief Executive Officer

or to such other address as either party has furnished to the other in writing in accordance with this Agreement.  All notices and communications will be effective when actually received by the addressee.

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

d.Cinergy may withhold from any amounts payable under this Agreement such federal, state, or local taxes as are required to be withheld pursuant to any applicable law or regulation.

e.The Executive’s or Cinergy’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or Cinergy may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4d or the right of Cinergy to terminate the Executive’s employment for Cause pursuant to Section 4b, will not be deemed to be a waiver of that provision or right or any other provision or right of this Agreement.

f.References in this Agreement to the masculine include the feminine unless the context clearly indicates otherwise.

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g.This instrument contains the entire agreement of the Executive and Cinergy with respect to the subject matter of this Agreement; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3b and the Stock Related Documents, all promises, representations, understandings, arrangements, and prior agreements are merged into this Agreement and accordingly superseded.

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

i.Cinergy and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy with respect to all aspects pertaining to the administration and interpretation of this Agreement.

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IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the Effective Date.

CINERGY SERVICES, INC.
By:	/s/ James E. Rogers
	James E. Rogers
	Chairman and Chief Executive Officer
EXECUTIVE
/s/ Donald B. Ingle, Jr.
Donald B. Ingle, Jr.

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EXHIBIT A

*****

WAIVER AND RELEASE AGREEMENT

THIS WAIVER AND RELEASE AGREEMENT (this “Waiver and Release”) is entered into by and between Donald B. Ingle, Jr. (the “Executive”) and Cinergy Corp.  (“Cinergy”) (collectively, the “Parties”).

WHEREAS, the Parties have entered into the Employment Agreement dated                                (the “Employment Agreement”);

WHEREAS, the Executive’s employment has been terminated in accordance with the terms of the Employment Agreement;

WHEREAS, the Executive is required to sign this Waiver and Release in order to receive the payment of certain compensation under the Employment Agreement following termination of employment; and

WHEREAS, Cinergy has agreed to sign this Waiver and Release.

NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.This Waiver and Release is effective on the date hereof and will continue in effect as provided herein.

2.In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 5 of the Employment Agreement (the “Severance Benefits”), which the Executive acknowledges are in addition to payment and benefits to which the Executive would be entitled to but for the Employment Agreement, the Executive, on behalf of himself, his heirs, representatives, agents and assigns hereby COVENANTS NOT TO SUE OR OTHERWISE VOLUNTARILY PARTICIPATE IN ANY LAWSUIT AGAINST, FULLY RELEASES, INDEMNIFIES, HOLDS HARMLESS, and OTHERWISE FOREVER DISCHARGES (i) Cinergy, (ii) its subsidiary or affiliated entities, (iii) all of their present or former directors, officers, employees, shareholders, and agents as well as (iv) all predecessors, successors and assigns thereof (the persons listed in clauses (i) through (iv) hereof shall be referred to collectively as the “Company”) from any and all actions, charges, claims, demands, damages or liabilities of any kind or character whatsoever, known or unknown, which Executive now has or may have had through the effective date of this Waiver and Release.  Executive acknowledges and understands that he is not hereby prevented from filing a charge of discrimination with the Equal Employment Opportunity Commission or any state-equivalent agency or otherwise participate in any proceedings before such Commissions.  Executive also acknowledges and understands that in the event he does

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file such a charge, he shall be entitled to no remuneration, damages, back pay, front pay, or compensation whatsoever from the Company as a result of such charge.

3.Without limiting the generality of the foregoing release, it shall include:  (i) all claims or potential claims arising under any federal, state or local laws relating to the Parties’ employment relationship, including any claims Executive may have under the Civil Rights Acts of 1866 and 1964, as amended, 42 U.S.C. §§ 1981 and 2000(e) et seq.; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12,101 et seq.; the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq.; the Ohio Civil Rights Act, Chapter 4112 et seq.; and any other federal, state or local law governing the Parties’ employment relationship; (ii) any claims on account of, arising out of or in any way connected with Executive’s employment with the Company or leaving of that employment; (iii) any claims alleged or which could have been alleged in any charge or complaint against the Company; (iv) any claims relating to the conduct of any employee, officer, director, agent or other representative of the Company; (v) any claims of discrimination or harassment on any basis; (vi) any claims arising from any legal restrictions on an employer’s right to separate its employees; (vii) any claims for personal injury, compensatory or punitive damages or other forms of relief; and (viii) all other causes of action sounding in contract, tort or other common law basis, including: (a) the breach of any alleged oral or written contract; (b) negligent or intentional misrepresentations; (c) wrongful discharge; (d) just cause dismissal; (e) defamation; (f) interference with contract or business relationship; or (g) negligent or intentional infliction of emotional distress.

4.The Parties acknowledge that it is their mutual and specific intent that the above waiver fully complies with the requirements of the Older Workers Benefit Protection Act (29 U.S.C. § 626) and any similar law governing release of claims.  Accordingly, Executive hereby acknowledges that:

(a)He has carefully read and fully understands all of the provisions of this Waiver and Release and that he has entered into this Waiver and Release knowingly and voluntarily after extensive negotiations and having consulted with his counsel;

(b)The Severance Benefits offered in exchange for Executive’s release of claims exceed in kind and scope that to which he would have otherwise been legally entitled;

(c)Prior to signing this Waiver and Release, Executive had been advised in writing by this Waiver and Release as well as other writings to seek counsel from, and has in fact had an opportunity to consult with, an attorney of his choice concerning its terms and conditions; and

(d)He has been offered at least twenty-one (21) days within which to review and consider this Waiver and Release.

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5.The Parties agree that this Waiver and Release shall not become effective and enforceable until the date this Waiver and Release is signed by both Parties or seven (7) calendar days after its execution by Executive, whichever is later.  Executive may revoke this Waiver and Release for any reason by providing written notice of such intent to Cinergy within seven (7) days after he has signed this Waiver and Release, thereby forfeiting Executive’s right to receive any Severance Benefits provided hereunder and rendering this Waiver and Release null and void in its entirety.

6.The Executive hereby affirms and acknowledges his continued obligations to comply with the post-termination covenants contained in his Employment Agreement, including but not limited to, the Confidential Information provisions of Section 9 of the Employment Agreement.  Executive acknowledges that the restrictions contained therein are valid and reasonable in every respect, are necessary to protect the Company’s legitimate business interests and hereby affirmatively waives any claim or defense to the contrary.

7.Executive specifically agrees and understands that the existence and terms of this Waiver and Release are strictly CONFIDENTIAL and that such confidentiality is a material term of this Waiver and Release.  Accordingly, except as required by law or unless authorized to do so by Cinergy in writing, Executive agrees that he shall not communicate, display or otherwise reveal any of the contents of this Waiver and Release to anyone other than his spouse, primary legal counsel or financial advisor, provided, however, that they are first advised of the confidential nature of this Waiver and Release and Executive obtains their agreement to be bound by the same.  Cinergy agrees that Executive may respond to legitimate inquiries regarding his employment with Cinergy by stating that he voluntarily resigned to pursue other opportunities, that the Parties terminated their relationship on an amicable basis and that the Parties have entered into a confidential Waiver and Release that prohibits him from further discussing the specifics of his separation.  Nothing contained herein shall be construed to prevent Executive from discussing or otherwise advising subsequent employers of the existence of any obligations as set forth in his Employment Agreement.  Further, nothing contained herein shall be construed to limit or otherwise restrict the Company’s ability to disclose the terms and conditions of this Waiver and Release as may be required by business necessity.

8.In the event that Executive breaches or threatens to breach any provision of this Waiver and Release, he agrees that Cinergy shall be entitled to seek any and all equitable and legal relief provided by law, specifically including immediate and permanent injunctive relief.  Executive hereby waives any claim that Cinergy has an adequate remedy at law.  In addition, and to the extent not prohibited by law, Executive agrees that Cinergy shall be entitled to an award of all costs and attorneys’ fees incurred by Cinergy in any successful effort to enforce the terms of this Waiver and Release.  Executive agrees that the foregoing relief shall not be construed to limit or otherwise restrict Cinergy’s ability to pursue any other remedy provided by law, including the recovery of any actual, compensatory or punitive damages.  Moreover, if Executive pursues any claims against the Company subject to the foregoing Waiver and Release, Executive agrees to immediately reimburse the Company for the value of all benefits received under this Waiver and Release to the fullest extent permitted by law.

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9.Cinergy hereby releases the Executive, his heirs, representatives, agents and assigns from any and all known claims, causes of action, grievances, damages and demands of any kind or nature based on acts or omissions committed by the Executive during and in the course of his employment with Cinergy provided such act or omission was committed in good faith and occurred within the scope of his normal duties and responsibilities.

10.The Parties acknowledge that this Waiver and Release is entered into solely for the purpose of ending their employment relationship on an amicable basis and shall not be construed as an admission of liability or wrongdoing by either Party and that both Cinergy and Executive have expressly denied any such liability or wrongdoing.

11.Each of the promises and obligations shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, assigns and successors in interest of each of the Parties.

12.The Parties agree that each and every paragraph, sentence, clause, term and provision of this Waiver and Release is severable and that, if any portion of this Waiver and Release should be deemed not enforceable for any reason, such portion shall be stricken and the remaining portion or portions thereof should continue to be enforced to the fullest extent permitted by applicable law.

13.This Waiver and Release shall be governed by and interpreted in accordance with the laws of the State of Ohio without regard to any applicable state’s choice of law provisions.

14.Executive represents and acknowledges that in signing this Waiver and Release he does not rely, and has not relied, upon any representation or statement made by Cinergy or by any of Cinergy’s employees, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Waiver and Release other than those specifically contained herein.

15.This Waiver and Release represents the entire agreement between the Parties concerning the subject matter hereof, shall supercede any and all prior agreements which may otherwise exist between them concerning the subject matter hereof (specifically excluding, however, the post-termination obligations contained in any existing Employment Agreement or other legally-binding document), and shall not be altered, amended, modified or otherwise changed except by a writing executed by both Parties.

16.Cinergy Corp. and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy Corp. with respect to all aspects pertaining to the administration and interpretation of this Waiver and Release.

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PLEASE READ CAREFULLY.  WITH RESPECT TO THE EXECUTIVE, THIS

WAIVER AND RELEASE INCLUDES A COMPLETE RELEASE OF ALL KNOWN

AND UNKNOWN CLAIMS.

IN WITNESS WHEREOF, the Parties have themselves signed, or caused a duly authorized agent thereof to sign, this Waiver and Release on their behalf and thereby acknowledge their intent to be bound by its terms and conditions.

EXECUTIVE		CINERGY SERVICES, INC.
Signed:	/s/ Donald B. Ingle, Jr.	By:	/s/ James E. Rogers
Printed:	Donald B. Ingle, Jr.	Title:	Chairman and Chief Executive Officer
Dated:		Dated:

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EX-10.E

Exhibit 10.e

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made and entered into as of the 12^th day of September, 2002 (the “Effective Date”), by and between Cinergy and Michael J. Cyrus (the “Executive”).  This Agreement replaces and supersedes any and all prior employment agreements between Cinergy and the Executive.  The capitalized words and terms used throughout this Agreement are defined in Section 11.

Recitals

A.            The Executive is currently serving as Executive Vice President of the Company and Chief Executive Officer of the Energy Merchant Business Unit of Cinergy, and Cinergy desires to secure the continued employment of the Executive in accordance with this Agreement.

B.            The Executive is willing to continue to remain in the employ of Cinergy on the terms and conditions set forth in this Agreement.

C.            The parties intend that this Agreement will replace and supersede any and all prior employment agreements between Cinergy (or any component company or business unit of Cinergy) and the Executive.

Agreement

In consideration of the mutual promises, covenants and agreements set forth below, the parties agree as follows:

1.Employment and Term.

a.Cinergy agrees to employ the Executive, and the Executive agrees to remain in the employ of Cinergy, in accordance with the terms and provisions of this Agreement, for the Employment Period set forth in Section 1b.  The parties agree that the Company will be responsible for carrying out all of the promises, covenants, and agreements of Cinergy set forth in this Agreement.

b.The Employment Period of this Agreement will commence as of the Effective Date and continue until December 31, 2004; provided that, commencing on December 31, 2002, and on each subsequent December 31, the Employment Period will be extended for one (1) additional year unless either party gives the other party written notice not to extend this Agreement at least ninety (90) days before the extension would otherwise become effective.

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2.Duties and Powers of Executive.

a.Position.  The Executive will serve Cinergy as Executive Vice President of the Company and Chief Executive Officer of the Energy Merchant Business Unit of Cinergy and he will have such responsibilities, duties, and authority as are customary for someone of that position and such additional duties, consistent with his position, as may be assigned to him from time to time during the Employment Period by the Board of Directors or the Chief Executive Officer.  Executive shall devote substantially all of Executive’s business time, efforts and attention to the performance of Executive’s duties under this Agreement; provided, however, that this requirement shall not preclude Executive from reasonable participation in civic, charitable or professional activities or the management of Executive’s passive investments, so long as such activities do not materially interfere with the performance of Executive’s duties under this Agreement.

b.Place of Performance.  In connection with the Executive’s employment, the Executive will be based at the principal executive offices of Cinergy, 221 East Fourth Street, Cincinnati, Ohio.  Except for required business travel to an extent substantially consistent with the present business travel obligations of Cinergy executives who have positions of authority comparable to that of the Executive, the Executive will not be required to relocate to a new principal place of business that is more than thirty (30) miles from such location.

3.Compensation.  The Executive will receive the following compensation for his services under this Agreement.

a.Salary.  The Executive’s Annual Base Salary, payable in pro rata installments not less often than semi-monthly, will be at the annual rate of not less than $575,004.  Any increase in the Annual Base Salary will not serve to limit or reduce any other obligation of Cinergy under this Agreement.  The Annual Base Salary will not be reduced except for across-the-board salary reductions similarly affecting all Cinergy management personnel.  If Annual Base Salary is increased or reduced during the Employment Period, then such adjusted salary will thereafter be the Annual Base Salary for all purposes under this Agreement.

b.Retirement, Incentive, Welfare Benefit Plans and Other Benefits.

(i)During the Employment Period, the Executive will be eligible, and Cinergy will take all necessary action to cause the Executive to become eligible, to participate in short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to other senior executives of Cinergy who are considered Tier II executives for compensation purposes, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing.

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(ii)Supplemental Retirement Benefit.

(1)Amount, Form, Timing and Method of Payment.  If the Executive retires from Cinergy after reaching age 55, the Executive will be entitled and fully vested in a supplemental retirement benefit in an amount which, when expressed as an annual amount payable during the life of the Executive, shall equal the excess of (1) 60% of the Executive’s Highest Average Earnings over (2) his total aggregate annual benefit, payable in the form of a single life annuity to the Executive, under all Executive Retirement Plans.  Except as described below, the form (e.g., the 100% joint and survivor annuity form of benefit), timing, and method of payment of the supplemental retirement benefit payable under this Paragraph will be the same as those elected by the Executive under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(2)Death Benefit.  If the Executive dies after reaching age 55 but prior to his retirement from Cinergy, and if his Spouse, on the date of his death, is living on the date the first installment of the supplemental retirement benefit would be payable under this Paragraph, the Spouse will be entitled to receive the supplemental retirement benefit as a Spouse’s benefit.  The form, timing, and method of payment of any Spouse’s benefit under this Paragraph will be the same as those applicable to the Spouse under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(3)Special Payment Election Effective Upon a Change in Control.  Notwithstanding the foregoing, the Executive may make a special payment election with respect to his supplemental retirement benefit (if any) in accordance with the following provisions:

(A)The Executive may elect, on a form provided by Cinergy, to receive a single lump sum cash payment in an amount equal to the Actuarial Equivalent (as defined below) of his supplemental retirement benefit (or the Actuarial Equivalent of the remaining payments to be made in connection with his supplemental retirement benefit in the event that payment of his supplemental retirement benefit has already commenced) payable no later than 30 days after the later of the occurrence of a Change in Control or the date of his termination of employment.

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(B)Such special payment election shall become operative only upon the occurrence of a Change in Control and only if the Executive’s termination of employment occurs either (1) prior to the occurrence of a Change in Control or (2) during the 24-month period commencing upon the occurrence of a Change in Control.  Once operative, such special payment election shall override any other payment election made by the Executive with respect to his supplemental retirement benefit.

(C)In order to be effective, a special payment election (or withdrawal of that election) must be made either prior to the occurrence of a Potential Change in Control or, with the consent of Cinergy, during the 30-day period commencing upon the occurrence of a Potential Change in Control.  In the event that a Potential Change in Control occurs and subsequently ceases to exist, other than as a result of a Change in Control, such Potential Change in Control shall be disregarded for purposes of this Section.

(D)In the event that the Executive makes a special payment election and pursuant to that election he becomes entitled to receive a single lump sum cash payment pursuant to this Section payable prior to the commencement of his supplemental retirement benefit in another form of payment, the Actuarial Equivalent of his supplemental retirement benefit shall be calculated based on the following assumptions:

(I)The form of payment for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be a single life annuity;

(II)The commencement date for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be the first day of the calendar month coincident with or next following his termination of employment;

(III)The term “Actuarial Equivalent” has the meaning given to that term in the Pension Plan with respect to lump sum payments; and

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(IV)The amount of the Executive’s supplemental retirement benefit shall not be actuarially reduced for early commencement.

(E)In the event that the Executive makes a special payment election and pursuant to that election he is entitled to receive a single lump sum cash payment payable after the commencement of his supplemental retirement benefit in another form of payment, his lump sum cash payment shall be equal to the Actuarial Equivalent (as that term is used in the Pension Plan with respect to lump sum payments) of the remaining payments to be made in connection with his supplemental retirement benefit.

(iii)Upon his retirement on or after having attained age 50, the Executive will be eligible for comprehensive medical and dental benefits which are not materially different from the benefits provided to retirees under the Cinergy Corp. Welfare Benefits Program or any similar program or successor to that program.  For purposes of determining the amount of the monthly premiums due from the Executive, the Executive will receive from Cinergy the maximum subsidy available as of the date of his retirement to an active Cinergy employee with the same medical benefits classification/eligibility as the Executive’s medical benefits classification/eligibility on the date of his retirement.

(iv)The Executive will be a participant in the Annual Incentive Plan and will be paid pursuant to the terms and conditions of that plan, subject to the following: (1) The maximum annual bonus shall be not less than one hundred five percent (105%) of the Executive’s Annual Base Salary (the “Maximum Annual Bonus”); and (2) The target annual bonus shall be not less than sixty percent (60%) of the Executive’s Annual Base Salary (the “Target Annual Bonus”).

(v)The Executive will be a participant in the Long-Term Incentive Plan (the “LTIP”), and the Executive’s annualized target award opportunity under the LTIP will be equal to no less than ninety percent (90%) of his Annual Base Salary (the “Target LTIP Bonus”).

(vi)For purposes of Sections 3b(iv) and 3b(v), the Executive’s Annual Base Salary for any calendar year shall be increased by the amount of any Nonelective Employer Contributions made on behalf of the Executive during such calendar year under the 401(k) Excess Plan.

c.Fringe Benefits and Perquisites.  During the Employment Period, the Executive will be entitled to the following additional fringe benefits in accordance with the terms and conditions of Cinergy’s policies and practices for such fringe benefits:

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(i)Cinergy will furnish to the Executive an automobile appropriate for the Executive’s level of position, or, at Cinergy’s discretion, a cash allowance of equivalent value.  Cinergy will also pay all of the related expenses for gasoline, insurance, maintenance, and repairs, or provide for such expenses within the cash allowance.  All benefits provided pursuant to this Section 3c(i) shall be provided in accordance with generally applicable procedures established from time to time by Cinergy in its sole discretion.

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(ii)Cinergy will pay the initiation fee and the annual dues, assessments, and other membership charges of the Executive for membership in a country club selected by the Executive.

(iii)Cinergy will provide paid vacation for four (4) weeks per year (or such longer period for which Executive is otherwise eligible under Cinergy’s policy).

(iv)Cinergy will furnish to the Executive annual financial planning and tax preparation services, provided, however, that the cost to Cinergy of such services shall not exceed $15,000 during any thirty-six (36) consecutive month period.  Notwithstanding the preceding sentence, in the event any payment to the Executive pursuant to this Section 3c(iv) is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 3c(iv).

(v)Cinergy will provide other fringe benefits in accordance with Cinergy plans, practices, programs, and policies in effect from time to time, commensurate with his position and at least comparable to those received by other Cinergy Tier II executives.

d.Expenses.  Cinergy agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board of Directors.

e.Relocation Benefits.  Following termination of the Executive’s employment for any reason (other than death), the Executive will be entitled to reimbursement from Cinergy for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Relocation Program.  Notwithstanding the foregoing, if the Executive becomes employed by another employer and is eligible to receive relocation benefits under another employer-provided plan, any benefits provided to the Executive under this Section 3e will be secondary to those provided under the other employer-provided relocation plan.  The Executive must report to Cinergy any such relocation benefits that he actually receives under another employer-provided plan.

f.Stock Options and Stock Appreciation Rights.  Notwithstanding Section 5d, upon the occurrence of a Change in Control, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock

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Related Documents, become immediately exercisable.  If the Executive terminates employment for any reason during the twenty-four (24) month period commencing upon the occurrence of a Change in Control, notwithstanding Section 5d, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock Related Documents, remain exercisable in accordance with their terms but in no event for a period less than the lesser of (i) three months following such termination of employment or (ii) the remaining term of such stock option or stock appreciation right (which remaining term shall be determined without regard to such termination of employment).

4.Termination of Employment.

a.Death.  The Executive’s employment will terminate automatically upon the Executive’s death during the Employment Period.

b.By Cinergy for Cause.  Cinergy may terminate the Executive’s employment during the Employment Period for Cause.  For purposes of this Employment Agreement, “Cause” means the following:

(i)The willful and continued failure by the Executive to substantially perform the Executive’s duties with Cinergy (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) that, if curable, has not been cured within 30 days after the Board of Directors or the Chief Executive Officer has delivered to the Executive a written demand for substantial performance, which demand specifically identifies the manner in which the Executive has not substantially performed his duties.  This event will constitute Cause even if the Executive issues a Notice of Termination for Good Reason pursuant to Section 4d after the Board of Directors or Chief Executive Officer delivers a written demand for substantial performance.

(ii)The breach by the Executive of the confidentiality provisions set forth in Section 9.

(iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on Cinergy.  For purposes of this definition of Cause, no act, or failure to act, on the Executive’s part will be deemed “willful” unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of Cinergy.

(iv)Notwithstanding the foregoing, Cinergy shall be deemed to have not terminated the employment of the Executive for Cause unless and until there shall have been delivered to the Executive a copy of a resolution

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duly adopted by the affirmative vote of not less than a majority of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard by the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in this Section 4b and specifying the particulars thereof in detail.

c.By Cinergy Without Cause.  Cinergy may, upon at least 30 days advance written notice to the Executive, terminate the Executive’s employment during the Employment Period for a reason other than Cause, but the obligations placed upon Cinergy in Section 5 will apply.

d.By the Executive for Good Reason.  The Executive may terminate his employment during the Employment Period for Good Reason.  For purposes of this Agreement, “Good Reason” means the following:

(i)(1) A reduction in the Executive’s Annual Base Salary, except for across-the-board salary reductions similarly affecting all Cinergy management personnel, (2) a reduction in the amount of the Executive’s Maximum Annual Bonus under the Annual Incentive Plan, except for across-the-board Maximum Annual Bonus reductions similarly affecting all Cinergy management personnel, or (3) a reduction in any other benefit or payment described in Section 3 of this Agreement, except for changes to the employee benefits programs generally affecting Cinergy management personnel, provided that those changes, in the aggregate, will not result in a material adverse change with respect to the benefits to which the Executive was entitled as of the Effective Date.

(ii)(1) The material reduction without his consent of the Executive’s title, authority, duties, or responsibilities from those in effect immediately prior to the reduction, (2) in the event the Executive is or becomes a member of the Board during the Employment Period, the failure by Cinergy without the consent of the Executive to nominate the Executive for re-election to the Board, or (3) a material adverse change in the Executive’s reporting responsibilities.

(iii)Any breach by Cinergy of any other material provision of this Agreement (including but not limited to the place of performance as specified in Section 2b).

(iv)The Executive’s disability due to physical or mental illness or injury that precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience.

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(v)A failure by the Company to require any successor entity to the Company specifically to assume in writing all of the Company’s obligations to the Executive under this Agreement.

For purposes of determining whether Good Reason exists with respect to a Qualifying Termination occurring on or within 24 months following a Change in Control, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.

e.By the Executive Without Good Reason.  The Executive may terminate his employment without Good Reason upon prior written notice to the Company.

f.Notice of Termination.  Any termination of the Executive’s employment by Cinergy or by the Executive during the Employment Period (other than a termination due to the Executive’s death) will be communicated by a written Notice of Termination to the other party to this Agreement in accordance with Section 12b.  For purposes of this Agreement, a “Notice of Termination” means a written notice that specifies the particular provision of this Agreement relied upon and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for terminating the Executive’s employment under the specified provision.  The failure by the Executive or Cinergy to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause will not waive any right of the Executive or Cinergy under this Agreement or preclude the Executive or Cinergy from asserting that fact or circumstance in enforcing rights under this Agreement.

g.The Executive acknowledges and agrees that he shall not sell or otherwise dispose of any shares of Company stock acquired pursuant to the exercise of a stock option, other than shares sold in order to pay an option exercise price or the related tax withholding obligation, until 90 days after the Date of Termination.  Notwithstanding the foregoing, Cinergy, in its sole discretion, may waive the restrictions contained in the previous sentence.

5.Obligations of Cinergy Upon Termination.

a.Certain Terminations.

(i)If a Qualifying Termination occurs during the Employment Period, Cinergy will pay to the Executive a lump sum amount, in cash, equal to the sum of the following Accrued Obligations:

(1)the pro-rated portion of the Executive’s Annual Base Salary payable through the Date of Termination, to the extent not previously paid.

(2)any amount payable to the Executive under the Annual Incentive Plan in respect of the most recently completed fiscal year, to the extent not theretofore paid.

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(3)an amount equal to the AIP Benefit for the fiscal year that includes the Date of Termination multiplied by a fraction, the numerator of which is the number of days from the beginning of that fiscal year to and including the Date of Termination and the denominator of which is three hundred and sixty-five (365).  The AIP Benefit component of the calculation will be equal to the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, determined by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable.

(4)the Accrued Obligations described in this Section 5a(i) will be paid within thirty (30) days after the Date of Termination.  These Accrued Obligations are payable to the Executive regardless of whether a Change in Control has occurred.

(ii)In the event of a Qualifying Termination either prior to the occurrence of a Change in Control, or more than twenty-four (24) months following the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations, and Cinergy will have the following additional obligations described in this Section 5a(ii); provided, however, that each of the benefits described below in this Section 5a(ii) shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum amount, in cash, equal to three (3) times the sum of the Annual Base Salary and the Annual Bonus.  For this purpose, the Annual Base Salary will be at the rate in effect at the time Notice of Termination is given (without giving effect to any reduction in Annual Base Salary, if any, prior to the termination, other than across-the-board reductions), and shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which the Executive’s Qualifying Termination occurs, and the Annual Bonus will be the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, calculated

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by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable; provided, however that for purposes of this Section 5a(ii)(1)(B), the Annual Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus for the year in which the Date of Termination occurs.  This lump sum will be paid within thirty (30) days after the expiration of the revocation period contained in the Waiver and Release.

(2)Subject to Clauses (A), (B) and (C) below, Cinergy will provide, until the end of the Employment Period, medical and dental benefits to the Executive and/or the Executive’s dependents at least equal to those that would have been provided if the Executive’s employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing).  The benefits described in the preceding sentence will be in accordance with the medical and welfare benefit plans, practices, programs, or policies of Cinergy (the “M&W Plans”) as then currently in effect and applicable generally to other Cinergy senior executives and their families.  In the event that any medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B).

(A)If, as of the Executive’s Date of Termination, the Executive meets the eligibility requirements for Cinergy’s retiree medical and welfare benefit plans, the provision of those retiree medical and welfare benefit plans to the Executive will satisfy Cinergy’s obligation under this Section 5a(ii)(2).

(B)If, as of the Executive’s Date of Termination, the provision to the Executive of the M&W Plan benefits described in this Section 5a(ii)(2) would either (1) violate the terms of the M&W Plans (or any related insurance policies) or (2) violate any of the Code’s nondiscrimination requirements applicable to the M&W Plans, then Cinergy, in its sole

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discretion, may elect to pay the Executive, in lieu of the M&W Plan benefits described under this Section 5a(ii)(2), a lump sum cash payment equal to the total monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy for the Executive under the M&W Plans from the Date of Termination through the end of the Employment Period.  Nothing in this Clause will affect the Executive’s right to elect COBRA continuation coverage under a M&W Plan in accordance with applicable law, and Cinergy will make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.

(C)If the Executive becomes employed by another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, any benefits provided to the Executive under the M&W Plans will be secondary to those provided under the other employer-provided plan during the Executive’s applicable period of eligibility.

(3)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(ii)(3) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(ii)(3).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(iii)In the event of a Qualifying Termination during the twenty-four (24) month period beginning upon the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations listed in Sections 5a(i)(1) and (2), Cinergy will pay the Accrued Obligations listed in Section 5a(i)(3) (but only if such Qualifying Termination occurs after the calendar year in which occurs such Change in Control) and Cinergy will have the following additional obligations described in this Section 5a(iii); provided, however, that each of the benefits described below in this Section 5a(iii)

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shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the higher of (x) the sum of the Executive’s current Annual Base Salary and Target Annual Bonus and (y) the sum of the Executive’s Annual Base Salary in effect immediately prior to the Change in Control and the Change in Control Bonus.  For purposes of the preceding sentence, the Executive’s Annual Base Salary on any given date shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which such date occurs.  For purposes of this Agreement, the Change in Control Bonus shall mean the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the Change in Control, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year in which occurs the Date of Termination, calculated by projecting Cinergy’s performance and other applicable goals and objective for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable, provided, however, that  for purposes of this Section 5a(iii)(1)(B), such Change in Control Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus.  This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.  Nothing in this Section 5a(iii)(1) shall preclude the Executive from receiving the amount, if any, to which he is entitled in accordance with the terms of the Annual Incentive Plan for the fiscal year that includes the Date of Termination.

(2)Cinergy will pay to the Executive the lump sum present value of any benefits under the Executive Supplemental Life Program under the terms of the applicable plan or program as of the Date of Termination, calculated as if the Executive was fully vested as of the Date of Termination. The lump sum present value, assuming commencement at age 50 or the Executive’s age as of the Date of Termination if later, will be determined using the interest rate applicable to lump sum payments in the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan for the plan

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year that includes the Date of Termination. To the extent no such interest rate is provided therein, the annual interest rate applicable under Section 417(e)(3) of the Code, or any successor provision thereto, for the second full calendar month preceding the first day of the calendar year that includes the Date of Termination will be used. This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(3)The Executive shall be fully vested in his accrued benefits as of the Date of Termination under the Executive Retirement Plans, and his aggregate accrued benefits thereunder and under Section 3b(ii) of this Agreement will be calculated, and he will be treated for all purposes, as if he was credited with three (3) additional years of age and service as of the Date of Termination, provided, however, that to the extent a calculation is made regarding the actuarial equivalent amount of any alternate form of benefit, the Executive will not be credited with three additional years of age for purposes of such calculation.  However, Cinergy will not commence payment of such benefits prior to the date that the Executive has attained, or is treated (after taking into account the preceding sentence) as if he had attained, age 50.

(4)For a thirty-six (36) month period after the Date of Termination, Cinergy will arrange to provide to the Executive and/or the Executive’s dependents life, disability, accident, and health insurance benefits substantially similar to those that the Executive and/or the Executive’s dependents are receiving immediately prior to the Notice of Termination at a substantially similar cost to the Executive (without giving effect to any reduction in those benefits subsequent to a Change in Control that constitutes Good Reason), except for any benefits that were waived by the Executive in writing.  If Cinergy arranges to provide the Executive and/or the Executive’s dependents with life, disability, accident, and health insurance benefits, those benefits will be reduced to the extent comparable benefits are actually received by or made available to the Executive and/or the Executive’s dependents during the thirty-six (36) month period following the Executive’s Date of Termination.  The Executive must report to Cinergy any such benefits that he or his dependents actually receives or that are made available to him or his dependents.  In lieu of the benefits described in the preceding sentences, Cinergy, in its sole discretion, may elect to pay to the Executive a lump sum cash payment equal to thirty-six (36) times the monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy to provide those benefits to the Executive and/or the Executive’s dependents.

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Nothing in this Section 5a(iii)(4) will affect the Executive’s right to elect COBRA continuation coverage in accordance with applicable law, and Cinergy will provide the benefits or make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.  In the event that any benefits or payments provided pursuant to this Section 5a(iii)(4) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefits or payments provided pursuant to this Section 5a(iii)(4).

(5)In lieu of any and all other rights with respect to the automobile assigned by Cinergy to the Executive, Cinergy will provide the Executive with a lump sum payment in the amount of $50,000.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(5) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(5).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(6)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(6) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(6).  Such payment will be transferred to the Executive within thirty (30) days

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of the expiration of the revocation period contained in the Waiver and Release.

(7)Cinergy will provide annual dues and assessments of the Executive for membership in a country club selected by the Executive until the end of the Employment Period.

(8)Cinergy will provide outplacement services suitable to the Executive’s position until the end of the Employment Period or, if earlier, until the first acceptance by the Executive of an offer of employment.  At the Executive’s discretion, 15% of Annual Base Salary may be paid in lieu of outplacement services, which payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

For purposes of this Section 5a(iii), the Executive will be deemed to have incurred a Qualifying Termination upon a Change in Control if the Executive’s employment is terminated prior to a Change in Control, without Cause at the direction of a Person who has entered into an agreement with Cinergy, the consummation of which will constitute a Change in Control, or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event that constitutes Good Reason occurs at the direction of such a Person.

b.Termination by Cinergy for Cause or by the Executive Other Than for Good Reason.  Subject to the provisions of Section 7, and notwithstanding any other provisions of this Agreement, if the Executive’s employment is terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, Cinergy will have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations, plus any other earned but unpaid compensation, in each case to the extent not previously paid.

c.Certain Tax Consequences.

(i)In the event that any benefits paid or payable to the Executive or for his benefit pursuant to the terms of this Agreement or any other plan or arrangement in connection with, or arising out of, his employment with Cinergy or a change in ownership or effective control of Cinergy or of a substantial portion of its assets (a “Payment” or “Payments”) would be subject to any Excise Tax, then the Executive will 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, penalties, additional tax, or similar items imposed with respect thereto and the Excise Tax), including any 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 or assessable against the Executive due to the Payments.

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(ii)Subject to the provisions of Section 5c, all determinations required to be made under this Section 5c, 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 the Accounting Firm, which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return.  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 5c, shall be paid by Cinergy to the Executive within five (5) days of the receipt of the Accounting Firm’s determination.  Any determination by the Accounting Firm shall be binding upon Cinergy 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 Cinergy should have been made (“Underpayment”), consistent with the calculations required to be made hereunder.  In the event of any Underpayment, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Cinergy to or for the benefit of the Executive, and Cinergy shall indemnify and hold harmless the Executive for any such Underpayment, on an after-tax basis, including interest and penalties with respect thereto.  In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Code Section 1274(b)(2)(B).

(iii)The value of any non-cash benefits or any deferred payment or benefit paid or payable to the Executive will be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).  For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and applicable state and local income taxes at the highest

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marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes that would be obtained from deduction of those state and local taxes.

(iv)Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Accounting Firm’s determination, an Excise Tax will be imposed on any Payment or Payments, Cinergy will pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Cinergy has actually withheld from the Payment or Payments in accordance with law.

d.Value Creation Plan and Stock Options.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlement to restricted shares and performance shares under the Value Creation Plan and any stock options granted under the Cinergy Corp. Stock Option Plan, the LTIP or any other stock option plan will be determined under the terms of the appropriate plan and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of any such plan, administrative guideline or written agreement shall not be amended in a manner that would adversely affect the Executive with respect to awards granted to the Executive prior to the Change in Control.

e.Benefit Plans in General.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlements, if any, under all benefit plans of Cinergy, including but not limited to the Deferred Compensation Plan, 401(k) Excess Plan, Cinergy Corp. Supplemental Executive Retirement Plan and any vacation policy, shall be determined under the terms of such plans, policies and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of such plans and policies and any applicable administrative guidelines and written agreements shall not be amended in a manner that would adversely affect the Executive with respect to benefits earned by the Executive prior to the Change in Control.

f.Other Fees and Expenses.  Cinergy will also reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive (i) in successfully disputing a Qualifying Termination that entitles the Executive to Severance Benefits or (ii) in reasonably disputing whether or not Cinergy has terminated his employment for Cause.  Payment will be made within five (5) business days after delivery of the Executive’s written request for payment accompanied by such evidence of fees and expenses incurred as Cinergy reasonably may require.

6.Non-Exclusivity of Rights.  Nothing in this Agreement will prevent or limit the Executive’s continuing or future participation in any benefit, plan, program, policy, or practice provided by Cinergy and for which the Executive may qualify, except with respect to any benefit to which the Executive has waived his rights in writing or any plan,

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program, policy, or practice that expressly excludes the Executive from participation.  In addition, nothing in this Agreement will limit or otherwise affect the rights the Executive may have under any other contract or agreement with Cinergy entered into after the Effective Date.  Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy, or practice of, or any contract or agreement entered into after the Effective Date with Cinergy, at or subsequent to the Date of Termination, will be payable in accordance with that benefit, plan, program, policy or practice, or that contract or agreement, except as explicitly modified by this Agreement.  Notwithstanding the above, in the event that the Executive receives Severance Benefits under Section 5a(ii) or 5a(iii), (a) the Executive shall not be entitled to any benefits under any severance plan of Cinergy, including but not limited to the Severance Opportunity Plan for Non-Union Employees of Cinergy Corp. and (b) if the Executive receives such Severance Benefits as a result of his termination for Good Reason, as that term is defined in Section 4d(iv), Cinergy’s obligations under Sections 5a(ii) and 5a(iii) shall be reduced by the amount of any benefits payable to the Executive under any short-term or long-term disability plan of Cinergy, the amount of which shall be determined by Cinergy in good faith.

7.Full Settlement:  Mitigation.  Except as otherwise provided herein, Cinergy’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right, or action that Cinergy may have against the Executive or others.  In no event will the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 3e, 5a(ii)(2) and 5a(iii)(4), those amounts will not be reduced simply because the Executive obtains other employment.  If the Executive finally prevails on the substantial claims brought with respect to any dispute between Cinergy and the Executive as to the interpretation, terms, validity, or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, Cinergy agrees to pay all reasonable legal fees and expenses that the Executive may reasonably incur as a result of that dispute.

8.Arbitration.  The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to the Executive’s employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such a dispute is arbitrable, shall be settled by arbitration.  This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims.  The Executive will still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim will be submitted to arbitration instead of a court or jury.  The arbitration proceeding will be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made, and such proceeding will be adjudicated in the state of Ohio in accordance with the laws of the state of Ohio.  The decision of the

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arbitrator(s), including determination of the amount of any damages suffered, will be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns.  Each party will bear its own expenses in the arbitration for arbitrators’ fees and attorneys’ fees, for its witnesses, and for other expenses of presenting its case.  Other arbitration costs, including administrative fees and fees for records or transcripts, will be borne equally by the parties.  Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, Cinergy will reimburse or pay all legal fees and expenses that the Executive may reasonably incur as a result of the dispute as required by Section 7.

9.Confidential Information.  The Executive will hold in a fiduciary capacity for the benefit of Cinergy, as well as all of Cinergy’s successors and assigns, all secret, confidential information, knowledge, or data relating to Cinergy, and its affiliated businesses, that the Executive obtains during the Executive’s employment by Cinergy or any of its affiliated companies, and that has not been or subsequently becomes public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement).  During the Employment Period and thereafter, the Executive will not, without Cinergy’s prior written consent or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge, or data to anyone other than Cinergy and those designated by it.  The Executive understands that during the Employment Period, Cinergy may be required from time to time to make public disclosure of the terms or existence of the Executive’s employment relationship to comply with various laws and legal requirements.  In addition to all other remedies available to Cinergy in law and equity, this Agreement is subject to termination by Cinergy for Cause under Section 4b in the event the Executive violates any provision of this Section.

10.Successors.

a.This Agreement is personal to the Executive and, without Cinergy’s prior written consent, cannot be assigned by the Executive other than Executive’s designation of a beneficiary of any amounts payable hereunder after the Executive’s death.  This Agreement will inure to the benefit of and be enforceable by the Executive’s legal representatives.

b.This Agreement will inure to the benefit of and be binding upon Cinergy and its successors and assigns.

c.Cinergy 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 Cinergy to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Cinergy would be required to perform it if no succession had taken place.  Cinergy’s failure to obtain such an assumption and agreement prior to the effective date of a succession will be a breach of this Agreement and will entitle the Executive to compensation from Cinergy in the same amount and on the same terms as if the Executive were to

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terminate his employment for Good Reason upon a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective will be deemed the Date of Termination.

11.Definitions.  As used in this Agreement, the following terms, when capitalized, will have the following meanings:

a.Accounting Firm.  “Accounting Firm” means Cinergy’s independent auditors.

b.Accrued Obligations.  “Accrued Obligations” means the accrued obligations described in Section 5a(i).

c.Agreement.  “Agreement” means this Employment Agreement between Cinergy and the Executive.

d.AIP Benefit.  “AIP Benefit” means the Annual Incentive Plan benefit described in Section 5a(i).

e.Annual Base Salary.  “Annual Base Salary” means, except where otherwise specified herein, the annual base salary payable to the Executive pursuant to Section 3a.

f.Annual Bonus.  “Annual Bonus” has the meaning set forth in Section 5a(ii)(1).

g.Annual Incentive Plan.  “Annual Incentive Plan” means the Cinergy Corp. Annual Incentive Plan or any similar plan or successor to the Annual Incentive Plan.

h.Board of Directors or Board.  “Board of Directors” or “Board” means the board of directors of the Company.

i.COBRA.  “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

j.Cause.  “Cause” has the meaning set forth in Section 4b.

k.Change in Control.  A “Change in Control” will be deemed to have occurred if any of the following events occur, after the Effective Date:

(i)Any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (“1934 Act”)), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing more than twenty percent (20%) of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a beneficial owner in connection with a transaction described in Clause (1) of Paragraph (ii) below; or

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(ii)There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, partnership or other entity, other than (1) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to that merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the combined voting power of the securities of the Company or the surviving entity or its parent outstanding immediately after the merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such a Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities; or

(iii)During any period of two (2) consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election, or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or

(iv)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to the sale.

l.Change in Control Bonus.  “Change in Control Bonus” has the meaning set forth in Section 5a(iii)(1).

m.Chief Executive Officer.  “Chief Executive Officer” means the individual who, at any relevant time, is then serving as the chief executive officer of the Company.

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n.Cinergy.  “Cinergy” means the Company, its subsidiaries, and/or its affiliates, and any successors to the foregoing.

o.Code.  “Code” means the Internal Revenue Code of 1986, as amended, and interpretive rules and regulations.

p.Company.  “Company” means Cinergy Corp.

q.Date of Termination.  “Date of Termination” means:

(i)if the Executive’s employment is terminated by Cinergy for Cause, or by the Executive with Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice, as the case may be;

(ii)if the Executive’s employment is terminated by the Executive without Good Reason, thirty (30) days after the date on which the Executive notifies Cinergy of the termination;

(iii)if the Executive’s employment is terminated by Cinergy other than for Cause, thirty (30) days after the date on which Cinergy notifies the Executive of the termination; and

(iv)if the Executive’s employment is terminated by reason of death, the date of death.

r.Deferred Compensation Plan.  “Deferred Compensation Plan” means the Cinergy Corp. Non-Qualified Deferred Incentive Compensation Plan or any similar plan or successor to that plan.

s.Effective Date.  “Effective Date” has the meaning given to that term in the first paragraph of this Agreement.

t.Employment Period.  “Employment Period” has the meaning set forth in Section 1b.

u.Excise Tax.  “Excise Tax” means any excise tax imposed by Code section 4999, together with any interest, penalties, additional tax or similar items that are incurred by the Executive with respect to the excise tax imposed by Code section 4999.

v.Executive.  “Executive” has the meaning given to that term in the first paragraph of this Agreement.

w.Executive Retirement Plans.  “Executive Retirement Plans” means the Pension Plan, the Cinergy Corp. Supplemental Executive Retirement Plan and the Cinergy Corp. Excess Pension Plan or any similar plans or successors to those plans.

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x.Executive Supplemental Life Program.  “Executive Supplemental Life Program” means the Cinergy Corp. Executive Supplemental Life Insurance Program or any similar program or successor to the Executive Supplemental Life Program.

y.401(k) Excess Plan.  “401(k) Excess Plan” means the Cinergy Corp. 401(k) Excess Plan, or any similar plan or successor to that plan.

z.Good Reason.  “Good Reason” has the meaning set forth in Section 4d.

aa.Gross-Up Payment.  “Gross-Up Payment” has the meaning set forth in Section 5c.

bb.Highest Average Earnings.  “Highest Average Earnings” shall have the meaning given to such term in the Cinergy Corp. Supplemental Executive Retirement Plan.  For purposes of clarity, the parties hereto acknowledge and agree that the Executive’s Highest Average Earnings for any year shall not include any benefits received by the Executive pursuant to Section 5 of this Agreement, other than pursuant to Section 5a(i) of this Agreement.

cc.Long-Term Incentive Plan or LTIP.  “Long-Term Incentive Plan” or “LTIP” means the long-term incentive plan implemented under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan or any successor to that plan.

dd.M&W Plans.  “M&W Plans” has the meaning set forth in Section 5a(ii)(2).

ee.Maximum Annual Bonus.  “Maximum Annual Bonus” has the meaning set forth in Section 3b.

ff.Nonelective Employer Contribution. “Nonelective Employer Contribution” has the meaning set forth in the 401(k) Excess Plan.

gg.Notice of Termination.  “Notice of Termination” has the meaning set forth in Section 4f.

hh.Payment or Payments.  “Payment” or “Payments” has the meaning set forth in Section 5c.

ii.Pension Plan.  “Pension Plan” means the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan.

jj.Person.  “Person” has the meaning set forth in paragraph 3(a)(9) of the 1934 Act, as modified and used in subsections 13(d) and 14(d) of the 1934 Act; however, a Person will not include the following:

(i)Cinergy or any of its subsidiaries or affiliates;

(ii)A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or its subsidiaries or affiliates;

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(iii)An underwriter temporarily holding securities pursuant to an offering of those securities; or

(iv)A corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

kk.Potential Change in Control.  A “Potential Change in Control” means any period during which any of the following circumstances exist:

(i)The Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; provided that a Potential Change in Control shall cease to exist upon the expiration or other termination of such agreement; or

(ii)The Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; provided that a Potential Change in Control shall cease to exist when the Company or such Person publicly announces that it no longer has such an intention; or

(iii)Any Person who is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company’s then outstanding securities, increases such Person’s beneficial ownership of such securities by an amount equal to five percent (5%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)The Board of Directors adopts a resolution to the effect that, for purposes hereof, a Potential Change in Control has occurred.

Notwithstanding anything herein to the contrary, a Potential Change in Control shall cease to exist not later than the date that (i) the Board of Directors determines that the Potential Change in Control no longer exists, or (ii) a Change in Control occurs.

ll.Qualifying Termination.  “Qualifying Termination” means (i) the termination by Cinergy of the Executive’s employment with Cinergy during the Employment Period other than a termination for Cause or (ii) the termination by the Executive of the Executive’s employment with Cinergy during the Employment Period for Good Reason.

mm.Relocation Program.  “Relocation Program” means the Cinergy Corp. Relocation Program, or any similar program or successor to that program, as in effect on the date of the Executive’s termination of employment.

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nn.Severance Benefits.  “Severance Benefits” means the payments and benefits payable to the Executive pursuant to Section 5.

oo.Spouse.  “Spouse” means the Executive’s lawfully married spouse.  For this purpose, common law marriage or a similar arrangement will not be recognized unless otherwise required by federal law.

pp.Stock Related Documents.  “Stock Related Documents” means the LTIP, the Cinergy Corp. Stock Option Plan, and the Value Creation Plan and any applicable administrative guidelines and written agreements relating to those plans.

qq.Target Annual Bonus.  “Target Annual Bonus” has the meaning set forth in Section 3b.

rr.Target LTIP Bonus.  “Target LTIP Bonus” has the meaning set forth in Section 3b.

ss.Value Creation Plan.  “Value Creation Plan” means the Value Creation Plan or any similar plan, or successor plan of the LTIP.

tt.Waiver and Release.  “Waiver and Release” means a waiver and release, in substantially the form attached to this Agreement as Exhibit A.

12.Miscellaneous.

a.This Agreement will be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws.  The captions of this Agreement are not part of its provisions and will have no force or effect.  This Agreement may not be amended, modified, repealed, waived, extended, or discharged except by an agreement in writing signed by the party against whom enforcement of the amendment, modification, repeal, waiver, extension, or discharge is sought.  Only the Chief Executive Officer or his designee will have authority on behalf of Cinergy to agree to amend, modify, repeal, waive, extend, or discharge any provision of this Agreement.

b.All notices and other communications under this Agreement will be in writing and will be given by hand delivery to the other party or by Federal Express or other comparable national or international overnight delivery service, addressed in the name of such party at the following address, whichever is applicable:

If to the Executive:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960

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If to Cinergy:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960
Attn: Chief Executive Officer

or to such other address as either party has furnished to the other in writing in accordance with this Agreement.  All notices and communications will be effective when actually received by the addressee.

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

d.Cinergy may withhold from any amounts payable under this Agreement such federal, state, or local taxes as are required to be withheld pursuant to any applicable law or regulation.

e.The Executive’s or Cinergy’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or Cinergy may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4d or the right of Cinergy to terminate the Executive’s employment for Cause pursuant to Section 4b, will not be deemed to be a waiver of that provision or right or any other provision or right of this Agreement.

f.References in this Agreement to the masculine include the feminine unless the context clearly indicates otherwise.

g.This instrument contains the entire agreement of the Executive and Cinergy with respect to the subject matter of this Agreement; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3b and the Stock Related Documents, all promises, representations, understandings, arrangements, and prior agreements are merged into this Agreement and accordingly superseded.

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

i.Cinergy and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy with respect to all aspects pertaining to the administration and interpretation of this Agreement.

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IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the Effective Date.

CINERGY SERVICES, INC.
By:	/s/ James E. Rogers
	James E. Rogers
	Chairman and Chief Executive Officer
EXECUTIVE
/s/ Michael J. Cyrus
Michael J. Cyrus

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EXHIBIT A

*****

WAIVER AND RELEASE AGREEMENT

THIS WAIVER AND RELEASE AGREEMENT (this “Waiver and Release”) is entered into by and between Michael J. Cyrus (the “Executive”) and Cinergy Corp.  (“Cinergy”) (collectively, the “Parties”).

WHEREAS, the Parties have entered into the Employment Agreement dated __________________ (the “Employment Agreement”);

WHEREAS, the Executive’s employment has been terminated in accordance with the terms of the Employment Agreement;

WHEREAS, the Executive is required to sign this Waiver and Release in order to receive the payment of certain compensation under the Employment Agreement following termination of employment; and

WHEREAS, Cinergy has agreed to sign this Waiver and Release.

NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.This Waiver and Release is effective on the date hereof and will continue in effect as provided herein.

2.In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 5 of the Employment Agreement (the “Severance Benefits”), which the Executive acknowledges are in addition to payment and benefits to which the Executive would be entitled to but for the Employment Agreement, the Executive, on behalf of himself, his heirs, representatives, agents and assigns hereby COVENANTS NOT TO SUE OR OTHERWISE VOLUNTARILY PARTICIPATE IN ANY LAWSUIT AGAINST, FULLY RELEASES, INDEMNIFIES, HOLDS HARMLESS, and OTHERWISE FOREVER DISCHARGES (i) Cinergy, (ii) its subsidiary or affiliated entities, (iii) all of their present or former directors, officers, employees, shareholders, and agents as well as (iv) all predecessors, successors and assigns thereof (the persons listed in clauses (i) through (iv) hereof shall be referred to collectively as the “Company”) from any and all actions, charges, claims, demands, damages or liabilities of any kind or character whatsoever, known or unknown, which Executive now has or may have had through the effective date of this Waiver and Release.  Executive acknowledges and understands that he is not hereby prevented from filing a charge of discrimination with the Equal Employment Opportunity Commission or any state-equivalent agency or otherwise participate in any proceedings before such Commissions.  Executive also acknowledges and understands that in the event he does

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file such a charge, he shall be entitled to no remuneration, damages, back pay, front pay, or compensation whatsoever from the Company as a result of such charge.

3.Without limiting the generality of the foregoing release, it shall include:  (i) all claims or potential claims arising under any federal, state or local laws relating to the Parties’ employment relationship, including any claims Executive may have under the Civil Rights Acts of 1866 and 1964, as amended, 42 U.S.C. §§ 1981 and 2000(e) et seq.; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12,101 et seq.; the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq.; the Ohio Civil Rights Act, Chapter 4112 et seq.; and any other federal, state or local law governing the Parties’ employment relationship; (ii) any claims on account of, arising out of or in any way connected with Executive’s employment with the Company or leaving of that employment; (iii) any claims alleged or which could have been alleged in any charge or complaint against the Company; (iv) any claims relating to the conduct of any employee, officer, director, agent or other representative of the Company; (v) any claims of discrimination or harassment on any basis; (vi) any claims arising from any legal restrictions on an employer’s right to separate its employees; (vii) any claims for personal injury, compensatory or punitive damages or other forms of relief; and (viii) all other causes of action sounding in contract, tort or other common law basis, including: (a) the breach of any alleged oral or written contract; (b) negligent or intentional misrepresentations; (c) wrongful discharge; (d) just cause dismissal; (e) defamation; (f) interference with contract or business relationship; or (g) negligent or intentional infliction of emotional distress.

4.The Parties acknowledge that it is their mutual and specific intent that the above waiver fully complies with the requirements of the Older Workers Benefit Protection Act (29 U.S.C. § 626) and any similar law governing release of claims.  Accordingly, Executive hereby acknowledges that:

(a)He has carefully read and fully understands all of the provisions of this Waiver and Release and that he has entered into this Waiver and Release knowingly and voluntarily after extensive negotiations and having consulted with his counsel;

(b)The Severance Benefits offered in exchange for Executive’s release of claims exceed in kind and scope that to which he would have otherwise been legally entitled;

(c)Prior to signing this Waiver and Release, Executive had been advised in writing by this Waiver and Release as well as other writings to seek counsel from, and has in fact had an opportunity to consult with, an attorney of his choice concerning its terms and conditions; and

(d)He has been offered at least twenty-one (21) days within which to review and consider this Waiver and Release.

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5.The Parties agree that this Waiver and Release shall not become effective and enforceable until the date this Waiver and Release is signed by both Parties or seven (7) calendar days after its execution by Executive, whichever is later.  Executive may revoke this Waiver and Release for any reason by providing written notice of such intent to Cinergy within seven (7) days after he has signed this Waiver and Release, thereby forfeiting Executive’s right to receive any Severance Benefits provided hereunder and rendering this Waiver and Release null and void in its entirety.

6.The Executive hereby affirms and acknowledges his continued obligations to comply with the post-termination covenants contained in his Employment Agreement, including but not limited to, the Confidential Information provisions of Section 9 of the Employment Agreement.  Executive acknowledges that the restrictions contained therein are valid and reasonable in every respect, are necessary to protect the Company’s legitimate business interests and hereby affirmatively waives any claim or defense to the contrary.

7.Executive specifically agrees and understands that the existence and terms of this Waiver and Release are strictly CONFIDENTIAL and that such confidentiality is a material term of this Waiver and Release.  Accordingly, except as required by law or unless authorized to do so by Cinergy in writing, Executive agrees that he shall not communicate, display or otherwise reveal any of the contents of this Waiver and Release to anyone other than his spouse, primary legal counsel or financial advisor, provided, however, that they are first advised of the confidential nature of this Waiver and Release and Executive obtains their agreement to be bound by the same.  Cinergy agrees that Executive may respond to legitimate inquiries regarding his employment with Cinergy by stating that he voluntarily resigned to pursue other opportunities, that the Parties terminated their relationship on an amicable basis and that the Parties have entered into a confidential Waiver and Release that prohibits him from further discussing the specifics of his separation.  Nothing contained herein shall be construed to prevent Executive from discussing or otherwise advising subsequent employers of the existence of any obligations as set forth in his Employment Agreement.  Further, nothing contained herein shall be construed to limit or otherwise restrict the Company’s ability to disclose the terms and conditions of this Waiver and Release as may be required by business necessity.

8.In the event that Executive breaches or threatens to breach any provision of this Waiver and Release, he agrees that Cinergy shall be entitled to seek any and all equitable and legal relief provided by law, specifically including immediate and permanent injunctive relief.  Executive hereby waives any claim that Cinergy has an adequate remedy at law.  In addition, and to the extent not prohibited by law, Executive agrees that Cinergy shall be entitled to an award of all costs and attorneys’ fees incurred by Cinergy in any successful effort to enforce the terms of this Waiver and Release.  Executive agrees that the foregoing relief shall not be construed to limit or otherwise restrict Cinergy’s ability to pursue any other remedy provided by law, including the recovery of any actual, compensatory or punitive damages.  Moreover, if Executive pursues any claims against the Company subject to the foregoing Waiver and Release, Executive agrees to immediately reimburse the Company for the value of all benefits received under this Waiver and Release to the fullest extent permitted by law.

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9.Cinergy hereby releases the Executive, his heirs, representatives, agents and assigns from any and all known claims, causes of action, grievances, damages and demands of any kind or nature based on acts or omissions committed by the Executive during and in the course of his employment with Cinergy provided such act or omission was committed in good faith and occurred within the scope of his normal duties and responsibilities.

10.The Parties acknowledge that this Waiver and Release is entered into solely for the purpose of ending their employment relationship on an amicable basis and shall not be construed as an admission of liability or wrongdoing by either Party and that both Cinergy and Executive have expressly denied any such liability or wrongdoing.

11.Each of the promises and obligations shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, assigns and successors in interest of each of the Parties.

12.The Parties agree that each and every paragraph, sentence, clause, term and provision of this Waiver and Release is severable and that, if any portion of this Waiver and Release should be deemed not enforceable for any reason, such portion shall be stricken and the remaining portion or portions thereof should continue to be enforced to the fullest extent permitted by applicable law.

13.This Waiver and Release shall be governed by and interpreted in accordance with the laws of the State of Ohio without regard to any applicable state’s choice of law provisions.

14.Executive represents and acknowledges that in signing this Waiver and Release he does not rely, and has not relied, upon any representation or statement made by Cinergy or by any of Cinergy’s employees, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Waiver and Release other than those specifically contained herein.

15.This Waiver and Release represents the entire agreement between the Parties concerning the subject matter hereof, shall supercede any and all prior agreements which may otherwise exist between them concerning the subject matter hereof (specifically excluding, however, the post-termination obligations contained in any existing Employment Agreement or other legally-binding document), and shall not be altered, amended, modified or otherwise changed except by a writing executed by both Parties.

16.Cinergy Corp. and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy Corp. with respect to all aspects pertaining to the administration and interpretation of this Waiver and Release.

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PLEASE READ CAREFULLY.  WITH RESPECT TO THE EXECUTIVE, THIS

WAIVER AND RELEASE INCLUDES A COMPLETE RELEASE OF ALL KNOWN

AND UNKNOWN CLAIMS.

IN WITNESS WHEREOF, the Parties have themselves signed, or caused a duly authorized agent thereof to sign, this Waiver and Release on their behalf and thereby acknowledge their intent to be bound by its terms and conditions.

EXECUTIVE		CINERGY SERVICES, INC.
Signed:	/s/ Michael J. Cyrus	By:	/s/ James E. Rogers
Printed:	Michael J. Cyrus	Title:	Chairman and Chief Executive Officer
Dated:		Dated:

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EX-10.F

Exhibit 10.f

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made and entered into as of the 24^th day of September, 2002 (the “Effective Date”), by and between Cinergy and James L. Turner (the “Executive”).  This Agreement replaces and supersedes any and all prior employment agreements between Cinergy and the Executive.  The capitalized words and terms used throughout this Agreement are defined in Section 11.

Recitals

A.            The Executive is currently serving as Executive Vice President of the Company and Chief Executive Officer of the Regulated Businesses Business Unit of Cinergy, and Cinergy desires to secure the continued employment of the Executive in accordance with this Agreement.

B.            The Executive is willing to continue to remain in the employ of Cinergy on the terms and conditions set forth in this Agreement.

C.            The parties intend that this Agreement will replace and supersede any and all prior employment agreements between Cinergy (or any component company or business unit of Cinergy) and the Executive.

Agreement

In consideration of the mutual promises, covenants and agreements set forth below, the parties agree as follows:

1.Employment and Term.

a.Cinergy agrees to employ the Executive, and the Executive agrees to remain in the employ of Cinergy, in accordance with the terms and provisions of this Agreement, for the Employment Period set forth in Section 1b.  The parties agree that the Company will be responsible for carrying out all of the promises, covenants, and agreements of Cinergy set forth in this Agreement.

b.The Employment Period of this Agreement will commence as of the Effective Date and continue until December 31, 2004; provided that, commencing on December 31, 2002, and on each subsequent December 31, the Employment Period will be extended for one (1) additional year unless either party gives the other party written notice not to extend this Agreement at least ninety (90) days before the extension would otherwise become effective.

2.Duties and Powers of Executive.

a.Position.  The Executive will serve Cinergy as Executive Vice President of the Company and Chief Executive Officer of the Regulated Businesses Business Unit  of Cinergy and he will have such responsibilities, duties, and authority as are

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customary for someone of that position and such additional duties, consistent with his position, as may be assigned to him from time to time during the Employment Period by the Board of Directors or the Chief Executive Officer.  Executive shall devote substantially all of Executive’s business time, efforts and attention to the performance of Executive’s duties under this Agreement; provided, however, that this requirement shall not preclude Executive from reasonable participation in civic, charitable or professional activities or the management of Executive’s passive investments, so long as such activities do not materially interfere with the performance of Executive’s duties under this Agreement.

b.Place of Performance.  In connection with the Executive’s employment, the Executive will be based at the principal executive offices of Cinergy, 221 East Fourth Street, Cincinnati, Ohio.  Except for required business travel to an extent substantially consistent with the present business travel obligations of Cinergy executives who have positions of authority comparable to that of the Executive, the Executive will not be required to relocate to a new principal place of business that is more than thirty (30) miles from such location.

3.Compensation.  The Executive will receive the following compensation for his services under this Agreement.

a.Salary.  The Executive’s Annual Base Salary, payable in pro rata installments not less often than semi-monthly, will be at the annual rate of not less than $346,500.  Any increase in the Annual Base Salary will not serve to limit or reduce any other obligation of Cinergy under this Agreement.  The Annual Base Salary will not be reduced except for across-the-board salary reductions similarly affecting all Cinergy management personnel.  If Annual Base Salary is increased or reduced during the Employment Period, then such adjusted salary will thereafter be the Annual Base Salary for all purposes under this Agreement.

b.Retirement, Incentive, Welfare Benefit Plans and Other Benefits.

(i)During the Employment Period, the Executive will be eligible, and Cinergy will take all necessary action to cause the Executive to become eligible, to participate in short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to other senior executives of Cinergy who are considered Tier II executives for compensation purposes, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing.

(ii)Supplemental Retirement Benefit.

(1)Amount, Form, Timing and Method of Payment.  If the Executive retires from Cinergy after reaching age 55, the Executive will be entitled and fully vested in a supplemental retirement benefit in an amount which, when expressed as an annual amount payable

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during the life of the Executive, shall equal the excess of (1) 60% of the Executive’s Highest Average Earnings over (2) his total aggregate annual benefit, payable in the form of a single life annuity to the Executive, under all Executive Retirement Plans.  Except as described below, the form (e.g., the 100% joint and survivor annuity form of benefit), timing, and method of payment of the supplemental retirement benefit payable under this Paragraph will be the same as those elected by the Executive under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(2)Death Benefit.  If the Executive dies after reaching age 55 but prior to his retirement from Cinergy, and if his Spouse, on the date of his death, is living on the date the first installment of the supplemental retirement benefit would be payable under this Paragraph, the Spouse will be entitled to receive the supplemental retirement benefit as a Spouse’s benefit.  The form, timing, and method of payment of any Spouse’s benefit under this Paragraph will be the same as those applicable to the Spouse under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(3)Special Payment Election Effective Upon a Change in Control.  Notwithstanding the foregoing, the Executive may make a special payment election with respect to his supplemental retirement benefit (if any) in accordance with the following provisions:

(A)The Executive may elect, on a form provided by Cinergy, to receive a single lump sum cash payment in an amount equal to the Actuarial Equivalent (as defined below) of his supplemental retirement benefit (or the Actuarial Equivalent of the remaining payments to be made in connection with his supplemental retirement benefit in the event that payment of his supplemental retirement benefit has already commenced) payable no later than 30 days after the later of the occurrence of a Change in Control or the date of his termination of employment.

(B)Such special payment election shall become operative only upon the occurrence of a Change in Control and only if the Executive’s termination of employment occurs either (1) prior to the occurrence of a Change in Control or (2) during the 24-month period commencing upon the occurrence of a

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Change in Control.  Once operative, such special payment election shall override any other payment election made by the Executive with respect to his supplemental retirement benefit.

(C)In order to be effective, a special payment election (or withdrawal of that election) must be made either prior to the occurrence of a Potential Change in Control or, with the consent of Cinergy, during the 30-day period commencing upon the occurrence of a Potential Change in Control.  In the event that a Potential Change in Control occurs and subsequently ceases to exist, other than as a result of a Change in Control, such Potential Change in Control shall be disregarded for purposes of this Section.

(D)In the event that the Executive makes a special payment election and pursuant to that election he becomes entitled to receive a single lump sum cash payment pursuant to this Section payable prior to the commencement of his supplemental retirement benefit in another form of payment, the Actuarial Equivalent of his supplemental retirement benefit shall be calculated based on the following assumptions:

(I)The form of payment for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be a single life annuity;

(II)The commencement date for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be the first day of the calendar month coincident with or next following his termination of employment;

(III)The term “Actuarial Equivalent” has the meaning given to that term in the Pension Plan with respect to lump sum payments; and

(IV)The amount of the Executive’s supplemental retirement benefit shall not be actuarially reduced for early commencement.

(E)In the event that the Executive makes a special payment election and pursuant to that election he is entitled to receive a single lump sum cash payment payable after the

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commencement of his supplemental retirement benefit in another form of payment, his lump sum cash payment shall be equal to the Actuarial Equivalent (as that term is used in the Pension Plan with respect to lump sum payments) of the remaining payments to be made in connection with his supplemental retirement benefit.

(iii)Upon his retirement on or after having attained age 50, the Executive will be eligible for comprehensive medical and dental benefits which are not materially different from the benefits provided to retirees under the Cinergy Corp. Welfare Benefits Program or any similar program or successor to that program.  For purposes of determining the amount of the monthly premiums due from the Executive, the Executive will receive from Cinergy the maximum subsidy available as of the date of his retirement to an active Cinergy employee with the same medical benefits classification/eligibility as the Executive’s medical benefits classification/eligibility on the date of his retirement.

(iv)The Executive will be a participant in the Annual Incentive Plan and will be paid pursuant to the terms and conditions of that plan, subject to the following: (1) The maximum annual bonus shall be not less than one hundred five percent (105%) of the Executive’s Annual Base Salary (the “Maximum Annual Bonus”); and (2) The target annual bonus shall be not less than sixty percent (60%) of the Executive’s Annual Base Salary (the “Target Annual Bonus”).

(v)The Executive will be a participant in the Long-Term Incentive Plan (the “LTIP”), and the Executive’s annualized target award opportunity under the LTIP will be equal to no less than ninety percent (90%) of his Annual Base Salary (the “Target LTIP Bonus”).

(vi)For purposes of Sections 3b(iv) and 3b(v), the Executive’s Annual Base Salary for any calendar year shall be increased by the amount of any Nonelective Employer Contributions made on behalf of the Executive during such calendar year under the 401(k) Excess Plan.

c.Fringe Benefits and Perquisites.  During the Employment Period, the Executive will be entitled to the following additional fringe benefits in accordance with the terms and conditions of Cinergy’s policies and practices for such fringe benefits:

(i)Cinergy will furnish to the Executive an automobile appropriate for the Executive’s level of position, or, at Cinergy’s discretion, a cash allowance of equivalent value.  Cinergy will also pay all of the related expenses for gasoline, insurance, maintenance, and repairs, or provide for such expenses within the cash allowance.  All benefits provided pursuant to this Section 3c(i) shall be provided in accordance with generally applicable procedures established from time to time by Cinergy in its sole discretion.

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(ii)Cinergy will pay the initiation fee and the annual dues, assessments, and other membership charges of the Executive for membership in a country club selected by the Executive.

(iii)Cinergy will provide paid vacation for four (4) weeks per year (or such longer period for which Executive is otherwise eligible under Cinergy’s policy).

(iv)Cinergy will furnish to the Executive annual financial planning and tax preparation services, provided, however, that the cost to Cinergy of such services shall not exceed $15,000 during any thirty-six (36) consecutive month period.  Notwithstanding the preceding sentence, in the event any  payment to the Executive pursuant to this Section 3c(iv) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 3c(iv).

(v)Cinergy will provide other fringe benefits in accordance with Cinergy plans, practices, programs, and policies in effect from time to time, commensurate with his position and at least comparable to those received by other Cinergy Tier II executives.

d.Expenses.  Cinergy agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board of Directors.

e.Relocation Benefits.  Following termination of the Executive’s employment for any reason (other than death), the Executive will be entitled to reimbursement from Cinergy for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Relocation Program.  Notwithstanding the foregoing, if the Executive becomes employed by another employer and is eligible to receive relocation benefits under another employer-provided plan, any benefits provided to the Executive under this Section 3e will be secondary to those provided under the other employer-provided relocation plan.  The Executive must report to Cinergy any such relocation benefits that he actually receives under another employer-provided plan.

f.Stock Options and Stock Appreciation Rights.  Notwithstanding Section 5d, upon the occurrence of a Change in Control, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock

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Related Documents, become immediately exercisable.  If the Executive terminates employment for any reason during the twenty-four (24) month period commencing upon the occurrence of a Change in Control, notwithstanding Section 5d, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock Related Documents, remain exercisable in accordance with their terms but in no event for a period less than the lesser of (i) three months following such termination of employment or (ii) the remaining term of such stock option or stock appreciation right (which remaining term shall be determined without regard to such termination of employment).

4.Termination of Employment.

a.Death.  The Executive’s employment will terminate automatically upon the Executive’s death during the Employment Period.

b.By Cinergy for Cause.  Cinergy may terminate the Executive’s employment during the Employment Period for Cause.  For purposes of this Employment Agreement, “Cause” means the following:

(i)The willful and continued failure by the Executive to substantially perform the Executive’s duties with Cinergy (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) that, if curable, has not been cured within 30 days after the Board of Directors or the Chief Executive Officer has delivered to the Executive a written demand for substantial performance, which demand specifically identifies the manner in which the Executive has not substantially performed his duties.  This event will constitute Cause even if the Executive issues a Notice of Termination for Good Reason pursuant to Section 4d after the Board of Directors or Chief Executive Officer delivers a written demand for substantial performance.

(ii)The breach by the Executive of the confidentiality provisions set forth in Section 9.

(iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on Cinergy.  For purposes of this definition of Cause, no act, or failure to act, on the Executive’s part will be deemed “willful” unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of Cinergy.

(iv)Notwithstanding the foregoing, Cinergy shall be deemed to have not terminated the employment of the Executive for Cause unless and until there shall have been delivered to the Executive a copy of a resolution

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duly adopted by the affirmative vote of not less than a majority of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard by the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in this Section 4b and specifying the particulars thereof in detail.

c.By Cinergy Without Cause.  Cinergy may, upon at least 30 days advance written notice to the Executive, terminate the Executive’s employment during the Employment Period for a reason other than Cause, but the obligations placed upon Cinergy in Section 5 will apply.

d.By the Executive for Good Reason.  The Executive may terminate his employment during the Employment Period for Good Reason.  For purposes of this Agreement, “Good Reason” means the following:

(i)(1) A reduction in the Executive’s Annual Base Salary, except for across-the-board salary reductions similarly affecting all Cinergy management personnel, (2) a reduction in the amount of the Executive’s Maximum Annual Bonus under the Annual Incentive Plan, except for across-the-board Maximum Annual Bonus reductions similarly affecting all Cinergy management personnel, or (3) a reduction in any other benefit or payment described in Section 3 of this Agreement, except for changes to the employee benefits programs generally affecting Cinergy management personnel, provided that those changes, in the aggregate, will not result in a material adverse change with respect to the benefits to which the Executive was entitled as of the Effective Date.

(ii)(1) The material reduction without his consent of the Executive’s title, authority, duties, or responsibilities from those in effect immediately prior to the reduction, (2) in the event the Executive is or becomes a member of the Board during the Employment Period, the failure by Cinergy without the consent of the Executive to nominate the Executive for re-election to the Board, or (3) a material adverse change in the Executive’s reporting responsibilities.

(iii)Any breach by Cinergy of any other material provision of this Agreement (including but not limited to the place of performance as specified in Section 2b).

(iv)The Executive’s disability due to physical or mental illness or injury that precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience.

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(v)A failure by the Company to require any successor entity to the Company specifically to assume in writing all of the Company’s obligations to the Executive under this Agreement.

For purposes of determining whether Good Reason exists with respect to a Qualifying Termination occurring on or within 24 months following a Change in Control, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.

e.By the Executive Without Good Reason.  The Executive may terminate his employment without Good Reason upon prior written notice to the Company.

f.Notice of Termination.  Any termination of the Executive’s employment by Cinergy or by the Executive during the Employment Period (other than a termination due to the Executive’s death) will be communicated by a written Notice of Termination to the other party to this Agreement in accordance with Section 12b.  For purposes of this Agreement, a “Notice of Termination” means a written notice that specifies the particular provision of this Agreement relied upon and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for terminating the Executive’s employment under the specified provision.  The failure by the Executive or Cinergy to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause will not waive any right of the Executive or Cinergy under this Agreement or preclude the Executive or Cinergy from asserting that fact or circumstance in enforcing rights under this Agreement.

g.The Executive acknowledges and agrees that he shall not sell or otherwise dispose of any shares of Company stock acquired pursuant to the exercise of a stock option, other than shares sold in order to pay an option exercise price or the related tax withholding obligation, until 90 days after the Date of Termination.  Notwithstanding the foregoing, Cinergy, in its sole discretion, may waive the restrictions contained in the previous sentence.

5.Obligations of Cinergy Upon Termination.

a.Certain Terminations.

(i)If a Qualifying Termination occurs during the Employment Period, Cinergy will pay to the Executive a lump sum amount, in cash, equal to the sum of the following Accrued Obligations:

(1)the pro-rated portion of the Executive’s Annual Base Salary payable through the Date of Termination, to the extent not previously paid.

(2)any amount payable to the Executive under the Annual Incentive Plan in respect of the most recently completed fiscal year, to the extent not theretofore paid.

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(3)an amount equal to the AIP Benefit for the fiscal year that includes the Date of Termination multiplied by a fraction, the numerator of which is the number of days from the beginning of that fiscal year to and including the Date of Termination and the denominator of which is three hundred and sixty-five (365).  The AIP Benefit component of the calculation will be equal to the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, determined by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable.

(4)the Accrued Obligations described in this Section 5a(i) will be paid within thirty (30) days after the Date of Termination.  These Accrued Obligations are payable to the Executive regardless of whether a Change in Control has occurred.

(ii)In the event of a Qualifying Termination either prior to the occurrence of a Change in Control, or more than twenty-four (24) months following the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations, and Cinergy will have the following additional obligations described in this Section 5a(ii); provided, however, that each of the benefits described below in this Section 5a(ii) shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum amount, in cash, equal to three (3) times the sum of the Annual Base Salary and the Annual Bonus.  For this purpose, the Annual Base Salary will be at the rate in effect at the time Notice of Termination is given (without giving effect to any reduction in Annual Base Salary, if any, prior to the termination, other than across-the-board reductions), and shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which the Executive’s Qualifying Termination occurs, and the Annual Bonus will be the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, calculated

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by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable; provided, however that for purposes of this Section 5a(ii)(1)(B), the Annual Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus for the year in which the Date of Termination occurs.  This lump sum will be paid within thirty (30) days after the expiration of the revocation period contained in the Waiver and Release.

(2)Subject to Clauses (A), (B) and (C) below, Cinergy will provide, until the end of the Employment Period, medical and dental benefits to the Executive and/or the Executive’s dependents at least equal to those that would have been provided if the Executive’s employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing).  The benefits described in the preceding sentence will be in accordance with the medical and welfare benefit plans, practices, programs, or policies of Cinergy (the “M&W Plans”) as then currently in effect and applicable generally to other Cinergy senior executives and their families.  In the event that any medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B).

(A)If, as of the Executive’s Date of Termination, the Executive meets the eligibility requirements for Cinergy’s retiree medical and welfare benefit plans, the provision of those retiree medical and welfare benefit plans to the Executive will satisfy Cinergy’s obligation under this Section 5a(ii)(2).

(B)If, as of the Executive’s Date of Termination, the provision to the Executive of the M&W Plan benefits described in this Section 5a(ii)(2) would either (1) violate the terms of the M&W Plans (or any related insurance policies) or (2) violate any of the Code’s nondiscrimination requirements applicable to the M&W Plans, then Cinergy, in its sole

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discretion, may elect to pay the Executive, in lieu of the M&W Plan benefits described under this Section 5a(ii)(2), a lump sum cash payment equal to the total monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy for the Executive under the M&W Plans from the Date of Termination through the end of the Employment Period.  Nothing in this Clause will affect the Executive’s right to elect COBRA continuation coverage under a M&W Plan in accordance with applicable law, and Cinergy will make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.

(C)If the Executive becomes employed by another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, any benefits provided to the Executive under the M&W Plans will be secondary to those provided under the other employer-provided plan during the Executive’s applicable period of eligibility.

(3)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(ii)(3) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(ii)(3).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(iii)In the event of a Qualifying Termination during the twenty-four (24) month period beginning upon the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations listed in Sections 5a(i)(1) and (2), Cinergy will pay the Accrued Obligations listed in Section 5a(i)(3) (but only if such Qualifying Termination occurs after the calendar year in which occurs such Change in Control) and Cinergy will have the following additional obligations described in this Section 5a(iii); provided, however, that each of the benefits described below in this Section 5a(iii)

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shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the higher of (x) the sum of the Executive’s current Annual Base Salary and Target Annual Bonus and (y) the sum of the Executive’s Annual Base Salary in effect immediately prior to the Change in Control and the Change in Control Bonus.  For purposes of the preceding sentence, the Executive’s Annual Base Salary on any given date shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which such date occurs.  For purposes of this Agreement, the Change in Control Bonus shall mean the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the Change in Control, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year in which occurs the Date of Termination, calculated by projecting Cinergy’s performance and other applicable goals and objective for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable, provided, however, that  for purposes of this Section 5a(iii)(1)(B), such Change in Control Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus.  This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.  Nothing in this Section 5a(iii)(1) shall preclude the Executive from receiving the amount, if any, to which he is entitled in accordance with the terms of the Annual Incentive Plan for the fiscal year that includes the Date of Termination.

(2)Cinergy will pay to the Executive the lump sum present value of any benefits under the Executive Supplemental Life Program under the terms of the applicable plan or program as of the Date of Termination, calculated as if the Executive was fully vested as of the Date of Termination. The lump sum present value, assuming commencement at age 50 or the Executive’s age as of the Date of Termination if later, will be determined using the interest rate applicable to lump sum payments in the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan for the plan

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year that includes the Date of Termination. To the extent no such interest rate is provided therein, the annual interest rate applicable under Section 417(e)(3) of the Code, or any successor provision thereto, for the second full calendar month preceding the first day of the calendar year that includes the Date of Termination will be used. This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(3)The Executive shall be fully vested in his accrued benefits as of the Date of Termination under the Executive Retirement Plans, and his aggregate accrued benefits thereunder and under Section 3b(ii) of this Agreement will be calculated, and he will be treated for all purposes, as if he was credited with three (3) additional years of age and service as of the Date of Termination, provided, however, that to the extent a calculation is made regarding the actuarial equivalent amount of any alternate form of benefit, the Executive will not be credited with three additional years of age for purposes of such calculation.  However, Cinergy will not commence payment of such benefits prior to the date that the Executive has attained, or is treated (after taking into account the preceding sentence) as if he had attained, age 50.

(4)For a thirty-six (36) month period after the Date of Termination, Cinergy will arrange to provide to the Executive and/or the Executive’s dependents life, disability, accident, and health insurance benefits substantially similar to those that the Executive and/or the Executive’s dependents are receiving immediately prior to the Notice of Termination at a substantially similar cost to the Executive (without giving effect to any reduction in those benefits subsequent to a Change in Control that constitutes Good Reason), except for any benefits that were waived by the Executive in writing.  If Cinergy arranges to provide the Executive and/or the Executive’s dependents with life, disability, accident, and health insurance benefits, those benefits will be reduced to the extent comparable benefits are actually received by or made available to the Executive and/or the Executive’s dependents during the thirty-six (36) month period following the Executive’s Date of Termination.  The Executive must report to Cinergy any such benefits that he or his dependents actually receives or that are made available to him or his dependents.  In lieu of the benefits described in the preceding sentences, Cinergy, in its sole discretion, may elect to pay to the Executive a lump sum cash payment equal to thirty-six (36) times the monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy to provide those benefits to the Executive and/or the Executive’s dependents.

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Nothing in this Section 5a(iii)(4) will affect the Executive’s right to elect COBRA continuation coverage in accordance with applicable law, and Cinergy will provide the benefits or make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.  In the event that any benefits or payments provided pursuant to this Section 5a(iii)(4) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefits or payments provided pursuant to this Section 5a(iii)(4).

(5)In lieu of any and all other rights with respect to the automobile assigned by Cinergy to the Executive, Cinergy will provide the Executive with a lump sum payment in the amount of $50,000.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(5) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(5).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(6)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(iii)(6) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(6).  Such payment will be transferred to the Executive within thirty (30) days

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of the expiration of the revocation period contained in the Waiver and Release.

(7)Cinergy will provide annual dues and assessments of the Executive for membership in a country club selected by the Executive until the end of the Employment Period.

(8)Cinergy will provide outplacement services suitable to the Executive’s position until the end of the Employment Period or, if earlier, until the first acceptance by the Executive of an offer of employment.  At the Executive’s discretion, 15% of Annual Base Salary may be paid in lieu of outplacement services, which payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

For purposes of this Section 5a(iii), the Executive will be deemed to have incurred a Qualifying Termination upon a Change in Control if the Executive’s employment is terminated prior to a Change in Control, without Cause at the direction of a Person who has entered into an agreement with Cinergy, the consummation of which will constitute a Change in Control, or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event that constitutes Good Reason occurs at the direction of such a Person.

b.Termination by Cinergy for Cause or by the Executive Other Than for Good Reason.  Subject to the provisions of Section 7, and notwithstanding any other provisions of this Agreement, if the Executive’s employment is terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, Cinergy will have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations, plus any other earned but unpaid compensation, in each case to the extent not previously paid.

c.Certain Tax Consequences.

(i)In the event that any benefits paid or payable to the Executive or for his benefit pursuant to the terms of this Agreement or any other plan or arrangement in connection with, or arising out of, his employment with Cinergy or a change in ownership or effective control of Cinergy or of a substantial portion of its assets (a “Payment” or “Payments”) would be subject to any Excise Tax, then the Executive will 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, penalties, additional tax, or similar items imposed with respect thereto and the Excise Tax), including any 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 or assessable against the Executive due to the Payments.

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(ii)Subject to the provisions of Section 5c, all determinations required to be made under this Section 5c, 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 the Accounting Firm, which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company.  If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return.  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 5c, shall be paid by Cinergy to the Executive within five (5) days of the receipt of the Accounting Firm’s determination.  Any determination by the Accounting Firm shall be binding upon Cinergy 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 Cinergy should have been made (“Underpayment”), consistent with the calculations required to be made hereunder.  In the event of any Underpayment, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Cinergy to or for the benefit of the Executive, and Cinergy shall indemnify and hold harmless the Executive for any such Underpayment, on an after-tax basis, including interest and penalties with respect thereto.  In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Code Section 1274(b)(2)(B).

(iii)The value of any non-cash benefits or any deferred payment or benefit paid or payable to the Executive will be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).  For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and applicable state and local income taxes at the highest

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marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes that would be obtained from deduction of those state and local taxes.

(iv)Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Accounting Firm’s determination, an Excise Tax will be imposed on any Payment or Payments, Cinergy will pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Cinergy has actually withheld from the Payment or Payments in accordance with law.

d.Value Creation Plan and Stock Options.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlement to restricted shares and performance shares under the Value Creation Plan and any stock options granted under the Cinergy Corp. Stock Option Plan, the LTIP or any other stock option plan will be determined under the terms of the appropriate plan and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of any such plan, administrative guideline or written agreement shall not be amended in a manner that would adversely affect the Executive with respect to awards granted to the Executive prior to the Change in Control.

e.Benefit Plans in General.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlements, if any, under all benefit plans of Cinergy, including but not limited to the Deferred Compensation Plan, 401(k) Excess Plan, Cinergy Corp. Supplemental Executive Retirement Plan and any vacation policy, shall be determined under the terms of such plans, policies and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of such plans and policies and any applicable administrative guidelines and written agreements shall not be amended in a manner that would adversely affect the Executive with respect to benefits earned by the Executive prior to the Change in Control.

f.Other Fees and Expenses.  Cinergy will also reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive (i) in successfully disputing a Qualifying Termination that entitles the Executive to Severance Benefits or (ii) in reasonably disputing whether or not Cinergy has terminated his employment for Cause.  Payment will be made within five (5) business days after delivery of the Executive’s written request for payment accompanied by such evidence of fees and expenses incurred as Cinergy reasonably may require.

6.Non-Exclusivity of Rights.  Nothing in this Agreement will prevent or limit the Executive’s continuing or future participation in any benefit, plan, program, policy, or practice provided by Cinergy and for which the Executive may qualify, except with respect to any benefit to which the Executive has waived his rights in writing or any plan,

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program, policy, or practice that expressly excludes the Executive from participation.  In addition, nothing in this Agreement will limit or otherwise affect the rights the Executive may have under any other contract or agreement with Cinergy entered into after the Effective Date.  Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy, or practice of, or any contract or agreement entered into after the Effective Date with Cinergy, at or subsequent to the Date of Termination, will be payable in accordance with that benefit, plan, program, policy or practice, or that contract or agreement, except as explicitly modified by this Agreement.  Notwithstanding the above, in the event that the Executive receives Severance Benefits under Section 5a(ii) or 5a(iii), (a) the Executive shall not be entitled to any benefits under any severance plan of Cinergy, including but not limited to the Severance Opportunity Plan for Non-Union Employees of Cinergy Corp. and (b) if the Executive receives such Severance Benefits as a result of his termination for Good Reason, as that term is defined in Section 4d(iv), Cinergy’s obligations under Sections 5a(ii) and 5a(iii) shall be reduced by the amount of any benefits payable to the Executive under any short-term or long-term disability plan of Cinergy, the amount of which shall be determined by Cinergy in good faith.

7.Full Settlement:  Mitigation.  Except as otherwise provided herein, Cinergy’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right, or action that Cinergy may have against the Executive or others.  In no event will the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 3e, 5a(ii)(2) and 5a(iii)(4), those amounts will not be reduced simply because the Executive obtains other employment.  If the Executive finally prevails on the substantial claims brought with respect to any dispute between Cinergy and the Executive as to the interpretation, terms, validity, or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, Cinergy agrees to pay all reasonable legal fees and expenses that the Executive may reasonably incur as a result of that dispute.

8.Arbitration.  The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to the Executive’s employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such a dispute is arbitrable, shall be settled by arbitration.  This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims.  The Executive will still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim will be submitted to arbitration instead of a court or jury.  The arbitration proceeding will be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made, and such proceeding will be adjudicated in the state of Ohio in accordance with the laws of the state of Ohio.  The decision of the

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arbitrator(s), including determination of the amount of any damages suffered, will be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns.  Each party will bear its own expenses in the arbitration for arbitrators’ fees and attorneys’ fees, for its witnesses, and for other expenses of presenting its case.  Other arbitration costs, including administrative fees and fees for records or transcripts, will be borne equally by the parties.  Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, Cinergy will reimburse or pay all legal fees and expenses that the Executive may reasonably incur as a result of the dispute as required by Section 7.

9.Confidential Information.  The Executive will hold in a fiduciary capacity for the benefit of Cinergy, as well as all of Cinergy’s successors and assigns, all secret, confidential information, knowledge, or data relating to Cinergy, and its affiliated businesses, that the Executive obtains during the Executive’s employment by Cinergy or any of its affiliated companies, and that has not been or subsequently becomes public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement).  During the Employment Period and thereafter, the Executive will not, without Cinergy’s prior written consent or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge, or data to anyone other than Cinergy and those designated by it.  The Executive understands that during the Employment Period, Cinergy may be required from time to time to make public disclosure of the terms or existence of the Executive’s employment relationship to comply with various laws and legal requirements.  In addition to all other remedies available to Cinergy in law and equity, this Agreement is subject to termination by Cinergy for Cause under Section 4b in the event the Executive violates any provision of this Section.

10.Successors.

a.This Agreement is personal to the Executive and, without Cinergy’s prior written consent, cannot be assigned by the Executive other than Executive’s designation of a beneficiary of any amounts payable hereunder after the Executive’s death.  This Agreement will inure to the benefit of and be enforceable by the Executive’s legal representatives.

b.This Agreement will inure to the benefit of and be binding upon Cinergy and its successors and assigns.

c.Cinergy 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 Cinergy to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Cinergy would be required to perform it if no succession had taken place.  Cinergy’s failure to obtain such an assumption and agreement prior to the effective date of a succession will be a breach of this Agreement and will entitle the Executive to compensation from Cinergy in the same amount and on the same terms as if the Executive were to

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terminate his employment for Good Reason upon a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective will be deemed the Date of Termination.

11.Definitions.  As used in this Agreement, the following terms, when capitalized, will have the following meanings:

a.Accounting Firm.  “Accounting Firm” means Cinergy’s independent auditors.

b.Accrued Obligations.  “Accrued Obligations” means the accrued obligations described in Section 5a(i).

c.Agreement.  “Agreement” means this Employment Agreement between Cinergy and the Executive.

d.AIP Benefit.  “AIP Benefit” means the Annual Incentive Plan benefit described in Section 5a(i).

e.Annual Base Salary.  “Annual Base Salary” means, except where otherwise specified herein, the annual base salary payable to the Executive pursuant to Section 3a.

f.Annual Bonus.  “Annual Bonus” has the meaning set forth in Section 5a(ii)(1).

g.Annual Incentive Plan.  “Annual Incentive Plan” means the Cinergy Corp. Annual Incentive Plan or any similar plan or successor to the Annual Incentive Plan.

h.Board of Directors or Board.  “Board of Directors” or “Board” means the board of directors of the Company.

i.COBRA.  “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

j.Cause.  “Cause” has the meaning set forth in Section 4b.

k.Change in Control.  A “Change in Control” will be deemed to have occurred if any of the following events occur, after the Effective Date:

(i)Any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (“1934 Act”)), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing more than twenty percent (20%) of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a beneficial owner in connection with a transaction described in Clause (1) of Paragraph (ii) below; or

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(ii)There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, partnership or other entity, other than (1) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to that merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the combined voting power of the securities of the Company or the surviving entity or its parent outstanding immediately after the merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such a Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities; or

(iii)During any period of two (2) consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election, or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or

(iv)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to the sale.

l.Change in Control Bonus.  “Change in Control Bonus” has the meaning set forth in Section 5a(iii)(1).

m.Chief Executive Officer.  “Chief Executive Officer” means the individual who, at any relevant time, is then serving as the chief executive officer of the Company.

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n.Cinergy.  “Cinergy” means the Company, its subsidiaries, and/or its affiliates, and any successors to the foregoing.

o.Code.  “Code” means the Internal Revenue Code of 1986, as amended, and interpretive rules and regulations.

p.Company.  “Company” means Cinergy Corp.

q.Date of Termination.  “Date of Termination” means:

(i)if the Executive’s employment is terminated by Cinergy for Cause, or by the Executive with Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice, as the case may be;

(ii)if the Executive’s employment is terminated by the Executive without Good Reason, thirty (30) days after the date on which the Executive notifies Cinergy of the termination;

(iii)if the Executive’s employment is terminated by Cinergy other than for Cause, thirty (30) days after the date on which Cinergy notifies the Executive of the termination; and

(iv)if the Executive’s employment is terminated by reason of death, the date of death.

r.Deferred Compensation Plan.  “Deferred Compensation Plan” means the Cinergy Corp. Non-Qualified Deferred Incentive Compensation Plan or any similar plan or successor to that plan.

s.Effective Date.  “Effective Date” has the meaning given to that term in the first paragraph of this Agreement.

t.Employment Period.  “Employment Period” has the meaning set forth in Section 1b.

u.Excise Tax.  “Excise Tax” means any excise tax imposed by Code section 4999, together with any interest, penalties, additional tax or similar items that are incurred by the Executive with respect to the excise tax imposed by Code section 4999.

v.Executive.  “Executive” has the meaning given to that term in the first paragraph of this Agreement.

w.Executive Retirement Plans.  “Executive Retirement Plans” means the Pension Plan, the Cinergy Corp. Supplemental Executive Retirement Plan and the Cinergy Corp. Excess Pension Plan or any similar plans or successors to those plans.

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x.Executive Supplemental Life Program.  “Executive Supplemental Life Program” means the Cinergy Corp. Executive Supplemental Life Insurance Program or any similar program or successor to the Executive Supplemental Life Program.

y.401(k) Excess Plan.  “401(k) Excess Plan” means the Cinergy Corp. 401(k) Excess Plan, or any similar plan or successor to that plan.

z.Good Reason.  “Good Reason” has the meaning set forth in Section 4d.

aa.Gross-Up Payment.  “Gross-Up Payment” has the meaning set forth in Section 5c.

bb.Highest Average Earnings.  “Highest Average Earnings” shall have the meaning given to such term in the Cinergy Corp. Supplemental Executive Retirement Plan.  For purposes of clarity, the parties hereto acknowledge and agree that the Executive’s Highest Average Earnings for any year shall not include any benefits received by the Executive pursuant to Section 5 of this Agreement, other than pursuant to Section 5a(i) of this Agreement.

cc.Long-Term Incentive Plan or LTIP.  “Long-Term Incentive Plan” or “LTIP” means the long-term incentive plan implemented under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan or any successor to that plan.

dd.M&W Plans.  “M&W Plans” has the meaning set forth in Section 5a(ii)(2).

ee.Maximum Annual Bonus.  “Maximum Annual Bonus” has the meaning set forth in Section 3b.

ff.Nonelective Employer Contribution. “Nonelective Employer Contribution” has the meaning set forth in the 401(k) Excess Plan.

gg.Notice of Termination.  “Notice of Termination” has the meaning set forth in Section 4f.

hh.Payment or Payments.  “Payment” or “Payments” has the meaning set forth in Section 5c.

ii.Pension Plan.  “Pension Plan” means the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan.

jj.Person.  “Person” has the meaning set forth in paragraph 3(a)(9) of the 1934 Act, as modified and used in subsections 13(d) and 14(d) of the 1934 Act; however, a Person will not include the following:

(i)Cinergy or any of its subsidiaries or affiliates;

(ii)A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or its subsidiaries or affiliates;

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(iii)An underwriter temporarily holding securities pursuant to an offering of those securities; or

(iv)A corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

kk.Potential Change in Control.  A “Potential Change in Control” means any period during which any of the following circumstances exist:

(i)The Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; provided that a Potential Change in Control shall cease to exist upon the expiration or other termination of such agreement; or

(ii)The Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; provided that a Potential Change in Control shall cease to exist when the Company or such Person publicly announces that it no longer has such an intention; or

(iii)Any Person who is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company’s then outstanding securities, increases such Person’s beneficial ownership of such securities by an amount equal to five percent (5%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)The Board of Directors adopts a resolution to the effect that, for purposes hereof, a Potential Change in Control has occurred.

Notwithstanding anything herein to the contrary, a Potential Change in Control shall cease to exist not later than the date that (i) the Board of Directors determines that the Potential Change in Control no longer exists, or (ii) a Change in Control occurs.

ll.Qualifying Termination.  “Qualifying Termination” means (i) the termination by Cinergy of the Executive’s employment with Cinergy during the Employment Period other than a termination for Cause or (ii) the termination by the Executive of the Executive’s employment with Cinergy during the Employment Period for Good Reason.

mm.Relocation Program.  “Relocation Program” means the Cinergy Corp. Relocation Program, or any similar program or successor to that program, as in effect on the date of the Executive’s termination of employment.

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nn.Severance Benefits.  “Severance Benefits” means the payments and benefits payable to the Executive pursuant to Section 5.

oo.Spouse.  “Spouse” means the Executive’s lawfully married spouse.  For this purpose, common law marriage or a similar arrangement will not be recognized unless otherwise required by federal law.

pp.Stock Related Documents.  “Stock Related Documents” means the LTIP, the Cinergy Corp. Stock Option Plan, and the Value Creation Plan and any applicable administrative guidelines and written agreements relating to those plans.

qq.Target Annual Bonus.  “Target Annual Bonus” has the meaning set forth in Section 3b.

rr.Target LTIP Bonus.  “Target LTIP Bonus” has the meaning set forth in Section 3b.

ss.Value Creation Plan.  “Value Creation Plan” means the Value Creation Plan or any similar plan, or successor plan of the LTIP.

tt.Waiver and Release.  “Waiver and Release” means a waiver and release, in substantially the form attached to this Agreement as Exhibit A.

12.Miscellaneous.

a.This Agreement will be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws.  The captions of this Agreement are not part of its provisions and will have no force or effect.  This Agreement may not be amended, modified, repealed, waived, extended, or discharged except by an agreement in writing signed by the party against whom enforcement of the amendment, modification, repeal, waiver, extension, or discharge is sought.  Only the Chief Executive Officer or his designee will have authority on behalf of Cinergy to agree to amend, modify, repeal, waive, extend, or discharge any provision of this Agreement.

b.All notices and other communications under this Agreement will be in writing and will be given by hand delivery to the other party or by Federal Express or other comparable national or international overnight delivery service, addressed in the name of such party at the following address, whichever is applicable:

If to the Executive:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960

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If to Cinergy:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960
Attn: Chief Executive Officer

or to such other address as either party has furnished to the other in writing in accordance with this Agreement.  All notices and communications will be effective when actually received by the addressee.

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

d.Cinergy may withhold from any amounts payable under this Agreement such federal, state, or local taxes as are required to be withheld pursuant to any applicable law or regulation.

e.The Executive’s or Cinergy’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or Cinergy may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4d or the right of Cinergy to terminate the Executive’s employment for Cause pursuant to Section 4b, will not be deemed to be a waiver of that provision or right or any other provision or right of this Agreement.

f.References in this Agreement to the masculine include the feminine unless the context clearly indicates otherwise.

g.This instrument contains the entire agreement of the Executive and Cinergy with respect to the subject matter of this Agreement; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3b and the Stock Related Documents, all promises, representations, understandings, arrangements, and prior agreements are merged into this Agreement and accordingly superseded.

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

i.Cinergy and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy with respect to all aspects pertaining to the administration and interpretation of this Agreement.

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IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the Effective Date.

CINERGY SERVICES, INC.
By:	/s/ James E. Rogers
	James E. Rogers
	Chairman and Chief Executive Officer
EXECUTIVE
/s/ James L. Turner
James L. Turner

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EXHIBIT A

*****

WAIVER AND RELEASE AGREEMENT

THIS WAIVER AND RELEASE AGREEMENT (this “Waiver and Release”) is entered into by and between James L. Turner (the “Executive”) and Cinergy Corp.  (“Cinergy”) (collectively, the “Parties”).

WHEREAS, the Parties have entered into the Employment Agreement dated                                   (the “Employment Agreement”);

WHEREAS, the Executive’s employment has been terminated in accordance with the terms of the Employment Agreement;

WHEREAS, the Executive is required to sign this Waiver and Release in order to receive the payment of certain compensation under the Employment Agreement following termination of employment; and

WHEREAS, Cinergy has agreed to sign this Waiver and Release.

NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.This Waiver and Release is effective on the date hereof and will continue in effect as provided herein.

2.In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 5 of the Employment Agreement (the “Severance Benefits”), which the Executive acknowledges are in addition to payment and benefits to which the Executive would be entitled to but for the Employment Agreement, the Executive, on behalf of himself, his heirs, representatives, agents and assigns hereby COVENANTS NOT TO SUE OR OTHERWISE VOLUNTARILY PARTICIPATE IN ANY LAWSUIT AGAINST, FULLY RELEASES, INDEMNIFIES, HOLDS HARMLESS, and OTHERWISE FOREVER DISCHARGES (i) Cinergy, (ii) its subsidiary or affiliated entities, (iii) all of their present or former directors, officers, employees, shareholders, and agents as well as (iv) all predecessors, successors and assigns thereof (the persons listed in clauses (i) through (iv) hereof shall be referred to collectively as the “Company”) from any and all actions, charges, claims, demands, damages or liabilities of any kind or character whatsoever, known or unknown, which Executive now has or may have had through the effective date of this Waiver and Release.  Executive acknowledges and understands that he is not hereby prevented from filing a charge of discrimination with the Equal Employment Opportunity Commission or any state-equivalent agency or otherwise participate in any proceedings before such Commissions.  Executive also acknowledges and understands that in the event he does

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file such a charge, he shall be entitled to no remuneration, damages, back pay, front pay, or compensation whatsoever from the Company as a result of such charge.

3.Without limiting the generality of the foregoing release, it shall include:  (i) all claims or potential claims arising under any federal, state or local laws relating to the Parties’ employment relationship, including any claims Executive may have under the Civil Rights Acts of 1866 and 1964, as amended, 42 U.S.C. §§ 1981 and 2000(e) et seq.; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12,101 et seq.; the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq.; the Ohio Civil Rights Act, Chapter 4112 et seq.; and any other federal, state or local law governing the Parties’ employment relationship; (ii) any claims on account of, arising out of or in any way connected with Executive’s employment with the Company or leaving of that employment; (iii) any claims alleged or which could have been alleged in any charge or complaint against the Company; (iv) any claims relating to the conduct of any employee, officer, director, agent or other representative of the Company; (v) any claims of discrimination or harassment on any basis; (vi) any claims arising from any legal restrictions on an employer’s right to separate its employees; (vii) any claims for personal injury, compensatory or punitive damages or other forms of relief; and (viii) all other causes of action sounding in contract, tort or other common law basis, including: (a) the breach of any alleged oral or written contract; (b) negligent or intentional misrepresentations; (c) wrongful discharge; (d) just cause dismissal; (e) defamation; (f) interference with contract or business relationship; or (g) negligent or intentional infliction of emotional distress.

4.The Parties acknowledge that it is their mutual and specific intent that the above waiver fully complies with the requirements of the Older Workers Benefit Protection Act (29 U.S.C. § 626) and any similar law governing release of claims.  Accordingly, Executive hereby acknowledges that:

(a)He has carefully read and fully understands all of the provisions of this Waiver and Release and that he has entered into this Waiver and Release knowingly and voluntarily after extensive negotiations and having consulted with his counsel;

(b)The Severance Benefits offered in exchange for Executive’s release of claims exceed in kind and scope that to which he would have otherwise been legally entitled;

(c)Prior to signing this Waiver and Release, Executive had been advised in writing by this Waiver and Release as well as other writings to seek counsel from, and has in fact had an opportunity to consult with, an attorney of his choice concerning its terms and conditions; and

(d)He has been offered at least twenty-one (21) days within which to review and consider this Waiver and Release.

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5.The Parties agree that this Waiver and Release shall not become effective and enforceable until the date this Waiver and Release is signed by both Parties or seven (7) calendar days after its execution by Executive, whichever is later.  Executive may revoke this Waiver and Release for any reason by providing written notice of such intent to Cinergy within seven (7) days after he has signed this Waiver and Release, thereby forfeiting Executive’s right to receive any Severance Benefits provided hereunder and rendering this Waiver and Release null and void in its entirety.

6.The Executive hereby affirms and acknowledges his continued obligations to comply with the post-termination covenants contained in his Employment Agreement, including but not limited to, the Confidential Information provisions of Section 9 of the Employment Agreement.  Executive acknowledges that the restrictions contained therein are valid and reasonable in every respect, are necessary to protect the Company’s legitimate business interests and hereby affirmatively waives any claim or defense to the contrary.

7.Executive specifically agrees and understands that the existence and terms of this Waiver and Release are strictly CONFIDENTIAL and that such confidentiality is a material term of this Waiver and Release.  Accordingly, except as required by law or unless authorized to do so by Cinergy in writing, Executive agrees that he shall not communicate, display or otherwise reveal any of the contents of this Waiver and Release to anyone other than his spouse, primary legal counsel or financial advisor, provided, however, that they are first advised of the confidential nature of this Waiver and Release and Executive obtains their agreement to be bound by the same.  Cinergy agrees that Executive may respond to legitimate inquiries regarding his employment with Cinergy by stating that he voluntarily resigned to pursue other opportunities, that the Parties terminated their relationship on an amicable basis and that the Parties have entered into a confidential Waiver and Release that prohibits him from further discussing the specifics of his separation.  Nothing contained herein shall be construed to prevent Executive from discussing or otherwise advising subsequent employers of the existence of any obligations as set forth in his Employment Agreement.  Further, nothing contained herein shall be construed to limit or otherwise restrict the Company’s ability to disclose the terms and conditions of this Waiver and Release as may be required by business necessity.

8.In the event that Executive breaches or threatens to breach any provision of this Waiver and Release, he agrees that Cinergy shall be entitled to seek any and all equitable and legal relief provided by law, specifically including immediate and permanent injunctive relief.  Executive hereby waives any claim that Cinergy has an adequate remedy at law.  In addition, and to the extent not prohibited by law, Executive agrees that Cinergy shall be entitled to an award of all costs and attorneys’ fees incurred by Cinergy in any successful effort to enforce the terms of this Waiver and Release.  Executive agrees that the foregoing relief shall not be construed to limit or otherwise restrict Cinergy’s ability to pursue any other remedy provided by law, including the recovery of any actual, compensatory or punitive damages.  Moreover, if Executive pursues any claims against the Company subject to the foregoing Waiver and Release, Executive agrees to immediately reimburse the Company for the value of all benefits received under this Waiver and Release to the fullest extent permitted by law.

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9.Cinergy hereby releases the Executive, his heirs, representatives, agents and assigns from any and all known claims, causes of action, grievances, damages and demands of any kind or nature based on acts or omissions committed by the Executive during and in the course of his employment with Cinergy provided such act or omission was committed in good faith and occurred within the scope of his normal duties and responsibilities.

10.The Parties acknowledge that this Waiver and Release is entered into solely for the purpose of ending their employment relationship on an amicable basis and shall not be construed as an admission of liability or wrongdoing by either Party and that both Cinergy and Executive have expressly denied any such liability or wrongdoing.

11.Each of the promises and obligations shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, assigns and successors in interest of each of the Parties.

12.The Parties agree that each and every paragraph, sentence, clause, term and provision of this Waiver and Release is severable and that, if any portion of this Waiver and Release should be deemed not enforceable for any reason, such portion shall be stricken and the remaining portion or portions thereof should continue to be enforced to the fullest extent permitted by applicable law.

13.This Waiver and Release shall be governed by and interpreted in accordance with the laws of the State of Ohio without regard to any applicable state’s choice of law provisions.

14.Executive represents and acknowledges that in signing this Waiver and Release he does not rely, and has not relied, upon any representation or statement made by Cinergy or by any of Cinergy’s employees, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Waiver and Release other than those specifically contained herein.

15.This Waiver and Release represents the entire agreement between the Parties concerning the subject matter hereof, shall supercede any and all prior agreements which may otherwise exist between them concerning the subject matter hereof (specifically excluding, however, the post-termination obligations contained in any existing Employment Agreement or other legally-binding document), and shall not be altered, amended, modified or otherwise changed except by a writing executed by both Parties.

16.Cinergy Corp. and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy Corp. with respect to all aspects pertaining to the administration and interpretation of this Waiver and Release.

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PLEASE READ CAREFULLY.  WITH RESPECT TO THE EXECUTIVE, THIS

WAIVER AND RELEASE INCLUDES A COMPLETE RELEASE OF ALL KNOWN

AND UNKNOWN CLAIMS.

IN WITNESS WHEREOF, the Parties have themselves signed, or caused a duly authorized agent thereof to sign, this Waiver and Release on their behalf and thereby acknowledge their intent to be bound by its terms and conditions.

EXECUTIVE		CINERGY SERVICES, INC.
Signed:	/s/ James L. Turner	By:	/s/ James E. Rogers
Printed:	James L. Turner	Title:	Chairman and Chief Executive Officer
Dated:		Dated:

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EX-10.G

Exhibit 10.G

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made and entered into as of the 1^st day of January, 2002 (the “Effective Date”), by and between Cinergy and R. Foster Duncan (the “Executive”).  This Agreement replaces and supersedes any and all prior employment agreements between Cinergy and the Executive.  The capitalized words and terms used throughout this Agreement are defined in Section 11.

Recitals

A.            The Executive is currently serving as Executive Vice President and Chief Financial Officer of the Company, and Cinergy desires to secure the continued employment of the Executive in accordance with this Agreement.

B.            The Executive is willing to continue to remain in the employ of Cinergy on the terms and conditions set forth in this Agreement.

C.            The parties intend that this Agreement will replace and supersede any and all prior employment agreements between Cinergy (or any component company or business unit of Cinergy) and the Executive.

Agreement

In consideration of the mutual promises, covenants and agreements set forth below, the parties agree as follows:

1.Employment and Term.

a.Cinergy agrees to employ the Executive, and the Executive agrees to remain in the employ of Cinergy, in accordance with the terms and provisions of this Agreement, for the Employment Period set forth in Section 1b.  The parties agree that the Company will be responsible for carrying out all of the promises, covenants, and agreements of Cinergy set forth in this Agreement.

b.The Employment Period of this Agreement will commence as of the Effective Date and continue until December 31, 2004; provided that, commencing on December 31, 2002, and on each subsequent December 31, the Employment Period will be extended for one (1) additional year unless either party gives the other party written notice not to extend this Agreement at least ninety (90) days before the extension would otherwise become effective.

2.Duties and Powers of Executive.

a.Position.  The Executive will serve Cinergy as Executive Vice President and Chief Financial Officer of the Company and he will have such responsibilities, duties, and authority as are customary for someone of that position and such

additional duties, consistent with his position, as may be assigned to him from time to time during the Employment Period by the Board of Directors or the Chief Executive Officer.  Executive shall devote substantially all of Executive’s business time, efforts and attention to the performance of Executive’s duties under this Agreement; provided, however, that this requirement shall not preclude Executive from reasonable participation in civic, charitable or professional activities or the management of Executive’s passive investments, so long as such activities do not materially interfere with the performance of Executive’s duties under this Agreement.

b.Place of Performance.  In connection with the Executive’s employment, the Executive will be based at the principal executive offices of Cinergy, 221 East Fourth Street, Cincinnati, Ohio.  Except for required business travel to an extent substantially consistent with the present business travel obligations of Cinergy executives who have positions of authority comparable to that of the Executive, the Executive will not be required to relocate to a new principal place of business that is more than thirty (30) miles from such location.

3.Compensation.  The Executive will receive the following compensation for his services under this Agreement.

a.Salary.  The Executive’s Annual Base Salary, payable in pro rata installments not less often than semi-monthly, will be at the annual rate of not less than $522,504.  Any increase in the Annual Base Salary will not serve to limit or reduce any other obligation of Cinergy under this Agreement.  The Annual Base Salary will not be reduced except for across-the-board salary reductions similarly affecting all Cinergy management personnel.  If Annual Base Salary is increased or reduced during the Employment Period, then such adjusted salary will thereafter be the Annual Base Salary for all purposes under this Agreement.

b.Retirement, Incentive, Welfare Benefit Plans and Other Benefits.

(i)During the Employment Period, the Executive will be eligible, and Cinergy will take all necessary action to cause the Executive to become eligible, to participate in short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to other senior executives of Cinergy who are considered Tier II executives for compensation purposes, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing.  The Executive will be a participant in the Senior Executive Supplement portion of the Cinergy Corp. Supplemental Executive Retirement Plan and will be fully and immediately vested in any benefit that he accrues under that plan.

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(ii)Supplemental Retirement Benefit.

(1)Amount, Form, Timing and Method of Payment.  If the Executive retires from Cinergy after reaching age 55, the Executive will be entitled and fully vested in a supplemental retirement benefit in an amount which, when expressed as an annual amount payable during the life of the Executive, shall equal the excess of (1) 60% of the Executive’s Highest Average Earnings over (2) his total aggregate annual benefit, payable in the form of a single life annuity to the Executive, under all Executive Retirement Plans.  Except as described below, the form (e.g., the 100% joint and survivor annuity form of benefit), timing, and method of payment of the supplemental retirement benefit payable under this Paragraph will be the same as those elected by the Executive under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(2)Death Benefit.  If the Executive dies after reaching age 55 but prior to his retirement from Cinergy, and if his Spouse, on the date of his death, is living on the date the first installment of the supplemental retirement benefit would be payable under this Paragraph, the Spouse will be entitled to receive the supplemental retirement benefit as a Spouse’s benefit.  The form, timing, and method of payment of any Spouse’s benefit under this Paragraph will be the same as those applicable to the Spouse under the Pension Plan, and the amount of such benefit shall be calculated after taking into account the actuarial factors contained in the Pension Plan, provided, however, that such benefit shall not be actuarially reduced for early commencement.

(3)Special Payment Election Effective Upon a Change in Control.  Notwithstanding the foregoing, the Executive may make a special payment election with respect to his supplemental retirement benefit (if any) in accordance with the following provisions:

(A)The Executive may elect, on a form provided by Cinergy, to receive a single lump sum cash payment in an amount equal to the Actuarial Equivalent (as defined below) of his supplemental retirement benefit (or the Actuarial Equivalent of the remaining payments to be made in connection with his supplemental retirement benefit in the event that payment of his supplemental retirement benefit has already commenced) payable no later than 30 days after the later of the occurrence of a Change in Control or the date of his termination of employment.

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(B)Such special payment election shall become operative only upon the occurrence of a Change in Control and only if the Executive’s termination of employment occurs either (1) prior to the occurrence of a Change in Control or (2) during the 24-month period commencing upon the occurrence of a Change in Control.  Once operative, such special payment election shall override any other payment election made by the Executive with respect to his supplemental retirement benefit.

(C)In order to be effective, a special payment election (or withdrawal of that election) must be made either prior to the occurrence of a Potential Change in Control or, with the consent of Cinergy, during the 30-day period commencing upon the occurrence of a Potential Change in Control.  In the event that a Potential Change in Control occurs and subsequently ceases to exist, other than as a result of a Change in Control, such Potential Change in Control shall be disregarded for purposes of this Section.

(D)In the event that the Executive makes a special payment election and pursuant to that election he becomes entitled to receive a single lump sum cash payment pursuant to this Section payable prior to the commencement of his supplemental retirement benefit in another form of payment, the Actuarial Equivalent of his supplemental retirement benefit shall be calculated based on the following assumptions:

(I)The form of payment for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be a single life annuity;

(II)The commencement date for each of the Executive’s retirement benefits under the Executive Retirement Plans and the Executive’s supplemental retirement benefit shall be the first day of the calendar month coincident with or next following his termination of employment;

(III)The term “Actuarial Equivalent” has the meaning given to that term in the Pension Plan with respect to lump sum payments; and

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(IV)The amount of the Executive’s supplemental retirement benefit shall not be actuarially reduced for early commencement.

(E)In the event that the Executive makes a special payment election and pursuant to that election he is entitled to receive a single lump sum cash payment payable after the commencement of his supplemental retirement benefit in another form of payment, his lump sum cash payment shall be equal to the Actuarial Equivalent (as that term is used in the Pension Plan with respect to lump sum payments) of the remaining payments to be made in connection with his supplemental retirement benefit.

(iii)Upon his retirement on or after having attained age 50, the Executive will be eligible for comprehensive medical and dental benefits which are not materially different from the benefits provided to retirees under the Cinergy Corp. Welfare Benefits Program or any similar program or successor to that program.  For purposes of determining the amount of the monthly premiums due from the Executive, the Executive will receive from Cinergy the maximum subsidy available as of the date of his retirement to an active Cinergy employee with the same medical benefits classification/eligibility as the Executive’s medical benefits classification/eligibility on the date of his retirement.

(iv)The Executive will be a participant in the Annual Incentive Plan and will be paid pursuant to the terms and conditions of that plan, subject to the following: (1) The maximum annual bonus shall be not less than one hundred five percent (105%) of the Executive’s Annual Base Salary (the “Maximum Annual Bonus”); (2) The target annual bonus shall be not less than sixty percent (60%) of the Executive’s Annual Base Salary (the “Target Annual Bonus”); and (3) The guaranteed minimum bonus for the years 2001 and 2002 shall be not less than $190,000 per year.

(v)The Executive will be a participant in the Long-Term Incentive Plan (the “LTIP”), and the Executive’s annualized target award opportunity under the LTIP will be equal to no less than ninety percent (90%) of his Annual Base Salary (the “Target LTIP Bonus”).

(vi)For purposes of Sections 3b(iv) and 3b(v), the Executive’s Annual Base Salary for any calendar year shall be increased by the amount of any Nonelective Employer Contributions made on behalf of the Executive during such calendar year under the 401(k) Excess Plan.

c.Fringe Benefits and Perquisites.  During the Employment Period, the Executive will be entitled to the following additional fringe benefits in accordance with the terms and conditions of Cinergy’s policies and practices for such fringe benefits:

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(i)Cinergy will furnish to the Executive an automobile appropriate for the Executive’s level of position, or, at Cinergy’s discretion, a cash allowance of equivalent value.  Cinergy will also pay all of the related expenses for gasoline, insurance, maintenance, and repairs, or provide for such expenses within the cash allowance.  All benefits provided pursuant to this Section 3c(i) shall be provided in accordance with generally applicable procedures established from time to time by Cinergy in its sole discretion.

(ii)Cinergy will pay the initiation fee and the annual dues, assessments, and other membership charges of the Executive for membership in a country club and a luncheon club selected by the Executive.

(iii)Cinergy will provide paid vacation for four (4) weeks per year (or such longer period for which Executive is otherwise eligible under Cinergy’s policy).

(iv)Cinergy will furnish to the Executive an annual physical exam.

(v)Cinergy will furnish to the Executive annual financial planning and tax preparation services, provided, however, that the cost to Cinergy of such services shall not exceed $15,000 during any thirty-six (36) consecutive month period.  The Executive shall also be entitled to such additional reimbursements for related expenses as are approved by the Chief Executive Officer.  Notwithstanding the preceding sentence, in the event any payment to the Executive pursuant to this Section 3c(v) is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 3c(v).

(vi)Cinergy will provide other fringe benefits in accordance with Cinergy plans, practices, programs, and policies in effect from time to time, commensurate with his position and at least comparable to those received by other Cinergy Tier II executives.

(vii)Cinergy will pay to relocate the Executive and his immediate family to the Cincinnati, Ohio area under the terms of the Relocation Program.

d.Expenses.  Cinergy agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board of Directors.

e.Relocation Benefits.  Following termination of the Executive’s employment for any reason (other than death), the Executive will be entitled to reimbursement

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from Cinergy for the reasonable costs of relocating from the Cincinnati, Ohio, area to a new primary residence in a manner that is consistent with the terms of the Relocation Program.  Notwithstanding the foregoing, if the Executive becomes employed by another employer and is eligible to receive relocation benefits under another employer-provided plan, any benefits provided to the Executive under this Section 3e will be secondary to those provided under the other employer-provided relocation plan.  The Executive must report to Cinergy any such relocation benefits that he actually receives under another employer-provided plan.

f.Personal Residence.  Upon the Executive’s termination of employment for any reason, Cinergy will pay to the Executive the excess, if any, of (i) the purchase price of the house (the “House”) in which the Executive resides in the Cincinnati area, if any, at the time of his Date of Termination, plus the cost of any significant improvements made by the Executive to such House, over (ii) the sales proceeds received by the Executive upon the sale of the House (net of any closing costs and realtor commissions paid by the Executive).  Notwithstanding the foregoing, the Executive shall only be entitled to the payment described in the preceding sentence if his purchase and sale of the House are each made in a commercially reasonable transaction with an unrelated party.  Such payment, if any, shall be made to the Executive within 30 days after his sale of the House.  Notwithstanding the foregoing, any amounts to which the Executive is entitled under this Section 3f shall be reduced by any amounts which the Executive receives pursuant to the Relocation Program or any other similar reimbursement which the Executive receives from another employer.  The Executive must report to Cinergy any such relocation benefits that he actually receives from another employer.  In the event any  payment to the Executive pursuant to this Section 3f is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 3f.

g.Stock Options and Stock Appreciation Rights.  Notwithstanding Section 5d, upon the occurrence of a Change in Control, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock Related Documents, become immediately exercisable.  If the Executive terminates employment for any reason during the twenty-four (24) month period commencing upon the occurrence of a Change in Control, notwithstanding Section 5d, any stock options or stock appreciation rights then held by the Executive pursuant to the LTIP or Cinergy Corp. Stock Option Plan shall, to the extent not otherwise provided in the applicable Stock Related Documents, remain exercisable in accordance with their terms but in no event for a period less than the lesser of (i) three months following such termination of employment or (ii) the

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remaining term of such stock option or stock appreciation right (which remaining term shall be determined without regard to such termination of employment).

4.Termination of Employment.

a.Death.  The Executive’s employment will terminate automatically upon the Executive’s death during the Employment Period.

b.By Cinergy for Cause.  Cinergy may terminate the Executive’s employment during the Employment Period for Cause.  For purposes of this Employment Agreement, “Cause” means the following:

(i)The willful and continued failure by the Executive to substantially perform the Executive’s duties with Cinergy (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) that, if curable, has not been cured within 30 days after the Board of Directors or the Chief Executive Officer has delivered to the Executive a written demand for substantial performance, which demand specifically identifies the manner in which the Executive has not substantially performed his duties.  This event will constitute Cause even if the Executive issues a Notice of Termination for Good Reason pursuant to Section 4d after the Board of Directors or Chief Executive Officer delivers a written demand for substantial performance.

(ii)The breach by the Executive of the confidentiality provisions set forth in Section 9.

(iii)The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on Cinergy.  For purposes of this definition of Cause, no act, or failure to act, on the Executive’s part will be deemed “willful” unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of Cinergy.

(iv)Notwithstanding the foregoing, Cinergy shall be deemed to have not terminated the employment of the Executive 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 a majority of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard by the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in this Section 4b and specifying the particulars thereof in detail.

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c.By Cinergy Without Cause.  Cinergy may, upon at least 30 days advance written notice to the Executive, terminate the Executive’s employment during the Employment Period for a reason other than Cause, but the obligations placed upon Cinergy in Section 5 will apply.

d.By the Executive for Good Reason.  The Executive may terminate his employment during the Employment Period for Good Reason.  For purposes of this Agreement, “Good Reason” means the following:

(i)(1) A reduction in the Executive’s Annual Base Salary, except for across-the-board salary reductions similarly affecting all Cinergy management personnel, (2) a reduction in the amount of the Executive’s Maximum Annual Bonus under the Annual Incentive Plan, except for across-the-board Maximum Annual Bonus reductions similarly affecting all Cinergy management personnel, or (3) a reduction in any other benefit or payment described in Section 3 of this Agreement, except for changes to the employee benefits programs generally affecting Cinergy management personnel, provided that those changes, in the aggregate, will not result in a material adverse change with respect to the benefits to which the Executive was entitled as of the Effective Date.

(ii)(1) The material reduction without his consent of the Executive’s title, authority, duties, or responsibilities from those in effect immediately prior to the reduction, (2) in the event the Executive is or becomes a member of the Board during the Employment Period, the failure by Cinergy without the consent of the Executive to nominate the Executive for re-election to the Board, or (3) a material adverse change in the Executive’s reporting responsibilities.

(iii)Any breach by Cinergy of any other material provision of this Agreement (including but not limited to the place of performance as specified in Section 2b).

(iv)The Executive’s disability due to physical or mental illness or injury that precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience.

(v)A failure by the Company to require any successor entity to the Company specifically to assume in writing all of the Company’s obligations to the Executive under this Agreement.

For purposes of determining whether Good Reason exists with respect to a Qualifying Termination occurring on or within 24 months following a Change in Control, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.

e.By the Executive Without Good Reason.  The Executive may terminate his employment without Good Reason upon prior written notice to the Company.

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f.Notice of Termination.  Any termination of the Executive’s employment by Cinergy or by the Executive during the Employment Period (other than a termination due to the Executive’s death) will be communicated by a written Notice of Termination to the other party to this Agreement in accordance with Section 12b.  For purposes of this Agreement, a “Notice of Termination” means a written notice that specifies the particular provision of this Agreement relied upon and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for terminating the Executive’s employment under the specified provision.  The failure by the Executive or Cinergy to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause will not waive any right of the Executive or Cinergy under this Agreement or preclude the Executive or Cinergy from asserting that fact or circumstance in enforcing rights under this Agreement.

g.The Executive acknowledges and agrees that he shall not sell or otherwise dispose of any shares of Company stock acquired pursuant to the exercise of a stock option, other than shares sold in order to pay an option exercise price or the related tax withholding obligation, until 90 days after the Date of Termination.  Notwithstanding the foregoing, Cinergy, in its sole discretion, may waive the restrictions contained in the previous sentence.

5.Obligations of Cinergy Upon Termination.

a.Certain Terminations.

(i)If a Qualifying Termination occurs during the Employment Period, Cinergy will pay to the Executive a lump sum amount, in cash, equal to the sum of the following Accrued Obligations:

(1)the pro-rated portion of the Executive’s Annual Base Salary payable through the Date of Termination, to the extent not previously paid.

(2)any amount payable to the Executive under the Annual Incentive Plan in respect of the most recently completed fiscal year, to the extent not theretofore paid.

(3)an amount equal to the AIP Benefit for the fiscal year that includes the Date of Termination multiplied by a fraction, the numerator of which is the number of days from the beginning of that fiscal year to and including the Date of Termination and the denominator of which is three hundred and sixty-five (365).  The AIP Benefit component of the calculation will be equal to the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, determined by projecting Cinergy’s performance and other applicable goals and

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objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable.

(4)the Accrued Obligations described in this Section 5a(i) will be paid within thirty (30) days after the Date of Termination.  These Accrued Obligations are payable to the Executive regardless of whether a Change in Control has occurred.

(ii)In the event of a Qualifying Termination either prior to the occurrence of a Change in Control, or more than twenty-four (24) months following the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations, and Cinergy will have the following additional obligations described in this Section 5a(ii); provided, however, that each of the benefits described below in this Section 5a(ii) shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum amount, in cash, equal to three (3) times the sum of the Annual Base Salary and the Annual Bonus.  For this purpose, the Annual Base Salary will be at the rate in effect at the time Notice of Termination is given (without giving effect to any reduction in Annual Base Salary, if any, prior to the termination, other than across-the-board reductions), and shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which the Executive’s Qualifying Termination occurs, and the Annual Bonus will be the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the fiscal year in which occurs the Date of Termination, calculated by projecting Cinergy’s performance and other applicable goals and objectives for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable; provided, however that for purposes of this Section 5a(ii)(1)(B), the Annual Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus for the year in which the Date of Termination occurs.  This lump sum will be paid within thirty (30)

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days after the expiration of the revocation period contained in the Waiver and Release.

(2)Subject to Clauses (A), (B) and (C) below, Cinergy will provide, until the end of the Employment Period, medical and dental benefits to the Executive and/or the Executive’s dependents at least equal to those that would have been provided if the Executive’s employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing).  The benefits described in the preceding sentence will be in accordance with the medical and welfare benefit plans, practices, programs, or policies of Cinergy (the “M&W Plans”) as then currently in effect and applicable generally to other Cinergy senior executives and their families.  In the event that any medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the medical or dental benefits or payments provided pursuant to this Section 5a(ii)(2)(B).

(A)If, as of the Executive’s Date of Termination, the Executive meets the eligibility requirements for Cinergy’s retiree medical and welfare benefit plans, the provision of those retiree medical and welfare benefit plans to the Executive will satisfy Cinergy’s obligation under this Section 5a(ii)(2).

(B)If, as of the Executive’s Date of Termination, the provision to the Executive of the M&W Plan benefits described in this Section 5a(ii)(2) would either (1) violate the terms of the M&W Plans (or any related insurance policies) or (2) violate any of the Code’s nondiscrimination requirements applicable to the M&W Plans, then Cinergy, in its sole discretion, may elect to pay the Executive, in lieu of the M&W Plan benefits described under this Section 5a(ii)(2), a lump sum cash payment equal to the total monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy for the Executive under the M&W Plans from the Date of Termination through the end of the Employment Period.  Nothing in this Clause will affect the Executive’s right to elect COBRA continuation coverage

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under a M&W Plan in accordance with applicable law, and Cinergy will make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.

(C)If the Executive becomes employed by another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, any benefits provided to the Executive under the M&W Plans will be secondary to those provided under the other employer-provided plan during the Executive’s applicable period of eligibility.

(3)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive.  In the event any  payment to the Executive pursuant to this Section 5a(ii)(3) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(ii)(3).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(iii)In the event of a Qualifying Termination during the twenty-four (24) month period beginning upon the occurrence of a Change in Control, Cinergy will pay the Accrued Obligations listed in Sections 5a(i)(1) and (2), Cinergy will pay the Accrued Obligations listed in Section 5a(i)(3) (but only if such Qualifying Termination occurs after the calendar year in which occurs such Change in Control) and Cinergy will have the following additional obligations described in this Section 5a(iii); provided, however, that each of the benefits described below in this Section 5a(iii) shall only be provided to the Executive if, upon presentation to the Executive following a Qualifying Termination, the Executive timely executes and does not timely revoke the Waiver and Release.

(1)Cinergy will pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the higher of (x) the sum of the Executive’s current Annual Base Salary and Target Annual Bonus and (y) the sum of the Executive’s Annual Base Salary in effect immediately prior to the Change in Control and the Change in

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Control Bonus.  For purposes of the preceding sentence, the Executive’s Annual Base Salary on any given date shall include the amount of any Nonelective Employer Contributions made on behalf of the Executive under the 401(k) Excess Plan during the fiscal year in which such date occurs.  For purposes of this Agreement, the Change in Control Bonus shall mean the higher of (A) the annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the Change in Control, and (B) the annual bonus that would have been earned by the Executive pursuant to any annual bonus or incentive plan maintained by Cinergy in respect of the year in which occurs the Date of Termination, calculated by projecting Cinergy’s performance and other applicable goals and objective for the entire fiscal year based on Cinergy’s performance during the period of such fiscal year occurring prior to the Date of Termination, and based on such other assumptions and rates as Cinergy deems reasonable, provided, however, that  for purposes of this Section 5a(iii)(1)(B), such Change in Control Bonus shall not be less than the Target Annual Bonus, nor greater than the Maximum Annual Bonus.  This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.  Nothing in this Section 5a(iii)(1) shall preclude the Executive from receiving the amount, if any, to which he is entitled in accordance with the terms of the Annual Incentive Plan for the fiscal year that includes the Date of Termination.

(2)Cinergy will pay to the Executive the lump sum present value of any benefits under the Executive Supplemental Life Program under the terms of the applicable plan or program as of the Date of Termination, calculated as if the Executive was fully vested as of the Date of Termination. The lump sum present value, assuming commencement at age 50 or the Executive’s age as of the Date of Termination if later, will be determined using the interest rate applicable to lump sum payments in the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan for the plan year that includes the Date of Termination. To the extent no such interest rate is provided therein, the annual interest rate applicable under Section 417(e)(3) of the Code, or any successor provision thereto, for the second full calendar month preceding the first day of the calendar year that includes the Date of Termination will be used. This lump sum will be paid within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

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(3)The Executive shall be fully vested in his accrued benefits as of the Date of Termination under the Executive Retirement Plans, and his aggregate accrued benefits thereunder and under Section 3b(ii) of this Agreement will be calculated, and he will be treated for all purposes, as if he was credited with three (3) additional years of age and service as of the Date of Termination, provided, however, that to the extent a calculation is made regarding the actuarial equivalent amount of any alternate form of benefit, the Executive will not be credited with three additional years of age for purposes of such calculation.  However, Cinergy will not commence payment of such benefits prior to the date that the Executive has attained, or is treated (after taking into account the preceding sentence) as if he had attained, age 50.

(4)For a thirty-six (36) month period after the Date of Termination, Cinergy will arrange to provide to the Executive and/or the Executive’s dependents life, disability, accident, and health insurance benefits substantially similar to those that the Executive and/or the Executive’s dependents are receiving immediately prior to the Notice of Termination at a substantially similar cost to the Executive (without giving effect to any reduction in those benefits subsequent to a Change in Control that constitutes Good Reason), except for any benefits that were waived by the Executive in writing.  If Cinergy arranges to provide the Executive and/or the Executive’s dependents with life, disability, accident, and health insurance benefits, those benefits will be reduced to the extent comparable benefits are actually received by or made available to the Executive and/or the Executive’s dependents during the thirty-six (36) month period following the Executive’s Date of Termination.  The Executive must report to Cinergy any such benefits that he or his dependents actually receives or that are made available to him or his dependents.  In lieu of the benefits described in the preceding sentences, Cinergy, in its sole discretion, may elect to pay to the Executive a lump sum cash payment equal to thirty-six (36) times the monthly premiums (or in the case of a self funded plan, the cost of COBRA continuation coverage) that would have been paid by Cinergy to provide those benefits to the Executive and/or the Executive’s dependents.  Nothing in this Section 5a(iii)(4) will affect the Executive’s right to elect COBRA continuation coverage in accordance with applicable law, and Cinergy will provide the benefits or make the payment described in this Clause whether or not the Executive elects COBRA continuation coverage, and whether or not the Executive receives health coverage from another employer.  In the event that any benefits or payments provided pursuant to this Section 5a(iii)(4) are subject to federal, state, or local income or employment taxes, Cinergy shall provide the Executive with an

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additional payment in the amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment or benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefits or payments provided pursuant to this Section 5a(iii)(4).

(5)In lieu of any and all other rights with respect to the automobile assigned by Cinergy to the Executive, Cinergy will provide the Executive with a lump sum payment in the amount of $50,000. In the event any  payment to the Executive pursuant to this Section 5a(iii)(5) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(5).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(6)Cinergy will pay the Executive a lump sum amount, in cash, equal to $15,000 in order to cover tax counseling services through an agency selected by the Executive. In the event any  payment to the Executive pursuant to this Section 5a(iii)(6) is subject to any  federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which his Date of Termination occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 5a(iii)(6).  Such payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

(7)Cinergy will provide annual dues and assessments of the Executive for membership in a country club selected by the Executive until the end of the Employment Period.

(8)Cinergy will provide outplacement services suitable to the Executive’s position until the end of the Employment Period or, if

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earlier, until the first acceptance by the Executive of an offer of employment.  At the Executive’s discretion, 15% of Annual Base Salary may be paid in lieu of outplacement services, which payment will be transferred to the Executive within thirty (30) days of the expiration of the revocation period contained in the Waiver and Release.

For purposes of this Section 5a(iii), the Executive will be deemed to have incurred a Qualifying Termination upon a Change in Control if the Executive’s employment is terminated prior to a Change in Control, without Cause at the direction of a Person who has entered into an agreement with Cinergy, the consummation of which will constitute a Change in Control, or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event that constitutes Good Reason occurs at the direction of such a Person.

b.Termination by Cinergy for Cause or by the Executive Other Than for Good Reason.  Subject to the provisions of Section 7, and notwithstanding any other provisions of this Agreement, if the Executive’s employment is terminated for Cause during the Employment Period, or if the Executive terminates employment during the Employment Period other than a termination for Good Reason, Cinergy will have no further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligations, plus any other earned but unpaid compensation, in each case to the extent not previously paid.

c.Certain Tax Consequences.

(i)In the event that any benefits paid or payable to the Executive or for his benefit pursuant to the terms of this Agreement or any other plan or arrangement in connection with, or arising out of, his employment with Cinergy or a change in ownership or effective control of Cinergy or of a substantial portion of its assets (a “Payment” or “Payments”) would be subject to any Excise Tax, then the Executive will 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, penalties, additional tax, or similar items imposed with respect thereto and the Excise Tax), including any 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 or assessable against the Executive due to the Payments.

(ii)Subject to the provisions of Section 5c, all determinations required to be made under this Section 5c, 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 the Accounting Firm, which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company.  If

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the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return.  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 5c, shall be paid by Cinergy to the Executive within five (5) days of the receipt of the Accounting Firm’s determination.  Any determination by the Accounting Firm shall be binding upon Cinergy 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 Cinergy should have been made (“Underpayment”), consistent with the calculations required to be made hereunder.  In the event of any Underpayment, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by Cinergy to or for the benefit of the Executive, and Cinergy shall indemnify and hold harmless the Executive for any such Underpayment, on an after-tax basis, including interest and penalties with respect thereto.  In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Code Section 1274(b)(2)(B).

(iii)The value of any non-cash benefits or any deferred payment or benefit paid or payable to the Executive will be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).  For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and applicable state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes that would be obtained from deduction of those state and local taxes.

(iv)Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Accounting Firm’s determination, an Excise Tax will be imposed on any Payment or Payments, Cinergy will

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pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Cinergy has actually withheld from the Payment or Payments in accordance with law.

d.Value Creation Plan and Stock Options.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlement to restricted shares and performance shares under the Value Creation Plan and any stock options granted under the Cinergy Corp. Stock Option Plan, the LTIP or any other stock option plan will be determined under the terms of the appropriate plan and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of any such plan, administrative guideline or written agreement shall not be amended in a manner that would adversely affect the Executive with respect to awards granted to the Executive prior to the Change in Control.

e.Benefit Plans in General.  Upon the Executive’s termination of employment for any reason, the Executive’s entitlements, if any, under all benefit plans of Cinergy, including but not limited to the Deferred Compensation Plan, 401(k) Excess Plan, Cinergy Corp. Supplemental Executive Retirement Plan and any vacation policy, shall be determined under the terms of such plans, policies and any applicable administrative guidelines and written agreements, provided, however, that following the occurrence of a Change in Control the terms of such plans and policies and any applicable administrative guidelines and written agreements shall not be amended in a manner that would adversely affect the Executive with respect to benefits earned by the Executive prior to the Change in Control.

f.Other Fees and Expenses.  Cinergy will also reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive (i) in successfully disputing a Qualifying Termination that entitles the Executive to Severance Benefits or (ii) in reasonably disputing whether or not Cinergy has terminated his employment for Cause.  Payment will be made within five (5) business days after delivery of the Executive’s written request for payment accompanied by such evidence of fees and expenses incurred as Cinergy reasonably may require.

6.Non-Exclusivity of Rights.  Nothing in this Agreement will prevent or limit the Executive’s continuing or future participation in any benefit, plan, program, policy, or practice provided by Cinergy and for which the Executive may qualify, except with respect to any benefit to which the Executive has waived his rights in writing or any plan, program, policy, or practice that expressly excludes the Executive from participation.  In addition, nothing in this Agreement will limit or otherwise affect the rights the Executive may have under any other contract or agreement with Cinergy entered into after the Effective Date.  Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any benefit, plan, program, policy, or practice of, or any contract or agreement entered into after the Effective Date with Cinergy, at or subsequent to the Date of Termination, will be payable in accordance with that benefit, plan, program, policy or practice, or that contract or agreement, except as explicitly modified by this

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Agreement.  Notwithstanding the above, in the event that the Executive receives Severance Benefits under Section 5a(ii) or 5a(iii), (a) the Executive shall not be entitled to any benefits under any severance plan of Cinergy, including but not limited to the Severance Opportunity Plan for Non-Union Employees of Cinergy Corp. and (b) if the Executive receives such Severance Benefits as a result of his termination for Good Reason, as that term is defined in Section 4d(iv), Cinergy’s obligations under Sections 5a(ii) and 5a(iii) shall be reduced by the amount of any benefits payable to the Executive under any short-term or long-term disability plan of Cinergy, the amount of which shall be determined by Cinergy in good faith.

7.Full Settlement:  Mitigation.  Except as otherwise provided herein, Cinergy’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right, or action that Cinergy may have against the Executive or others.  In no event will the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 3e, 5a(ii)(2) and 5a(iii)(4), those amounts will not be reduced simply because the Executive obtains other employment.  If the Executive finally prevails on the substantial claims brought with respect to any dispute between Cinergy and the Executive as to the interpretation, terms, validity, or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, Cinergy agrees to pay all reasonable legal fees and expenses that the Executive may reasonably incur as a result of that dispute.

8.Arbitration.  The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to the Executive’s employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such a dispute is arbitrable, shall be settled by arbitration.  This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims.  The Executive will still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim will be submitted to arbitration instead of a court or jury.  The arbitration proceeding will be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made, and such proceeding will be adjudicated in the state of Ohio in accordance with the laws of the state of Ohio.  The decision of the arbitrator(s), including determination of the amount of any damages suffered, will be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns.  Each party will bear its own expenses in the arbitration for arbitrators’ fees and attorneys’ fees, for its witnesses, and for other expenses of presenting its case.  Other arbitration costs, including administrative fees and fees for records or transcripts, will be borne equally by the parties.  Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, Cinergy will reimburse or pay all legal fees and expenses

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that the Executive may reasonably incur as a result of the dispute as required by Section 7.

9.Confidential Information.  The Executive will hold in a fiduciary capacity for the benefit of Cinergy, as well as all of Cinergy’s successors and assigns, all secret, confidential information, knowledge, or data relating to Cinergy, and its affiliated businesses, that the Executive obtains during the Executive’s employment by Cinergy or any of its affiliated companies, and that has not been or subsequently becomes public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement).  During the Employment Period and thereafter, the Executive will not, without Cinergy’s prior written consent or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge, or data to anyone other than Cinergy and those designated by it.  The Executive understands that during the Employment Period, Cinergy may be required from time to time to make public disclosure of the terms or existence of the Executive’s employment relationship to comply with various laws and legal requirements.  In addition to all other remedies available to Cinergy in law and equity, this Agreement is subject to termination by Cinergy for Cause under Section 4b in the event the Executive violates any provision of this Section.

10.Successors.

a.This Agreement is personal to the Executive and, without Cinergy’s prior written consent, cannot be assigned by the Executive other than Executive’s designation of a beneficiary of any amounts payable hereunder after the Executive’s death.  This Agreement will inure to the benefit of and be enforceable by the Executive’s legal representatives.

b.This Agreement will inure to the benefit of and be binding upon Cinergy and its successors and assigns.

c.Cinergy 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 Cinergy to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Cinergy would be required to perform it if no succession had taken place.  Cinergy’s failure to obtain such an assumption and agreement prior to the effective date of a succession will be a breach of this Agreement and will entitle the Executive to compensation from Cinergy in the same amount and on the same terms as if the Executive were to terminate his employment for Good Reason upon a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective will be deemed the Date of Termination.

11.Definitions.  As used in this Agreement, the following terms, when capitalized, will have the following meanings:

a.Accounting Firm.  “Accounting Firm” means Cinergy’s independent auditors.

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b.Accrued Obligations.  “Accrued Obligations” means the accrued obligations described in Section 5a(i).

c.Agreement.  “Agreement” means this Employment Agreement between Cinergy and the Executive.

d.AIP Benefit.  “AIP Benefit” means the Annual Incentive Plan benefit described in Section 5a(i).

e.Annual Base Salary.  “Annual Base Salary” means, except where otherwise specified herein, the annual base salary payable to the Executive pursuant to Section 3a.

f.Annual Bonus.  “Annual Bonus” has the meaning set forth in Section 5a(ii)(1).

g.Annual Incentive Plan.  “Annual Incentive Plan” means the Cinergy Corp. Annual Incentive Plan or any similar plan or successor to the Annual Incentive Plan.

h.Board of Directors or Board.  “Board of Directors” or “Board” means the board of directors of the Company.

i.COBRA.  “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

j.Cause.  “Cause” has the meaning set forth in Section 4b.

k.Change in Control.  A “Change in Control” will be deemed to have occurred if any of the following events occur, after the Effective Date:

(i)Any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (“1934 Act”)), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing more than twenty percent (20%) of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a beneficial owner in connection with a transaction described in Clause (1) of Paragraph (ii) below; or

(ii)There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, partnership or other entity, other than (1) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to that merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the combined voting power of the securities of the Company or the surviving entity or its parent outstanding immediately after the merger or

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consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such a Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities; or

(iii)During any period of two (2) consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election, or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or

(iv)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to the sale.

l.Change in Control Bonus.  “Change in Control Bonus” has the meaning set forth in Section 5a(iii)(1).

m.Chief Executive Officer.  “Chief Executive Officer” means the individual who, at any relevant time, is then serving as the chief executive officer of the Company.

n.Cinergy.  “Cinergy” means the Company, its subsidiaries, and/or its affiliates, and any successors to the foregoing.

o.Code.  “Code” means the Internal Revenue Code of 1986, as amended, and interpretive rules and regulations.

p.Company.  “Company” means Cinergy Corp.

q.Date of Termination.  “Date of Termination” means:

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(i)if the Executive’s employment is terminated by Cinergy for Cause, or by the Executive with Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice, as the case may be;

(ii)if the Executive’s employment is terminated by the Executive without Good Reason, thirty (30) days after the date on which the Executive notifies Cinergy of the termination;

(iii)if the Executive’s employment is terminated by Cinergy other than for Cause, thirty (30) days after the date on which Cinergy notifies the Executive of the termination; and

(iv)if the Executive’s employment is terminated by reason of death, the date of death.

r.Deferred Compensation Plan.  “Deferred Compensation Plan” means the Cinergy Corp. Non-Qualified Deferred Incentive Compensation Plan or any similar plan or successor to that plan.

s.Effective Date.  “Effective Date” has the meaning given to that term in the first paragraph of this Agreement.

t.Employment Period.  “Employment Period” has the meaning set forth in Section 1b.

u.Excise Tax.  “Excise Tax” means any excise tax imposed by Code section 4999, together with any interest, penalties, additional tax or similar items that are incurred by the Executive with respect to the excise tax imposed by Code section 4999.

v.Executive.  “Executive” has the meaning given to that term in the first paragraph of this Agreement.

w.Executive Retirement Plans.  “Executive Retirement Plans” means the Pension Plan, the Cinergy Corp. Supplemental Executive Retirement Plan and the Cinergy Corp. Excess Pension Plan or any similar plans or successors to those plans.

x.Executive Supplemental Life Program.  “Executive Supplemental Life Program” means the Cinergy Corp. Executive Supplemental Life Insurance Program or any similar program or successor to the Executive Supplemental Life Program.

y.401(k) Excess Plan.  “401(k) Excess Plan” means the Cinergy Corp. 401(k) Excess Plan, or any similar plan or successor to that plan.

z.Good Reason.  “Good Reason” has the meaning set forth in Section 4d.

aa.Gross-Up Payment.  “Gross-Up Payment” has the meaning set forth in Section 5c.

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bb.Highest Average Earnings.  “Highest Average Earnings” shall have the meaning given to such term in the Cinergy Corp. Supplemental Executive Retirement Plan.  For purposes of clarity, the parties hereto acknowledge and agree that the Executive’s Highest Average Earnings for any year shall not include any benefits received by the Executive pursuant to Section 5 of this Agreement, other than pursuant to Section 5a(i) of this Agreement.

cc.House.  “House” has the meaning set forth in Section 3f.

dd.Long-Term Incentive Plan or LTIP.  “Long-Term Incentive Plan” or “LTIP” means the long-term incentive plan implemented under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan or any successor to that plan.

ee.M&W Plans.  “M&W Plans” has the meaning set forth in Section 5a(ii)(2).

ff.Maximum Annual Bonus.  “Maximum Annual Bonus” has the meaning set forth in Section 3b.

gg.Nonelective Employer Contribution. “Nonelective Employer Contribution” has the meaning set forth in the 401(k) Excess Plan.

hh.Notice of Termination.  “Notice of Termination” has the meaning set forth in Section 4f.

ii.Payment or Payments.  “Payment” or “Payments” has the meaning set forth in Section 5c.

jj.Pension Plan.  “Pension Plan” means the Cinergy Corp. Non-Union Employees’ Pension Plan or any successor to that plan.

kk.Person.  “Person” has the meaning set forth in paragraph 3(a)(9) of the 1934 Act, as modified and used in subsections 13(d) and 14(d) of the 1934 Act; however, a Person will not include the following:

(i)Cinergy or any of its subsidiaries or affiliates;

(ii)A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or its subsidiaries or affiliates;

(iii)An underwriter temporarily holding securities pursuant to an offering of those securities; or

(iv)A corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

ll.Potential Change in Control.  A “Potential Change in Control” means any period during which any of the following circumstances exist:

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(i)The Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; provided that a Potential Change in Control shall cease to exist upon the expiration or other termination of such agreement; or

(ii)The Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; provided that a Potential Change in Control shall cease to exist when the Company or such Person publicly announces that it no longer has such an intention; or

(iii)Any Person who is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company’s then outstanding securities, increases such Person’s beneficial ownership of such securities by an amount equal to five percent (5%) or more of the combined voting power of the Company’s then outstanding securities; or

(iv)The Board of Directors adopts a resolution to the effect that, for purposes hereof, a Potential Change in Control has occurred.

Notwithstanding anything herein to the contrary, a Potential Change in Control shall cease to exist not later than the date that (i) the Board of Directors determines that the Potential Change in Control no longer exists, or (ii) a Change in Control occurs.

mm.Qualifying Termination.  “Qualifying Termination” means (i) the termination by Cinergy of the Executive’s employment with Cinergy during the Employment Period other than a termination for Cause or (ii) the termination by the Executive of the Executive’s employment with Cinergy during the Employment Period for Good Reason.

nn.Relocation Program.  “Relocation Program” means the Cinergy Corp. Relocation Program, or any similar program or successor to that program, as in effect on the date of the Executive’s termination of employment.

oo.Severance Benefits.  “Severance Benefits” means the payments and benefits payable to the Executive pursuant to Section 5.

pp.Spouse.  “Spouse” means the Executive’s lawfully married spouse.  For this purpose, common law marriage or a similar arrangement will not be recognized unless otherwise required by federal law.

qq.Stock Related Documents.  “Stock Related Documents” means the LTIP, the Cinergy Corp. Stock Option Plan, and the Value Creation Plan and any applicable administrative guidelines and written agreements relating to those plans.

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rr.Target Annual Bonus.  “Target Annual Bonus” has the meaning set forth in Section 3b.

ss.Target LTIP Bonus.  “Target LTIP Bonus” has the meaning set forth in Section 3b.

tt.Value Creation Plan.  “Value Creation Plan” means the Value Creation Plan or any similar plan, or successor plan of the LTIP.

uu.Waiver and Release.  “Waiver and Release” means a waiver and release, in substantially the form attached to this Agreement as Exhibit A.

12.Miscellaneous.

a.This Agreement will be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws.  The captions of this Agreement are not part of its provisions and will have no force or effect.  This Agreement may not be amended, modified, repealed, waived, extended, or discharged except by an agreement in writing signed by the party against whom enforcement of the amendment, modification, repeal, waiver, extension, or discharge is sought.  Only the Chief Executive Officer or his designee will have authority on behalf of Cinergy to agree to amend, modify, repeal, waive, extend, or discharge any provision of this Agreement.

b.All notices and other communications under this Agreement will be in writing and will be given by hand delivery to the other party or by Federal Express or other comparable national or international overnight delivery service, addressed in the name of such party at the following address, whichever is applicable:

If to the Executive:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201-0960

If to Cinergy:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio  45201-0960
Attn: Chief Executive Officer

or to such other address as either party has furnished to the other in writing in accordance with this Agreement.  All notices and communications will be effective when actually received by the addressee.

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

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d.Cinergy may withhold from any amounts payable under this Agreement such federal, state, or local taxes as are required to be withheld pursuant to any applicable law or regulation.

e.The Executive’s or Cinergy’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or Cinergy may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4d or the right of Cinergy to terminate the Executive’s employment for Cause pursuant to Section 4b, will not be deemed to be a waiver of that provision or right or any other provision or right of this Agreement.

f.References in this Agreement to the masculine include the feminine unless the context clearly indicates otherwise.

g.This instrument contains the entire agreement of the Executive and Cinergy with respect to the subject matter of this Agreement; and subject to any agreements evidencing stock option or restricted stock grants described in Section 3b and the Stock Related Documents, all promises, representations, understandings, arrangements, and prior agreements are merged into this Agreement and accordingly superseded.

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

i.Cinergy and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy with respect to all aspects pertaining to the administration and interpretation of this Agreement.

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IN WITNESS WHEREOF, the Executive and the Company have caused this Agreement to be executed as of the Effective Date.

CINERGY SERVICES, INC.
By:	/s/ James E. Rogers
James E. Rogers
Chairman and Chief Executive Officer
EXECUTIVE
/s/ R. Foster Duncan
R. Foster Duncan

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EXHIBIT A

*****

WAIVER AND RELEASE AGREEMENT

THIS WAIVER AND RELEASE AGREEMENT (this “Waiver and Release”) is entered into by and between R. Foster Duncan (the “Executive”) and Cinergy Corp.  (“Cinergy”) (collectively, the “Parties”).

WHEREAS, the Parties have entered into the Employment Agreement dated                                (the “Employment Agreement”);

WHEREAS, the Executive’s employment has been terminated in accordance with the terms of the Employment Agreement;

WHEREAS, the Executive is required to sign this Waiver and Release in order to receive the payment of certain compensation under the Employment Agreement following termination of employment; and

WHEREAS, Cinergy has agreed to sign this Waiver and Release.

NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.This Waiver and Release is effective on the date hereof and will continue in effect as provided herein.

2.In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 5 of the Employment Agreement (the “Severance Benefits”), which the Executive acknowledges are in addition to payment and benefits to which the Executive would be entitled to but for the Employment Agreement, the Executive, on behalf of himself, his heirs, representatives, agents and assigns hereby COVENANTS NOT TO SUE OR OTHERWISE VOLUNTARILY PARTICIPATE IN ANY LAWSUIT AGAINST, FULLY RELEASES, INDEMNIFIES, HOLDS HARMLESS, and OTHERWISE FOREVER DISCHARGES (i) Cinergy, (ii) its subsidiary or affiliated entities, (iii) all of their present or former directors, officers, employees, shareholders, and agents as well as (iv) all predecessors, successors and assigns thereof (the persons listed in clauses (i) through (iv) hereof shall be referred to collectively as the “Company”) from any and all actions, charges, claims, demands, damages or liabilities of any kind or character whatsoever, known or unknown, which Executive now has or may have had through the effective date of this Waiver and Release.  Executive acknowledges and understands that he is not hereby prevented from filing a charge of discrimination with the Equal Employment Opportunity Commission or any state-equivalent agency or otherwise participate in any proceedings before such Commissions.  Executive also acknowledges and understands that in the event he does

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file such a charge, he shall be entitled to no remuneration, damages, back pay, front pay, or compensation whatsoever from the Company as a result of such charge.

3.Without limiting the generality of the foregoing release, it shall include:  (i) all claims or potential claims arising under any federal, state or local laws relating to the Parties’ employment relationship, including any claims Executive may have under the Civil Rights Acts of 1866 and 1964, as amended, 42 U.S.C. §§ 1981 and 2000(e) et seq.; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12,101 et seq.; the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq.; the Ohio Civil Rights Act, Chapter 4112 et seq.; and any other federal, state or local law governing the Parties’ employment relationship; (ii) any claims on account of, arising out of or in any way connected with Executive’s employment with the Company or leaving of that employment; (iii) any claims alleged or which could have been alleged in any charge or complaint against the Company; (iv) any claims relating to the conduct of any employee, officer, director, agent or other representative of the Company; (v) any claims of discrimination or harassment on any basis; (vi) any claims arising from any legal restrictions on an employer’s right to separate its employees; (vii) any claims for personal injury, compensatory or punitive damages or other forms of relief; and (viii) all other causes of action sounding in contract, tort or other common law basis, including: (a) the breach of any alleged oral or written contract; (b) negligent or intentional misrepresentations; (c) wrongful discharge; (d) just cause dismissal; (e) defamation; (f) interference with contract or business relationship; or (g) negligent or intentional infliction of emotional distress.

4.The Parties acknowledge that it is their mutual and specific intent that the above waiver fully complies with the requirements of the Older Workers Benefit Protection Act (29 U.S.C. § 626) and any similar law governing release of claims.  Accordingly, Executive hereby acknowledges that:

(a)He has carefully read and fully understands all of the provisions of this Waiver and Release and that he has entered into this Waiver and Release knowingly and voluntarily after extensive negotiations and having consulted with his counsel;

(b)The Severance Benefits offered in exchange for Executive’s release of claims exceed in kind and scope that to which he would have otherwise been legally entitled;

(c)Prior to signing this Waiver and Release, Executive had been advised in writing by this Waiver and Release as well as other writings to seek counsel from, and has in fact had an opportunity to consult with, an attorney of his choice concerning its terms and conditions; and

(d)He has been offered at least twenty-one (21) days within which to review and consider this Waiver and Release.

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5.The Parties agree that this Waiver and Release shall not become effective and enforceable until the date this Waiver and Release is signed by both Parties or seven (7) calendar days after its execution by Executive, whichever is later.  Executive may revoke this Waiver and Release for any reason by providing written notice of such intent to Cinergy within seven (7) days after he has signed this Waiver and Release, thereby forfeiting Executive’s right to receive any Severance Benefits provided hereunder and rendering this Waiver and Release null and void in its entirety.

6.The Executive hereby affirms and acknowledges his continued obligations to comply with the post-termination covenants contained in his Employment Agreement, including but not limited to, the Confidential Information provisions of Section 9 of the Employment Agreement.  Executive acknowledges that the restrictions contained therein are valid and reasonable in every respect, are necessary to protect the Company’s legitimate business interests and hereby affirmatively waives any claim or defense to the contrary.

7.Executive specifically agrees and understands that the existence and terms of this Waiver and Release are strictly CONFIDENTIAL and that such confidentiality is a material term of this Waiver and Release.  Accordingly, except as required by law or unless authorized to do so by Cinergy in writing, Executive agrees that he shall not communicate, display or otherwise reveal any of the contents of this Waiver and Release to anyone other than his spouse, primary legal counsel or financial advisor, provided, however, that they are first advised of the confidential nature of this Waiver and Release and Executive obtains their agreement to be bound by the same.  Cinergy agrees that Executive may respond to legitimate inquiries regarding his employment with Cinergy by stating that he voluntarily resigned to pursue other opportunities, that the Parties terminated their relationship on an amicable basis and that the Parties have entered into a confidential Waiver and Release that prohibits him from further discussing the specifics of his separation.  Nothing contained herein shall be construed to prevent Executive from discussing or otherwise advising subsequent employers of the existence of any obligations as set forth in his Employment Agreement.  Further, nothing contained herein shall be construed to limit or otherwise restrict the Company’s ability to disclose the terms and conditions of this Waiver and Release as may be required by business necessity.

8.In the event that Executive breaches or threatens to breach any provision of this Waiver and Release, he agrees that Cinergy shall be entitled to seek any and all equitable and legal relief provided by law, specifically including immediate and permanent injunctive relief.  Executive hereby waives any claim that Cinergy has an adequate remedy at law.  In addition, and to the extent not prohibited by law, Executive agrees that Cinergy shall be entitled to an award of all costs and attorneys’ fees incurred by Cinergy in any successful effort to enforce the terms of this Waiver and Release.  Executive agrees that the foregoing relief shall not be construed to limit or otherwise restrict Cinergy’s ability to pursue any other remedy provided by law, including the recovery of any actual, compensatory or punitive damages.  Moreover, if Executive pursues any claims against the Company subject to the foregoing Waiver and Release, Executive agrees to immediately reimburse the Company for the value of all benefits received under this Waiver and Release to the fullest extent permitted by law.

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9.Cinergy hereby releases the Executive, his heirs, representatives, agents and assigns from any and all known claims, causes of action, grievances, damages and demands of any kind or nature based on acts or omissions committed by the Executive during and in the course of his employment with Cinergy provided such act or omission was committed in good faith and occurred within the scope of his normal duties and responsibilities.

10.The Parties acknowledge that this Waiver and Release is entered into solely for the purpose of ending their employment relationship on an amicable basis and shall not be construed as an admission of liability or wrongdoing by either Party and that both Cinergy and Executive have expressly denied any such liability or wrongdoing.

11.Each of the promises and obligations shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, assigns and successors in interest of each of the Parties.

12.The Parties agree that each and every paragraph, sentence, clause, term and provision of this Waiver and Release is severable and that, if any portion of this Waiver and Release should be deemed not enforceable for any reason, such portion shall be stricken and the remaining portion or portions thereof should continue to be enforced to the fullest extent permitted by applicable law.

13.This Waiver and Release shall be governed by and interpreted in accordance with the laws of the State of Ohio without regard to any applicable state’s choice of law provisions.

14.Executive represents and acknowledges that in signing this Waiver and Release he does not rely, and has not relied, upon any representation or statement made by Cinergy or by any of Cinergy’s employees, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Waiver and Release other than those specifically contained herein.

15.This Waiver and Release represents the entire agreement between the Parties concerning the subject matter hereof, shall supercede any and all prior agreements which may otherwise exist between them concerning the subject matter hereof (specifically excluding, however, the post-termination obligations contained in any existing Employment Agreement or other legally-binding document), and shall not be altered, amended, modified or otherwise changed except by a writing executed by both Parties.

16.Cinergy Corp. and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy Corp. with respect to all aspects pertaining to the administration and interpretation of this Waiver and Release.

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PLEASE READ CAREFULLY.  WITH RESPECT TO THE EXECUTIVE, THIS

WAIVER AND RELEASE INCLUDES A COMPLETE RELEASE OF ALL KNOWN

AND UNKNOWN CLAIMS.

IN WITNESS WHEREOF, the Parties have themselves signed, or caused a duly authorized agent thereof to sign, this Waiver and Release on their behalf and thereby acknowledge their intent to be bound by its terms and conditions.

EXECUTIVE		CINERGY SERVICES, INC.
Signed:	/s/ R. Foster Duncan	By:	/s/ James E. Rogers
Printed:	R. Foster Duncan	Title:	Chairman and Chief Executive Officer
Dated:		Dated:

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EX-10.L

Exhibit 10.L

SEPARATION AND RETIREMENT AGREEMENT

This Separation and Retirement Agreement (the “Agreement”), which is effective as of this 8th day of October, 2002, is entered into by and between Donald B. Ingle, Jr. (the “Executive”) and Cinergy, with the mutual exchange of promises as consideration.  Capitalized words and terms used throughout this Agreement that are not defined elsewhere in this Agreement are defined in Section 19.

Recitals

A.            The Executive has elected to terminate voluntarily his employment with Cinergy and retire effective December 15, 2002 (the “Termination Date”).

B.            The Executive is currently serving as Vice President of the Company and President of Power Technology and Infrastructure Services.  Cinergy desires to have the Executive serve in this position until his retirement and is willing to provide certain additional benefits and arrangements to the Executive, provided that upon presentation to the Executive following the Termination Date the Executive executes and does not timely revoke this Agreement and a waiver and release, in substantially the form attached to this Agreement as Exhibit A, of all claims that the Executive might be able to assert against Cinergy and certain related entities and individuals (the “Waiver and Release”).

C.            The parties have agreed to enter into this Agreement, which has been specifically negotiated between the Executive and Cinergy.

THEREFORE, Cinergy and the Executive enter into the following Agreement:

Agreement

1.             Retirement.

a.             Termination of Employment. The Executive will retire, and his employment with Cinergy will terminate, effective as of the Termination Date.  Until that time, the Executive will continue to be entitled to receive the compensation and perquisites to which he is currently entitled pursuant to the terms of the Employment Agreement between the Executive and Cinergy dated as of October 1, 2002 (the “Employment Agreement”).

b.             Effect on Other Agreements.  Except as provided in Sections 1.a, 2.k and 2.o of this Agreement, this Agreement replaces and supersedes any and all prior employment, separation and retirement agreements between Cinergy and the Executive, including but not limited to the Employment Agreement.

2.             Separation Benefits. In exchange for entering into this Agreement and satisfying any additional conditions set forth in this Agreement, the Executive will receive the benefits described below in this Section 2.  Each of the benefits described below in this Section 2 shall only be provided to the Executive if, upon presentation to the Executive following the Termination Date, the Executive timely executes and does not timely revoke the Waiver and

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Release, which benefits shall be payable as soon as practicable following the later of (i) January 15, 2003 or (ii) the expiration of the revocation period contained in the Waiver and Release, unless otherwise provided below.  Notwithstanding anything herein to the contrary, Cinergy may withhold from any amounts payable under this Agreement such federal, state, or local taxes as it reasonably determines are required to be withheld pursuant to any applicable law or regulation.

a.             Severance Pay.  Cinergy agrees to pay the Executive, in lieu of any other severance benefits that might be payable to the Executive under any and all prior employment, separation and retirement agreements between Cinergy and the Executive, severance pay in the gross amount of $1,854,938.

b.             Retiree Welfare Benefits. Upon his retirement under this Agreement, the Executive will be eligible for comprehensive medical and dental benefits which are not materially different from the benefits provided to retirees under the Cinergy Corp. Welfare Benefits Program or any similar program or successor to that program.  For purposes of determining the amount of the monthly premiums due from the Executive, the Executive will receive from Cinergy the maximum subsidy available as of the date of his retirement to an active Cinergy employee with the same medical benefits classification/eligibility as the Executive’s medical benefits classification/eligibility on the date of his retirement.

c.             Vacation Pay.  The Executive will receive, in a lump sum cash payment, six (6) weeks of accrued but unused vacation pay in the gross amount of $50,510.77.

d.             Waiver of Prepayment Penalty.  If the prepayment penalty under Cinergy’s Executive Stock Purchase Program is waived for any participant in that program, it will also be waived for the Executive.

e.             Executive Supplemental Life Insurance.  The Executive will receive the value of the additional life insurance provided to the Executive under the Executive Supplemental Life Insurance Program, which is $150,000. This amount will be paid to the Executive in cash, in equal annual installments of $15,000 over a ten (10) year period beginning in February of 2003.

f.              Stock Options. Any rights the Executive may have with respect to the stock options granted to the Executive pursuant to the Cinergy Corp. Stock Option Plan will be determined under the terms of any applicable stock option agreement and the Cinergy Corp. Stock Option Plan. Similarly, any rights the Executive may have with respect to the stock options granted to the Executive pursuant to the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan (“LTIP”) will be determined in accordance with the terms of the LTIP, the relevant administrative guidelines and any applicable stock option agreement. Notwithstanding the foregoing, the Executive acknowledges and agrees that he shall not sell or otherwise dispose of any shares of Company stock acquired pursuant to the exercise of a stock option, other than shares sold in order to pay an option exercise price or the related tax withholding obligation, until 90 days after the Termination Date.  Notwithstanding the foregoing, Cinergy, in its sole discretion, may waive the restrictions contained in the previous sentence.

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g.             Long-Term Incentive Plan.  The Executive shall receive any performance shares award to which he may become entitled under any then-outstanding performance cycle of the LTIP and the Cinergy Corp. Value Creation Plan.  The amount of any such award shall be determined and pro-rated, and any such award shall be paid to the Executive, in accordance with the terms of the LTIP, the Value Creation Plan, any relevant administrative guidelines, and any applicable performance shares agreements, provided that the award will be determined as if the Executive had remained employed with Cinergy during the entire 2002 calendar year.

h.             Tax Counseling.  The Executive will receive a lump sum payment of $15,000 to cover the cost of tax counseling services to the Executive through an agency selected by the Executive. In the event any payment to the Executive pursuant to this Section 2.h is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 2.h.

i.              Automobile Allowance.  The Executive will receive a lump sum payment of $50,000 to cover the cost of the Executive’s automobile. In the event any payment to the Executive pursuant to this Section 2.i is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the payment occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the payment provided pursuant to this Section 2.i.

j.              Personal Computer.  The Executive will receive a personal computer at least comparable to the personal computer made available to him by Cinergy immediately prior to the Termination Date. In the event any benefit provided to the Executive pursuant to this Section 2.j is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 2.j.

k.             Supplemental Retirement Benefit.  The Executive will be entitled to, and fully vested in, a supplemental retirement benefit in accordance with the terms of Section 3b(ii) of the Employment Agreement, subject to the following provisions:

(A)          For purposes of calculating the amount of the Executive’s supplemental retirement benefit, the Executive’s “Highest Average Earnings” shall be determined after assuming that the only amount that the Executive received pursuant to the Cinergy Corp. Annual Incentive Plan during the one-year period ending on the Termination Date is the award for the 2002 performance period that the Executive would have received pursuant to the Cinergy Corp. Annual Incentive Plan if he had remained

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employed during the entire 2002 performance period, the amount of which shall be based on a level three payout with respect to both individual and corporate goals.  For purposes of clarity, the parties hereto acknowledge and agree that the Executive’s “Highest Average Earnings” for any year shall not include any benefits received by the Executive pursuant to Section 2 of this Agreement, other than the benefits provided in  Section 2.c and in the preceding sentence.

(B)           Commencing with the month following the month in which the Executive attains age 55, the Executive will be deemed to have 35 “Years of Participation” (as that term is defined in the Employment Agreement) for purposes of determining the amount of the Executive’s supplemental retirement benefit.

(C)           In the event that the Executive makes a special payment election pursuant to Section 3b(ii)(3)(A) of the Employment Agreement and a lump sum cash payment is made pursuant to that election, such payment shall discharge all obligations of Cinergy pursuant to this Section 2.k.

l.              Annual Incentive Plan.  The Executive will receive an award under the Cinergy Corp. Annual Incentive Plan for the 2002 performance period equal to the award that he would have received if he had remained employed during the entire 2002 performance period, which award will be paid based on a level three payout with respect to both individual and corporate goals, which payment shall be payable in March, 2003.

m.            Physical Exam.  Cinergy will furnish to the Executive one physical exam within the one-year period beginning on the Date of Termination in accordance with Cinergy practices, programs, and policies in effect from time to time, and at least comparable to those received by active Cinergy Tier II executives for such period.  In the event any benefit provided to the Executive pursuant to this Section 2.m is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 2.m.

n.             Country Club.  Cinergy will continue to pay the annual dues of the Executive incurred on or before December 31, 2005 for membership in one country club of the Executive’s choice. In the event any benefit provided to the Executive pursuant to this Section 2.n is subject to any federal, state, or local income or employment taxes, Cinergy shall provide to the Executive an additional payment in an amount necessary such that after payment by the Executive of all such taxes (calculated after assuming that the Executive pays such taxes for the year in which the benefit occurs at the highest marginal tax rate applicable), including the taxes imposed on the additional payment, the Executive retains an amount equal to the benefit provided pursuant to this Section 2.n.

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o.             Section 280G Gross-Up.  In the event that any benefits paid or payable to the Executive or for his benefit pursuant to the terms of this Agreement or any other plan or arrangement in connection with, or arising out of, his employment with Cinergy or a change in ownership or effective control of Cinergy or of a substantial portion of its assets would be subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, then the Executive will be entitled to the benefits provided in Section 5c. of the Employment Agreement.

3.             Basis for Entitlement. The Executive acknowledges that he would not be entitled to certain of the benefits described in this Agreement absent his election to terminate employment voluntarily and retire voluntarily and his execution of this Agreement and the Waiver and Release.

4.             Adequate Consideration. The Executive agrees that this Agreement provides good, valuable, and sufficient consideration for the obligations he assumes in Sections 5 through 11 and Section 14 and the Waiver and Release.

5.             Future Employment. The Executive waives any right to assert any claim or demand for reemployment with Cinergy. The Executive, however, may accept an offer of reemployment with Cinergy in the event such an offer is made.

6.             Nondisclosure of Confidential Information. The Executive will not at any time, directly or indirectly, use any trade secrets or confidential information of Cinergy for his benefit or the benefit of any other person or, directly or indirectly, disclose any trade secrets or confidential information of Cinergy to any other person, unless he is required by law or any lawful authority to do so. For purposes of this Section, “confidential information of Cinergy” means all secret, proprietary information, knowledge, or data relating to Cinergy and its businesses that have been obtained by the Executive during the Executive’s employment by Cinergy that have not been now or subsequently become public knowledge (other than by acts of the Executive or representatives of the Executive in violation of this Agreement).

7.             Consulting Arrangement. The Executive agrees to serve as a business consultant to Cinergy for a period of three (3) years beginning on the Termination Date (the “Consulting Period”). The consulting services to be provided by the Executive during the Consulting Period will consist of consultation with, and advice to, the officers and managerial employees of Cinergy, as requested by Cinergy, on matters relating to Cinergy’s business affairs about which the Executive has knowledge and experience. The consulting services will be performed at reasonable times when and as needed, as determined by mutual agreement between Cinergy and the Executive. The parties understand and agree that all of the consulting services to be provided by the Executive under this Agreement will be performed by him as an independent contractor and not as an employee of Cinergy. The Executive will not have any authority to act as an agent or representative of Cinergy, except to the extent expressly authorized in writing by Cinergy. The Executive will perform his consulting services to the best of his abilities. The Executive’s duties pursuant to this Paragraph are purely those of a consultant, and Cinergy is free to accept or reject his advice, as it deems appropriate. Cinergy is responsible for all actions it chooses to take based on the Executive’s advice, and Cinergy agrees to hold the Executive harmless for the results of those actions, including all losses and damages resulting from any legal or regulatory action.

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Cinergy will reimburse the Executive for all expenses authorized by Cinergy and incurred by the Executive, including but not limited to telephone, duplication, secretarial services, mail and courier services, and normal supplies that may reasonably be required. Reimbursement will be made within thirty (30) days of Cinergy’s receipt of reasonable and customary documentation. For any travel requested and authorized by Cinergy, the Executive will be reimbursed for all reasonable and customary expenses, including transportation, parking, food, and lodging. Nothing in this Section 7 will prohibit the Executive from seeking or accepting other employment, engaging in any other consulting services, or participating in any other endeavor for profit, as he deems appropriate, provided that, in so doing, he does not breach any of his other obligations under this Agreement.  Notwithstanding the foregoing sentence, Cinergy, in its sole discretion, may permit the Executive to remain on the Board of Directors of any company of which he serves as a director on the Termination Date.

8.             Non-Solicitation and Non-Competition. At no time during the Consulting Period will the Executive: (a) employ or seek to employ any person employed at that time by Cinergy or otherwise encourage or entice any such person to leave employment with Cinergy; (b) become employed by, enter into a consulting arrangement with, or otherwise agree to perform personal services for, a Competitor without the written consent of Cinergy; (c) acquire an ownership interest in a Competitor, provided that the Executive may, for investment purposes, own not more than 3% of the outstanding stock of any class of a Competitor that is publicly traded; or (d) solicit any customers or vendors of Cinergy on behalf of or for the benefit of a Competitor.

The Executive acknowledges that monetary damages will not be an adequate remedy for Cinergy in the event of a breach of this Section 8, and that it would be impossible for Cinergy to measure damages in the event of such a breach. Therefore, the Executive agrees that, in lieu of any other remedy that Cinergy may have for such a breach, Cinergy is entitled to an injunction preventing the Executive from any breach of this Section 8.

9.             Cooperation With Litigation. Upon Cinergy’s request, the Executive agrees to render reasonable assistance to Cinergy in connection with any litigation or investigation relating to Cinergy’s business, provided that rendering such assistance does not impose an unreasonable burden on the Executive. Such assistance will include, but will not be limited to, providing information, attending meetings, assisting with interrogatories, giving depositions, and making court appearances. The Executive agrees to notify the General Counsel of the Company promptly of any requests for information or testimony that the Executive receives in connection with any litigation or investigation relating to Cinergy’s business. Cinergy agrees to reimburse the Executive for any monies necessary to discharge the Executive’s obligations under this Section and for his time and out-of-pocket expenses in meeting those obligations.

10.           Return of Corporate Property. Except as otherwise provided in this Agreement, the Executive agrees to return to Cinergy all keys, identification badges, electronic passes, credit cards, computer programs, and other property belonging to Cinergy when requested and to do so by Cinergy’s representative.

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11.           Communications. While the Executive is employed by Cinergy and thereafter, Cinergy will not make any untrue, disparaging, defamatory, or derogatory statements about the Executive, and the Executive will not make any untrue, disparaging, defamatory, or derogatory statements about Cinergy.

12.           Severability. If any portion of this Agreement is found to be unenforceable for any reason, the parties agree that the remaining portions will remain in effect (to the extent the invalidity of the particular portion does not substantially undermine the purpose of this Agreement).

13.           Consultation With Attorney Advised. The Executive is advised to consult with an attorney prior to executing this Agreement. The Executive acknowledges being given that advice. The Executive represents that he has read and fully understands all of the provisions of this Agreement. The Executive represents that he is voluntarily signing this Agreement.

14.           Confidentiality. The Executive covenants and agrees to keep completely confidential and not to disclose the existence or terms of this Agreement except to Executive’s spouse, legal counsel, accountant, and financial advisors, unless he is required by law or any lawful authority to do so. The Executive will advise those to whom proper disclosure is made that this is a confidential agreement, and he will instruct them that they are not to disclose the existence or terms of this Agreement. In addition, the Executive covenants and agrees that any breach of this confidentiality provision will be considered a breach of this Agreement.

15.           Binding Effect of Agreement. This Agreement will be binding upon and will operate for the benefit of, the heirs, executors, administrators, assigns, and successors in interest of the Executive and Cinergy. Cinergy agrees that in the event of a sale, merger, acquisition, or other change in structure (including the cessation or restructuring of any part of Cinergy’s business) and/or ownership, Cinergy will ensure that the contract language pertaining to the transaction confirms the continuing liability of Cinergy (and its assigns and successors in interest) to the Executive under this Agreement.  The Executive agrees that Cinergy Services, Inc. (and/or any of its authorized employees) is authorized to act for Cinergy with respect to all aspects pertaining to the administration and interpretation of this Agreement.

16.           Complete Agreement. Except as otherwise expressly provided in this Agreement, the terms of this Agreement constitute the entire Agreement between the parties and supersede all previous communications, representations, and agreements, oral or written, between the parties with respect to the subject matter of this Agreement. No agreement or understanding modifying this Agreement will be binding on either party unless it is in writing and signed by an authorized representative of the party sought to be bound. If any part of this Agreement is adjudged by a court of competent jurisdiction to be contrary to law, then this Agreement will, in all other respects, remain effective and binding to the full extent permitted by law.

17.           Arbitration. The parties agree that any dispute, claim, or controversy based on common law, equity, or any federal, state, or local statute, ordinance, or regulation (other than workers’ compensation claims) arising out of or relating in any way to the Executive’s employment, the terms, benefits, and conditions of employment, or concerning this Agreement or its termination and any resulting termination of employment, including whether such a dispute

7

is arbitrable, will be settled by arbitration. This agreement to arbitrate includes but is not limited to all claims for any form of illegal discrimination, improper or unfair treatment or dismissal, and all tort claims. The Executive will still have a right to file a discrimination charge with a federal or state agency, but the final resolution of any discrimination claim will be submitted to arbitration instead of a court or jury. The arbitration proceeding will be conducted under the employment dispute resolution arbitration rules of the American Arbitration Association in effect at the time a demand for arbitration under the rules is made, and such proceeding will be adjudicated in the state of Ohio in accordance with the laws of the state of Ohio. The decision of the arbitrator(s), including determination of the amount of any damages suffered, will be exclusive, final, and binding on all parties, their heirs, executors, administrators, successors and assigns. Each party will bear its own expenses in the arbitration for arbitrators’ fees and attorneys’ fees, for its witnesses, and for other expenses of presenting its case. Other arbitration costs, including administrative fees and fees for records or transcripts, will be borne equally by the parties. Notwithstanding anything in this Section to the contrary, if the Executive prevails with respect to any dispute submitted to arbitration under this Section, Cinergy will reimburse or pay all legal fees and expenses that the Executive may reasonably incur as a result of the dispute.

18.           Governing Law. This Agreement will be interpreted, enforced, and governed under the laws of the State of Ohio, without regard to any principles of conflicts of laws.

19.           Definitions. As used in this Agreement, the following terms, when capitalized, will have the following meanings:

a.             Agreement. “Agreement” means this Separation and Retirement Agreement.

b.             Cinergy. “Cinergy” means the Company, its subsidiaries, and/or its affiliates, and any successors to the foregoing.

c.             Company. “Company” means Cinergy Corp.

d.             Competitor. “Competitor” means any person or entity that sells goods or services that are directly competitive with those sold by a business that (1) is being conducted by Cinergy at the time in question and (2) was being conducted by Cinergy on the Termination Date. Notwithstanding anything in the preceding sentence, goods or services will not be deemed to be competitive with those of Cinergy solely as a result of the Executive being employed by or otherwise associated with a business that is in competition with Cinergy but as to which the Executive does not have direct or indirect responsibilities for the products or services involved.

e.             Executive. “Executive” means Donald B. Ingle, Jr.

f.              Executive Supplemental Life Program. “Executive Supplemental Life Program” means the Cinergy Corp. Executive Supplemental Life Insurance Program and any successor of that plan.

g.             Termination Date. “Termination Date” has the meaning given such term in the Recitals to this Agreement.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed, effective as of the date above written.

CINERGY SERVICES, INC.		EXECUTIVE
By:	/s/ James E. Rogers	/s/ Donald B. Ingle, Jr.
	James E. Rogers	Donald B. Ingle, Jr.
	Chairman and Chief Executive Officer

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EXHIBIT A

*****

WAIVER AND RELEASE AGREEMENT

THIS WAIVER AND RELEASE AGREEMENT (this “Waiver and Release”) is entered into by and between Donald B. Ingle, Jr. (the “Executive”) and Cinergy Corp.  (“Cinergy”) (collectively, the “Parties”).

WHEREAS, the Parties have entered into the Separation and Retirement Agreement dated                              (the “Agreement”);

WHEREAS, the Executive’s employment has been terminated in accordance with the terms of the Agreement;

WHEREAS, the Executive is required to sign this Waiver and Release in order to receive the payment of certain compensation under the Agreement following termination of employment; and

WHEREAS, Cinergy has agreed to sign this Waiver and Release.

NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

1.             This Waiver and Release is effective on the date hereof and will continue in effect as provided herein.

2.In consideration of the payments to be made and the benefits to be received by the Executive pursuant to the Agreement (the “Severance Benefits”), which the Executive acknowledges are in addition to payment and benefits to which the Executive would be entitled to but for the Agreement, the Executive, on behalf of himself, his heirs, representatives, agents and assigns hereby COVENANTS NOT TO SUE OR OTHERWISE VOLUNTARILY PARTICIPATE IN ANY LAWSUIT AGAINST, FULLY RELEASES, INDEMNIFIES, HOLDS HARMLESS, and OTHERWISE FOREVER DISCHARGES (i) Cinergy, (ii) its subsidiary or affiliated entities, (iii) all of their present or former directors, officers, employees, shareholders, and agents as well as (iv) all predecessors, successors and assigns thereof (the persons listed in clauses (i) through (iv) hereof shall be referred to collectively as the “Company”) from any and all actions, charges, claims, demands, damages or liabilities of any kind or character whatsoever, known or unknown, which Executive now has or may have had through the effective date of this Waiver and Release.  Executive acknowledges and understands that he is not hereby prevented from filing a charge of discrimination with the Equal Employment Opportunity Commission or any state-equivalent agency or otherwise participate in any proceedings before such Commissions.  Executive also acknowledges and understands that in the event he does file such a charge, he shall be entitled to no

10

remuneration, damages, back pay, front pay, or compensation whatsoever from the Company as a result of such charge.

3.Without limiting the generality of the foregoing release, it shall include:  (i) all claims or potential claims arising under any federal, state or local laws relating to the Parties’ employment relationship, including any claims Executive may have under the Civil Rights Acts of 1866 and 1964, as amended, 42 U.S.C. §§ 1981 and 2000(e) et seq.; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12,101 et seq.; the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq.; the Ohio Civil Rights Act, Chapter 4112 et seq.; and any other federal, state or local law governing the Parties’ employment relationship; (ii) any claims on account of, arising out of or in any way connected with Executive’s employment with the Company or leaving of that employment; (iii) any claims alleged or which could have been alleged in any charge or complaint against the Company; (iv) any claims relating to the conduct of any employee, officer, director, agent or other representative of the Company; (v) any claims of discrimination or harassment on any basis; (vi) any claims arising from any legal restrictions on an employer’s right to separate its employees; (vii) any claims for personal injury, compensatory or punitive damages or other forms of relief; and (viii) all other causes of action sounding in contract, tort or other common law basis, including: (a) the breach of any alleged oral or written contract; (b) negligent or intentional misrepresentations; (c) wrongful discharge; (d) just cause dismissal; (e) defamation; (f) interference with contract or business relationship; or (g) negligent or intentional infliction of emotional distress.

4.The Parties acknowledge that it is their mutual and specific intent that the above waiver fully complies with the requirements of the Older Workers Benefit Protection Act (29 U.S.C. § 626) and any similar law governing release of claims.  Accordingly, Executive hereby acknowledges that:

a.He has carefully read and fully understands all of the provisions of this Waiver and Release and that he has entered into this Waiver and Release knowingly and voluntarily after extensive negotiations and having consulted with his counsel;

b.The Severance Benefits offered in exchange for Executive’s release of claims exceed in kind and scope that to which he would have otherwise been legally entitled;

c.Prior to signing this Waiver and Release, Executive had been advised in writing by this Waiver and Release as well as other writings to seek counsel from, and has in fact had an opportunity to consult with, an attorney of his choice concerning its terms and conditions; and

d.He has been offered at least twenty-one (21) days within which to review and consider this Waiver and Release.

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5.The Parties agree that this Waiver and Release shall not become effective and enforceable until the date this Waiver and Release is signed by both Parties or seven (7) calendar days after its execution by Executive, whichever is later.  Executive may revoke this Waiver and Release for any reason by providing written notice of such intent to Cinergy within seven (7) days after he has signed this Waiver and Release, thereby forfeiting Executive’s right to receive any Severance Benefits provided hereunder and rendering this Waiver and Release null and void in its entirety.

6.The Executive hereby affirms and acknowledges his continued obligations to comply with the post-termination covenants contained in the Agreement, including but not limited to, the Confidential Information provisions of Section 6 of the Agreement.  Executive acknowledges that the restrictions contained therein are valid and reasonable in every respect, are necessary to protect the Company’s legitimate business interests and hereby affirmatively waives any claim or defense to the contrary.

7.Executive specifically agrees and understands that the existence and terms of this Waiver and Release are strictly CONFIDENTIAL and that such confidentiality is a material term of this Waiver and Release.  Accordingly, except as required by law or unless authorized to do so by Cinergy in writing, Executive agrees that he shall not communicate, display or otherwise reveal any of the contents of this Waiver and Release to anyone other than his spouse, primary legal counsel or financial advisor, provided, however, that they are first advised of the confidential nature of this Waiver and Release and Executive obtains their agreement to be bound by the same.  Cinergy agrees that Executive may respond to legitimate inquiries regarding his employment with Cinergy by stating that he voluntarily resigned to pursue other opportunities, that the Parties terminated their relationship on an amicable basis and that the Parties have entered into a confidential Waiver and Release that prohibits him from further discussing the specifics of his separation.  Nothing contained herein shall be construed to prevent Executive from discussing or otherwise advising subsequent employers of the existence of any obligations as set forth in the Agreement.  Further, nothing contained herein shall be construed to limit or otherwise restrict the Company’s ability to disclose the terms and conditions of this Waiver and Release as may be required by business necessity.

8.In the event that Executive breaches or threatens to breach any provision of this Waiver and Release, he agrees that Cinergy shall be entitled to seek any and all equitable and legal relief provided by law, specifically including immediate and permanent injunctive relief.  Executive hereby waives any claim that Cinergy has an adequate remedy at law.  In addition, and to the extent not prohibited by law, Executive agrees that Cinergy shall be entitled to an award of all costs and attorneys’ fees incurred by Cinergy in any successful effort to enforce the terms of this Waiver and Release.  Executive agrees that the foregoing relief shall not be construed to limit or otherwise restrict Cinergy’s ability to pursue any other remedy provided by law, including the recovery of any actual, compensatory or punitive damages.  Moreover, if Executive pursues any claims against the Company subject to the foregoing Waiver and Release, Executive agrees to immediately reimburse the Company for the value of all benefits received under this Waiver and Release to the fullest extent permitted by law.

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9.Cinergy hereby releases the Executive, his heirs, representatives, agents and assigns from any and all known claims, causes of action, grievances, damages and demands of any kind or nature based on acts or omissions committed by the Executive during and in the course of his employment with Cinergy provided such act or omission was committed in good faith and occurred within the scope of his normal duties and responsibilities.

10.The Parties acknowledge that this Waiver and Release is entered into solely for the purpose of ending their employment relationship on an amicable basis and shall not be construed as an admission of liability or wrongdoing by either Party and that both Cinergy and Executive have expressly denied any such liability or wrongdoing.

11.Each of the promises and obligations shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, assigns and successors in interest of each of the Parties.

12.The Parties agree that each and every paragraph, sentence, clause, term and provision of this Waiver and Release is severable and that, if any portion of this Waiver and Release should be deemed not enforceable for any reason, such portion shall be stricken and the remaining portion or portions thereof should continue to be enforced to the fullest extent permitted by applicable law.

13.This Waiver and Release shall be governed by and interpreted in accordance with the laws of the State of Ohio without regard to any applicable state’s choice of law provisions.

14.Executive represents and acknowledges that in signing this Waiver and Release he does not rely, and has not relied, upon any representation or statement made by Cinergy or by any of Cinergy’s employees, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Waiver and Release other than those specifically contained herein.

15.This Waiver and Release represents the entire agreement between the Parties concerning the subject matter hereof, shall supercede any and all prior agreements which may otherwise exist between them concerning the subject matter hereof (specifically excluding, however, the post-termination obligations contained in the Agreement or any other legally-binding document), and shall not be altered, amended, modified or otherwise changed except by a writing executed by both Parties.

16.Cinergy Corp. and the Executive agree that Cinergy Services, Inc. will be authorized to act for Cinergy Corp. with respect to all aspects pertaining to the administration and interpretation of this Waiver and Release.

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PLEASE READ CAREFULLY.  WITH RESPECT TO THE EXECUTIVE, THIS

WAIVER AND RELEASE INCLUDES A COMPLETE RELEASE OF ALL KNOWN

AND UNKNOWN CLAIMS.

IN WITNESS WHEREOF, the Parties have themselves signed, or caused a duly authorized agent thereof to sign, this Waiver and Release on their behalf and thereby acknowledge their intent to be bound by its terms and conditions.

EXECUTIVE		CINERGY SERVICES, INC.
Signed:	/s/ Donald B. Ingle, Jr.	By:	/s/ James E. Rogers
Printed:	Donald B. Ingle, Jr.	Title:	Chairman and Chief Executive Officer
Dated:		Dated:

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EX-10.KK

Exhibit 10.kk

Adopted pursuant to resolutions of the
Cinergy Corp. Benefits Committee
on December 18, 2002

AMENDMENT TO THE
CINERGY CORP. 401(K) EXCESS PLAN

The Cinergy Corp. 401(k) Excess Plan, originally adopted as of January 1, 1997, as amended from time to time (the “Plan”), is hereby amended effective as of January 1, 2003 unless otherwise provided below.

(1)Explanation of Amendment

The Plan is amended to clarify the relationship between the Plan and the Cinergy Corp. Non-Union Employees’ 401(k) Plan, to reflect the change in the name of the Cinergy Corp. Non-Union Employees’ 401(k) plan, and to clarify certain provisions regarding the company matching contributions under the Plan.

(2)Amendment

(a)Effective as of January 1, 1998, Section 2.1(q) of the Plan is hereby amended in its entirety to read as follows:

““401(k) Plan” means the Cinergy Corp. Non-Union Employees’ 401(k) Plan.”

(b)Section 3.2(a) of the Plan is hereby amended in its entirety to read as follows:

“Election Procedure.  Within a reasonable time before the beginning of each Plan Year, the Committee shall provide each Eligible Employee with a Deferral Agreement.  An Eligible Employee may elect to defer his or her compensation to the Plan by delivering a completed Deferral Agreement to the Committee or its designate prior to the first day of the Plan Year.  On the Deferral Agreement, the Eligible Employee shall indicate the amount or percentage of his Compensation to be deferred under the Plan for the Plan Year as an elective contribution, subject to the provisions of Subsection (b).  Subject to Subsection (c), an election made under this Section shall be effective as of the first day of the Plan Year, and subject to Subsection (d), the election for any Plan Year shall be irrevocable.”

(c)Section 3.3 of the Plan is hereby amended in its entirety to read as follows:

“3.3Employer Base Matching Contributions.  For each Plan Year, if an Eligible Employee is entitled to an employer base matching contribution under his or her 401(k) Plan and the Eligible Employee defers the maximum amount that he or she can defer under the 401(k) Plan, the

1

Employer shall make an Employer Base Matching Contribution to the Participant’s Matching Account equal to the excess, if any, of (i) the amount which would have been contributed by the Employer to the 401(k) Plan for such Eligible Employee for such Plan Year as an employer base matching contribution (determined without regard to the limitations of the Code) if the Eligible Employee’s aggregate deferrals under the 401(k) Plan and under this Plan had been contributed by him to the 401(k) Plan, over (ii) the actual amount that has been contributed by the Employer to the 401(k) Plan for such Eligible Employee for such Plan Year as an employer base matching contribution.”

(d)Section 3.4 of the Plan is hereby amended in its entirety to read as follows:

“3.4Employer Incentive Matching Contributions.  For each Plan Year, if an Eligible Employee is entitled to an employer incentive matching contribution under his or her 401(k) Plan and the Eligible Employee defers the maximum amount that he or she can defer under the 401(k) Plan, the Employer shall make an Employer Incentive Matching Contribution to the Participant’s Matching Account equal to the excess, if any, of (i) the amount which would have been contributed by the Employer to the 401(k) Plan for such Eligible Employee for such Plan Year as an employer incentive matching contribution (determined without regard to the limitations of the Code) if the Eligible Employee’s aggregate deferrals under the 401(k) Plan and under this Plan had been contributed by him to the 401(k) Plan, over (ii) the actual amount that has been contributed by the Employer to the 401(k) Plan for such Eligible Employee for such Plan Year as an employer incentive matching contribution.”

(e)Section 4.3(b) of the Plan is hereby amended in its entirety to read as follows:

“(b)The Employer Base Matching Contribution shall be credited to a Participant’s Matching Account in accordance with rules adopted by the Committee or its delegate. An Eligible Employee does not need to make deferrals pursuant to Section 3.2 (Election to Defer) of this Plan to receive Employer Base Matching Contributions.”

(f)Section 4.3(c) of the Plan is hereby amended in its entirety to read as follows:

“(c)The Employer Incentive Matching Contribution shall be credited to a Participant’s Matching Account in accordance with rules adopted by the Committee or its delegate.  An Eligible Employee does not need to make deferrals pursuant to Section 3.2 (Election to Defer) of this Plan to receive Employer Incentive Matching Contributions.”

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(g)Section 4.7 of the Plan is hereby amended by adding the following new subsection (c) at the end thereof:

“(c)This Section 4.7 shall not apply for Plan Years beginning on or after January 1, 2003.”

IN WITNESS WHEREOF, Cinergy Corp. has caused this Amendment to be executed and approved by its duly authorized officer on December 20, 2002.

By:
	Timothy J. Verhagen
	Vice President Human Resources

3

EX-10.MM

Exhibit 10.mm

Adopted pursuant to resolutions of the
Cinergy Corp. Benefits Committee
on December 18, 2002

AMENDMENT TO THE
CINERGY CORP. NONQUALIFIED
DEFERRED INCENTIVE COMPENSATION PLAN

The Cinergy Corp. Nonqualified Deferred Incentive Compensation Plan, as amended and restated effective as of December 1, 1996 (the “Plan”), is hereby amended effective as of January 1, 2002.

(1)           Explanation of Amendment

The Plan is amended to permit the Cinergy Corp. Benefits Committee to make certain exceptions to the general rules relating to the timing requirements for making deferral elections.

(2)           Amendment

Section 3.2(b) of the Plan is hereby amended by adding the following at the end thereof:

“Notwithstanding the foregoing, the Committee may permit a Deferral Agreement to be delivered following the first day of a Plan Year in circumstances where the Committee determines that it is appropriate and desirable.”

IN WITNESS WHEREOF, Cinergy Corp. has caused this Amendment to be executed and approved by its duly authorized officer on December 20, 2002.

By:
	Timothy J. Verhagen
	Vice President Human Resources

1

EX-10.OO

Exhibit 10.oo

CINERGY CORP. NON-UNION
EMPLOYEES’ PENSION PLAN

(As Amended and Restated

Effective January 1, 2003)

NOTE:  THIS TABLE OF CONTENTS IS NOT PART OF THE
CINERGY CORP. NON-UNION EMPLOYEES’ PENSION
PLAN; INSTEAD, THIS TABLE OF CONTENTS IS MERELY
FOR CONVENIENCE OF REFERENCE

TABLE OF CONTENTS

ARTICLE 1  DEFINITIONS
ARTICLE 2  EFFECTIVE DATE OF PLAN
ARTICLE 3  ELIGIBILITY AND PARTICIPATION
3.1	Date of Participation
3.2	Cash Balance Participation
3.3	Intermittent Employees and Temporary Employees
3.4	Leased Employees
3.5	Transfers of Employment
3.6	Transfers of Participants and Plan Assets To and From the Cinergy Corp. Union Employees’ Retirement Income Plan and Cinergy Corp. Union Employees’ Pension Plan.
3.7	Reclassification
ARTICLE 4  AMOUNT OF LIFE-ONLY PENSION
4.1	Normal Retirement Pension Formula
4.2	Normal Retirement Benefits for Participants in the PSI Plan
4.3	Normal Retirement Benefits for Participants in the MRP or RIP
4.4	General Method of Computing Annual Pension for Retirement at Early Retirement Date
4.5	General Method of Computing Annual Pension for a Terminated Vested Participant
4.6	Maximum Pension
4.7	Benefits if Plan Becomes a Top-Heavy Plan
4.8	2000 Limited Early Retirement Program
4.9	2002 Voluntary Early Retirement Program
4.10	Nonapplicability of Article
ARTICLE 4A  CASH BALANCE ACCOUNTS
4.1A	Opening Account
4.2A	Pay Credits
4.3A	Interest Credits
4.4A	Cash Balance Annual Pension
ARTICLE 5  SEVERANCE FROM SERVICE-VESTING
5.1	Vesting Requirement

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5.2	Severance from Service Before Vesting
5.3	Severance from Service After Vesting
ARTICLE 6  DEATH BENEFIT
6.1	Determination of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant
6.2	Method of Payment of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant
6.3	Preretirement Death Benefit for Cash Balance Participant
ARTICLE 7  FORMS OF PENSION
7.1	Normal Forms of Pension
7.2	Optional Forms of Retirement Income
ARTICLE 8  PAYMENT OF PENSION
8.1	Timing of Payment
8.2	Method of Payment
8.3	Small Benefits
8.4	Facility of Payment
8.5	Benefits for Late Retirees, Reemployed Retirees and Reemployed Terminated Vested Participants
8.6	Required Payment of Benefits
8.7	Direct Rollovers of Eligible Distributions
ARTICLE 9  RETIREE MEDICAL/DENTAL BENEFITS
9.1	Purpose
9.2	Eligibility
9.3	Separate Account
9.4	Impossibility of Diversion Prior To Satisfaction of All Liabilities
9.5	Reversion Upon Satisfaction of All Liabilities
9.6	Forfeitures
9.7	Employer Contributions To The Medical/Dental Benefits Account
9.8	Medical/Dental Benefits
ARTICLE 10  NONALIENATION OF BENEFITS
ARTICLE 11  ADMINISTRATION
11.1	Administrator
11.2	Removal and Replacement of Committee Members
11.3	Disqualification and Resignation
11.4	Chairperson, Services, and Counsel
11.5	Meetings
11.6	Quorum
11.7	Action Without Meeting
11.8	Notice to Trustee of Changes in Membership
11.9	Correction of Defects
11.10	Reliance Upon Legal Counsel

ii

11.11	Expenses
11.12	Indemnification
11.13	Powers and Duties of Committee
11.14	Matters Specifically Excluded from Jurisdiction
ARTICLE 12  BENEFIT CLAIMS PROCEDURES
ARTICLE 13  FUNDING POLICY AND METHOD
ARTICLE 14  MISCELLANEOUS
14.1	No Enlargement of Employee Benefits
14.2	Reemployment
14.3	Qualified Military Service
14.4	Notice of Address
14.5	Data
14.6	No Individual Liability
14.7	Participant’s Statement of Agreement
14.8	No Diversion of Assets
14.9	Governing Laws
14.10	Severability
14.11	Interpretation and Regulation of Plan
14.12	Communications by Participants
14.13	Headings
14.14	Accrued Benefit Not to be Decreased by Amendment
ARTICLE 15  TRUSTS AND INSURANCE CONTRACTS
15.1	Trusts and Insurance Contracts
15.2	Irrevocability
15.3	Sufficiency of Pension Fund
ARTICLE 16  CONTRIBUTIONS
ARTICLE 17  APPROVAL UNDER INTERNAL REVENUE CODE
ARTICLE 18  TEMPORARY RESTRICTIONS ON BENEFITS
18.1	Temporary Restrictions
ARTICLE 19  AMENDMENT AND TERMINATION
19.1	Right to Amend or Terminate
19.2	Effect of Termination
19.3	Merger and Consolidation of Plan
19.4	Post-Change in Control Merger, Consolidation, or Transfer of Pension Plan Assets or Liabilities
19.5	General Protection of Benefits in the Event of a Change in Control
19.6	Post-Change in Control Surplus Reversion

iii

ARTICLE 20  AUTHORIZED TRANSACTION
ARTICLE 21  PARTICIPATION BY OTHER EMPLOYERS
21.1	Adoption of Plan
21.2	Withdrawal from Participation
21.3	Cinergy as Agent for Employers
ARTICLE 22  CONTINUANCE BY A SUCCESSOR
ARTICLE 23  PROVISIONS RELATING TO TOP-HEAVY PLAN
23.1	Construction of this Section
23.2	Top-Heavy Determination
23.3	Effects of a Top-Heavy Determinations
ARTICLE 24  MERGER WITH THE MRP
24.1	Acceptance of Assets and Liabilities of MRP Trust
24.2	Participation of MRP Participants
ARTICLE 25  SPIN OFF OF PSI PLAN
25.1	Acceptance of Assets and Liabilities of PSI Plan Trust
25.2	Participation of PSI Plan Participants
ARTICLE 26  MRP, RIP, PSI PLAN RETIREE INCREASE
26.1	Eligible Recipient: Benefit Increase
26.2	Applicable Percentage
26.3	Definitions
26.4	Code Section 415 Limits
26.5	Miscellaneous

ADDENDUM – EGTRRA and 401(a)(9) Model Provisions

ADDENDUM A – (PSI Plan – Minimum Formulas)

ADDENDUM B – (MRP/RIP – Minimum Formulas)

ADDENDUM C – MRP/RIP 100% Spousal and Contingent Annuitant Benefit

ADDENDUM D – MRP/RIP 50% Contingent Annuitant Factors

ADDENDUM E – Level Income Option – Factors Using UP84 Mortality and 7.5% Interest

ADDENDUM F – MRP/RIP Level Income Option Factors

iv

Adopted pursuant to resolutions of the Cinergy
Corp. Benefits Committee dated December 18, 2002

CINERGY CORP. NON-UNION

EMPLOYEES’ PENSION PLAN

(As Amended and Restated Effective January 1, 2003)

INTRODUCTION

Effective January 1, 1990, the Cincinnati Gas & Electric Company adopted The Cincinnati Gas & Electric Company Management Retirement Plan (“MRP”).  Effective January 1, 1998, the MRP was renamed the Cinergy Corp. Non-Union Employees’ Pension Plan.  Also, effective as of December 31, 1997, the assets and liabilities of the PSI Plan attributable to Eligible Employees were merged into this Plan.  The Plan was amended and restated as of January 1, 1999.  The provisions of this amendment and restatement of the Plan are effective as of January 1, 2003 except where an interim effective date is otherwise provided.

This Plan is maintained for the exclusive benefit of Eligible Employees.  The purpose of the Plan is to provide retirement income for Eligible Employees.  The Plan is designed to satisfy the requirements of Code subsection 401(a) and the applicable requirements of ERISA.

ARTICLE 1

DEFINITIONS

As used in this document, the following words and phrases, when capitalized, will have the meanings set forth below, unless a different meaning is plainly required by the context.

1.1“Absence from Service” means, with respect to each Employee, his absence from service (with or without pay) with his Employer for any reason other than a quit, resignation, discharge, retirement, or death, including, but without limitation because of enumeration, vacation, holiday, sickness, disability, leave of absence (unless otherwise required by applicable law), or other layoff.  The expiration of an Employee’s Absence from Service shall be the earliest of his Actual Separation Date, the date the Employee returns to employment with his Employer or the expiration of 12 months from the first date of Absence from Service, except that for an Employee who had not become a Cash Balance Participant and who is totally disabled and qualifies for benefits under Cinergy’s Long-Term Disability Plan, the expiration of his Absence from Service will not occur until the earlier of (i) the date the Employee becomes a Cash Balance Participant (if applicable) or

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(ii) the later of (a) the date he no longer qualifies for benefits under Cinergy’s Long-Term Disability Plan, or (b) his Normal Retirement Date, Early Retirement Date, or Actual Separation Date, whichever is applicable.

1.2“Accrued Vacation Pay” means, with respect to an Exempt Employee or a Non-Exempt Employee, the compensation received at his Severance from Service for unused accrued vacation pursuant to the Employer’s applicable policy.

1.3“Active Participant” means a Participant for whom benefits are being accrued under the Plan on the applicable date.

1.4“Actual Separation Date” means:

(a)with respect to a Participant who either (1) retires on or after his Normal Retirement Date, or (2) who retires on an Early Retirement Date, the first day of the calendar month coincident with or following the date of the Participant’s Severance from Service; or

(b)with respect to a Participant who incurs a Severance from Service before he reaches age 50 and who is entitled to benefits determined under the provisions of Section 5.3 (Severance from Service After Vesting), the date of the Participant’s Severance from Service.

1.5“Actuarial Equivalent” means a benefit having the same actuarially determined value as the benefit that the Actuarial Equivalent replaces.  The determination of an Actuarial Equivalent will be based on the actuarial assumptions in Subsections (a) and (b) below, except as provided in Subsection (c), (d), (e) or (f) below:

(a)Mortality:

Participants in accordance with the UP–1984 Table, with no rating of ages; Spouses and Contingent Annuitants in accordance with the UP-1984 Table, with ages rated down three years;

(b)Interest:

7-1/2% per annum, compounded annually.

(c)Lump Sums:

With respect to any lump sum payment under Subsection 7.2(f) (Cash Balance Account Single Sum) or Section 8.3 (Small Benefits) that may be payable under the Plan during a Plan Year, the Actuarial Equivalent will be calculated using the applicable mortality table as prescribed from time to time by the Secretary of the Treasury (for distributions with Annuity Starting Dates after December 30, 2002, the mortality table prescribed in Revenue Ruling 2001–62) and an interest rate equal to the “applicable interest rate” under Code subsection 417(e) as specified by the

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Commissioner of Internal Revenue in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin (currently based on the annual rate of interest on 30-year Treasury securities) for the fifth full calendar month preceding the first day of the Plan Year in which the Annuity Starting Date occurs.

(d)           Small Lump Sums in 2003:

Notwithstanding Subsection (c), with respect to any determination of a lump sum amount pursuant to Section 8.3 (Small Benefits) for the Plan Year ending December 31, 2003 for a Participant, Spouse or Beneficiary who would have had a lump sum amount pursuant to Section 8.3 (Small Benefits) with an Annuity Starting Date after December 31, 2002 and before January 1, 2004 in an amount not in excess of $5,000 using the “applicable interest rate” as specified by the Commissioner of Internal Revenue in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin (currently based on the annual rate of interest on 30-year Treasury securities) for the second full calendar month preceding the first day of the Plan Year, the amount of the lump sum for determining whether a lump sum is payable under Section 8.3 (Small Benefits) and if applicable the amount of the lump sum payment shall be determined, and shall not be less than the amount determined, using the “applicable interest rate” as specified by the Commissioner of Internal Revenue in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin (currently based on the annual rate of interest on 30-year Treasury securities) for the second full calendar month preceding the first day of the Plan Year in which the Annuity Starting Date occurs or the fifth full calendar month preceding the first day of the Plan Year in which the Annuity Starting Date occurs, whichever produces a larger lump sum payment.

(e)Conversion of Cash Balance Account to Annuity and Related Calculations

With respect to any conversion of a Cash Balance Account (or “Projected Cash Balance Account” as defined in Subsection 4.4A(a) (General Rule)) to an Annual Pension under Subsection 4.4A(a) (General Rule), the calculations under Section 6.3 (Preretirement Death Benefit for Cash Balance Participant), the calculations under Paragraph 7.1(a)(2) (Cash Balance Participant Without Prior Conversion Pension) and the calculations under Paragraph 7.1(a)(3) (Cash Balance Participant With Prior Conversion Pension), except as otherwise provided therein, the Actuarial Equivalent will be calculated using the applicable mortality table under Code subsection 417(e) as prescribed from time to time by the Secretary of the Treasury (currently the mortality table prescribed in Revenue Ruling 2001-62) and an interest rate equal to the “applicable interest rate” under Code subsection 417(e) as specified by the Commissioner of Internal Revenue in revenue rulings, notices or other

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guidance published in the Internal Revenue Bulletin (currently based on the annual rate of interest on 30-year Treasury securities) for the fifth full calendar month preceding the first day of the Plan Year in which the Annuity Starting Date occurs.

(f)MRP/RIP/PSI Minimum.

In the case of a Participant who had an accrued benefit under the MRP, RIP, or the PSI Plan as of December 31, 1997, and who has a Severance from Service Date after December 31, 1997, no benefit determination other than lump sum payments under Subsections (c) and (d) (which shall be determined under Subsections (c) and (d), if and as applicable) will produce an amount that is less than that which would have been produced utilizing both the actuarial assumptions specified in the MRP, RIP, or the PSI Plan, whichever is applicable, as in effect on December 31, 1997, and the annual pension accrued as of December 31, 1997, determined under the provisions of the MRP, the RIP, or the PSI Plan, whichever is applicable, as then in effect.

1.6“Additional Separation Date” means, with respect to a Participant who has an Initial Separation Date and who is later reemployed by an Employer, the first day of the calendar month coincident with or following the Participant’s next Severance from Service Date.  However, if the Participant has multiple Severance from Service Dates after his Initial Separation Date, then he will have an Additional Separation Date for each Severance from Service, which will be the first day of the calendar month coincident with or following the Participant’s applicable Severance from Service Date.

1.7“Affiliate” means any employer that together with the Employer is under common control or a member of an affiliated service group as determined under Code subsections 414(b), (c), (m), and (o).  In determining whether an employer is a member of a controlled group for purposes of Section 4.6 (Maximum Pension), the rules osf Code subsections 414(b) and (c) will be applied as modified by Code subsection 415(h).

1.8“Aggregate Account” means, with respect to a Participant who is also participating in a Qualified Defined Contribution Plan that is included in an Aggregation Group, the sum of:  (a) the Participant’s account balance under the plan as of the Valuation Date; (b) an adjustment for any contributions due under the plan as of the Determination Date (the adjustment will be the amount of any contributions actually made after the Valuation Date but before the Determination Date, except for the first Plan Year when the adjustment will also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in the first Plan Year); and (c) any Plan distributions made within the Plan Year that includes the Determination Date or within the four preceding Plan Years.  However, in the case of distributions made after the Valuation Date and prior to the Determination Date, distributions are not included as distributions for

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Top-Heavy purposes to the extent that the distributions are already included in the Participant’s Aggregate Account balance as of the Valuation Date.

1.9“Aggregation Group” means either a Required Aggregation Group or a Permissive Aggregation Group.

1.10“Annual Addition” means, with respect to a Participant for a Plan Year, the following amounts credited to a Participant’s account in any Qualified Defined Contribution Plan maintained by the Employer or an Affiliate for the Plan Year:  employer contributions, employee contributions (other than rollover contributions); forfeitures; amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code paragraph 415(l)(2), that is part of a pension or annuity plan maintained by the Employer or an Affiliate; and amounts derived from contributions paid or accrued after March 31, 1984, that are attributable to post-retirement medical benefits, allocated to the separate account of a Key Employee, under a welfare benefit fund, as defined in Code subsection 419(e), maintained by the Employer or an Affiliate.

1.11(a)           “Annual Pension” for a Participant who has not become a Cash Balance Participant means, with respect to the Participant, the amount of the Participant’s pension, expressed as an annual benefit for the Participant’s lifetime commencing on his Normal Retirement Date (or, if the Participant has attained his Normal Retirement Date, the Annuity Starting Date as of which the Annual Pension is being determined) determined in accordance with Article 4 (Amount of Life-Only Pension).

(b)“Annual Pension” for a Participant who has become a Cash Balance Participant means, with respect to the Participant, the amount of the Participant’s pension, expressed as an annual benefit for the Participant’s lifetime commencing on his Normal Retirement Date (or, if the Participant has attained his Normal Retirement Date, the Annuity Starting Date as of which the Annual Pension is being determined) determined in accordance with Article 4A (Cash Balance Accounts).

(c)“Prior Conversion Pension” for (and only for) a Participant who has become a Cash Balance Participant and has had an amount credited to his Cash Balance Account in accordance with Section 4.1A (Opening Account) means the Participant’s accrued benefit amount used to determine the opening balance credited to his Cash Balance Account under Section 4.1A (Opening Account) expressed as an annual benefit for the Participant’s lifetime commencing on his Normal Retirement Date (or, if the Participant had attained his Normal Retirement Date as of the date the amount is credited to his Cash Balance Account, the date the amount is credited to his Cash Balance Account).  The Prior Conversion Pension for a Participant who has become a Cash Balance Participant and has had an amount credited to his Cash Balance Account in accordance with Section 4.1A (Opening Account) shall be determined as if the Employee had

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terminated employment with the Employer and all Affiliates as of the date immediately prior to the date the amount is credited to his Cash Balance Account or, if earlier, for an Employee who becomes a Cash Balance Participant upon reemployment the date of the Employee’s prior termination of employment.

1.12“Annual Performance Cash Award” means, with respect to an Employee, the cash award received by the Employee under the provisions of an Employer’s annual bonus or incentive pay plan or program, including, but without limitation because of enumeration, the Cinergy Annual Incentive Plan, the Cinergy Non-Union Employees’ Incentive Plan, or any successor Plan.

1.13“Annuity Starting Date” means, with respect to a Participant, the first day of the first period for which a Plan benefit is paid as an annuity or, in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred that entitle the Participant to the benefit.

1.14“Base Salary” means, with respect to an Exempt Employee, the monthly base salary received as remuneration for services performed for the relevant period, exclusive of any allowances, premiums, bonuses, overtime, or other forms or types of compensation.

1.15“Base Wage” means, with respect to a Non-Exempt Employee, the hourly base rate of pay received as remuneration for services performed for the relevant period, exclusive of any allowances, premiums, bonuses, overtime, or other forms or types of compensation, multiplied by his hours worked during the applicable period.

1.16“Beneficiary” means, with respect to each Participant, the person or persons who are to receive benefits under the Plan after the Participant’s death.

1.17“Board of Directors” means the duly constituted board of directors of Cinergy on the applicable date.

1.18“Break in Service” means, with respect to each Regular Employee, a Period of Severance of at least 12 consecutive months.  With respect to an Intermittent Employee or a Temporary Employee, a “Break in Service” means a Plan Year during which he completes 500 or fewer Hours of Service.

1.19“Cash Balance Account” means the notional account established and maintained for a Participant under the Plan pursuant to Article 4A (Cash Balance Accounts).  A Participant shall cease to have a Cash Balance Account upon commencement of distribution (subject to reinstatement as provided in the Plan).

1.20“Cash Balance Participant” means any Eligible Employee so designated in accordance with Section 3.2 (Cash Balance Participation).

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1.21“CG&E” means The Cincinnati Gas & Electric Company, and any related company that adopted the MRP or the RIP.

1.22“Change in Control” means any of the following events in (a), (b), (c), or (d) below has occurred:

(a)Any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing more than twenty percent (20%) of the combined voting power of Cinergy’s then outstanding securities, excluding any Person who becomes such a beneficial owner in connection with a transaction described in paragraph (1) of Subsection (b) below; or

(b)There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation, partnership or other entity, other than (1) a merger or consolidation that would result in the voting securities of Cinergy outstanding immediately prior to that merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the combined voting power of the securities of Cinergy or the surviving entity or its parent outstanding immediately after the merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such a Person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of Cinergy’s then outstanding securities; or

(c)During any period of two (2) consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election, or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or

(d)The stockholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated a sale or disposition by

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Cinergy of all or substantially all of Cinergy’s assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by stockholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to the sale.

(e)For purposes of this Section, “Person” has the meaning set forth in paragraph 3(a)(9) of the Securities Exchange Act, as modified and used in subsections 13(d) and 14(d) of the Securities Exchange Act; however, a Person will not include the following: (1) Cinergy or any of its subsidiaries or affiliates; (2) a trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries or affiliates; (3) an underwriter temporarily holding securities pursuant to an offering of those securities; or (4) a corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of Cinergy.

1.23“Cinergy” means Cinergy Corp., a Delaware corporation, and any corporation that succeeds to its business and adopts the Plan.

1.24“Claimant” means a person submitting a claim for benefits under the Plan.

1.25“Code” means the Internal Revenue Code of 1986, as amended from time to time, and interpretive rulings and regulations.

1.26“Committee” means the benefits committee established pursuant to Article 11 (Administration) to serve as Plan administrator.

1.27“Contingent Annuitant” means, with respect to any Participant electing a contingent pension option under Section 7.2 (Optional Forms of Retirement Income), the person designated by the Participant to receive a contingent pension after the Participant’s death.

1.28“Covered Compensation” means, with respect to a Participant, the average (without indexing) of the annual Social Security taxable wage bases under the Social Security Act for each year during the 35 calendar years ending with the last day of the calendar year in which the Participant reaches his Social Security Retirement Age.  In determining a Participant’s Covered Compensation, the Social Security taxable wage base for all calendar years beginning after the year of the Participant’s Severance from Service Date is assumed to be the same as the taxable wage base in effect as of the beginning of the year in which the Participant’s Severance from Service Date occurs.  The determination of a Participant’s Covered Compensation shall be made in accordance with Code subsection 401(l).

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1.29“Defined Benefit Plan Fraction” means, with respect to an individual participating in one or more Qualified Defined Benefit Plans for any calendar year, the fraction, the numerator of which is the individual’s Projected Annual Benefit under the Qualified Defined Benefit Plans (determined as of the end of the calendar year), and the denominator of which is the lesser of:  (a) the product of 1.25 (1.0 if the Plan is a Top-Heavy Plan for the particular calendar year) multiplied by the dollar limitation in effect under Code subparagraph 415(b)(1)(A) for that calendar year, or (b) the product of 1.4 multiplied by the amount that may be taken into account under Code subparagraph 415(b)(1)(B) with respect to the individual under the Qualified Defined Benefit Plans for the calendar year.

1.30“Defined Contribution Plan Fraction” means, with respect to an individual participating in one or more Qualified Defined Contribution Plans for any calendar year, the fraction, the numerator of which is the sum of the Annual Additions with respect to the Participant (determined as of the close of the calendar year), and the denominator of which is the lesser of the following amounts (determined for that calendar year and for each prior calendar year of service with the Employer):  (a) the product of 1.25 (1.0 if the Plan is a Top-Heavy Plan for the particular calendar year) multiplied by the dollar limitation in effect under Code subparagraph 415(c)(1)(A) for the calendar year (determined without regard to Code paragraph 415(c)(6)), or (b) the product of 1.4 multiplied by the amount that may be taken into account under Code subparagraph 415(c)(1)(B) with respect to that individual under all Qualified Defined Contribution Plans for the calendar year.

1.31“Dependent” means any individual who is eligible for coverage under the Medical/Dental Plan as the “spouse” or “dependent” of an Eligible Retiree.

1.32“Determination Date” means, for purposes of determining whether the Plan is a Top-Heavy Plan for any Plan Year, the last day of the preceding Plan Year, or, for the first Plan Year, the last day of the Plan Year.

1.33“Direct Rollover” means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

1.34“Disability Date” means, with respect to a Participant, the date the Participant is first determined to be totally disabled under Cinergy’s Long Term Disability Plan, as amended from time to time.

1.35“Distributee” means an Employee or former Employee.  In addition, the Employee’s or former Employee’s surviving Spouse, and the Employee’s or former Employee’s Spouse who is the alternate payee under a Qualified Domestic Relations Order are Distributees with regard to the interest of the Spouse or former Spouse.

1.36“Early Retirement Date” means, with respect to each Participant who has satisfied the Vesting Requirement, and whose Severance from Service occurs on or after

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his 50th birthday but prior to his Normal Retirement Date, the first day of the calendar month coincident with or following his Severance from Service.  The Early Retirement Date definition, however, shall not apply to a Participant for periods on and after the Participant becomes a Cash Balance Participant except as otherwise provided in Article 4A (Cash Balance Accounts).

1.37“Earnings” means, with respect to any Employee for any period of reference, the sum of the Employee’s:  (a) Base Salary or Base Wage, (b) Overtime Pay, (c) Shift Premiums, (d) Work Schedule Recognition Pay, (e) Holiday Premiums, (f) Accrued Vacation Pay, (g) Performance Lump Sum Pay, and (h) Annual Performance Cash Awards.  “Earnings” does not include (a) reimbursements or other expense allowances, (b) fringe benefits (cash and noncash) other than those named in the preceding sentence, (c) moving and relocation expenses, (d) deferred compensation, (e) welfare benefits, (f) Long-Term Performance Awards, (g) Executive Individual Incentive Awards, (h) other forms of compensation or remuneration that are not specifically named in the preceding sentence, or (i) any payments received by an Employee from any Affiliate that is not an Employer.

Notwithstanding the foregoing provisions of this Section, an Employee’s Earnings taken into account for any Plan Year will not exceed $150,000, as adjusted pursuant to Code paragraph 401(a)(17).

1.38“Eligible Employee” means an Employee other than a Leased Employee or an Employee whose terms and conditions of employment are governed by a collective bargaining agreement that does not provide for participation in this Plan.  Notwithstanding the foregoing provisions of this Section 1.38, Eligible Employee shall not include any Employee of Vestar, Inc. whose Employment Commencement Date is after December 31, 2002.

1.39“Eligible Individual” means an Eligible Retiree or a Dependent.

1.40“Eligible Retiree” means an individual who:

(a)is a Retired Participant who is also eligible to participate in the Medical/Dental Plan, and

(b)is not a Key Employee at any time during the current Plan Year and has not been a Key Employee at any time during any previous Plan Year for which contributions were made for that individual’s benefit to the Medical/Dental Benefits Account.

1.41“Eligible Retirement Plan” means an individual retirement account described in Code subsection 408(a), an individual retirement annuity described in Code subsection 408(b), an annuity plan described in Code subsection 403(a), or a qualified trust described in Code subsection 401(a), that accepts the Distributee’s Eligible Rollover Distribution.  However, in the case of an Eligible Rollover

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Distribution to a surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

1.42“Eligible Rollover Distribution” means any distribution of all or a portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include:  any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s Beneficiary, or for a specified period of ten years or more; any distribution to the extent that the distribution is required under Code paragraph 401(a)(9); and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

1.43“Employee” means any person who is employed by an Employer, other than as an employee classified by his Employer as a summer laborer or summer employee, and who receives compensation that the Employer initially reports on a federal wage and tax statement (Form W–2).  For purposes of crediting Service or Years of Eligibility Service for purposes of eligibility to participate and vesting and, except as otherwise provided, for purposes of the rules set out in Section 4.6 (Maximum Pension) and Article 23 (Provisions Relating to Top-Heavy Plan), the term “Employee” includes a Leased Employee.

1.44“Employer” means Cinergy and any Affiliate that, with the consent of the Board of Directors, elects to participate in the Plan pursuant to Section 21.1 (Adoption of Plan) and any successor corporation or other organization or entity that adopts the Plan pursuant to Article 22 (Continuance by a Successor).  If any Affiliate withdraws from participation in the Plan pursuant to Section 21.2 (Withdrawal from Participation), that Affiliate will cease to be an Employer.

1.45“Employment Commencement Date” means, with respect to each Employee, the date as of which the Employee is first entitled to be credited with an Hour of Service.

1.46“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and interpretive rulings and regulations.

1.47“Executive Individual Incentive Awards” means, with respect to an Employee, any cash or stock-based award (other than Annual Performance Cash Awards) received by a Highly Compensated Participant pursuant to the terms of any individualized bonus or incentive pay plan or program, including, but without any limitation because of enumeration, any retention or signing bonus.

1.48“Exempt Employee” means an Eligible Employee whose pay is customarily computed on a salaried basis, and whose employment is not subject to FLSA overtime and record keeping provisions.

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1.49“Final Average Earnings” means the average of the Participant’s Section 415 Compensation over the five consecutive years of employment with his Employer that provide the highest average, excluding compensation in years before January 1, 1984, and compensation in years after the close of the last Plan Year in which the Plan is determined to be a Top-Heavy Plan.

1.50“FLSA” means the Fair Labor Standards Act of 1938, as amended from time to time, and interpretive rulings and regulations.

1.51“Group Annuity Contract” means Group Annuity Contract No. 9599GAC issued by John Hancock Mutual Life Insurance Company, as amended or replaced from time to time.

1.52“Highest Average Earnings” means a Participant’s highest average annual Earnings for any three consecutive calendar years out of his last ten years of Participation.  However, if the Participant completes fewer than three years of Participation, his Highest Average Earnings will mean his average annual Earnings for his total years of Participation.  If a Participant is totally disabled and qualifies for benefits under Cinergy’s Long-Term Disability Plan until his Normal Retirement Date, Early Retirement Date, or Actual Separation Date, whichever is applicable, his Severance from Service Date will be deemed for purposes of this section to be his Disability Date.  For purposes of this Section, if a Participant’s Severance from Service Date is other than December 31, the following periods will be treated as a period of three consecutive calendar years:

(a)His months of Participation in the calendar year that includes his Severance from Service Date; plus

(b)The two (or fewer) full calendar years of Participation prior to his Severance from Service Date; plus

(c)From the calendar year immediately preceding the period described in Subsection (b), the lesser of (1) the Participant’s months of Participation in that year, or (2) the number of months equal to 12 minus the number of months included pursuant to Subsection (a).  A Participant’s Earnings will be deemed to have been earned ratably throughout the period described in this Subsection (c).

1.53“Highly Compensated Participant” means a highly compensated active Employee and a highly compensated former Employee.  A highly compensated active Employee includes any Employee who performs service for the Employer during the Plan Year and who (a) is a 5% owner for that Plan Year or was a 5% owner for the prior Plan Year; or (b) for the preceding Plan Year received compensation from the Employer in excess of $80,000 (as adjusted pursuant to Code subsection 415(d)).  The Employer does not elect to require that a highly compensated active Employee must be a member of the Employer’s top-paid group for the preceding Plan Year.

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A highly compensated former Employee includes any Employee who terminated employment (or was deemed to have terminated employment) prior to the Plan Year, performs no service for the Employer during the Plan Year, and was a highly compensated active Employee for either the Plan Year during which he terminated employment or any Plan Year ending on or after the Employee’s 55th birthday.

The determination of who is a Highly Compensated Participant, including the determination of the compensation that is considered, will be made in accordance with Code subsection 414(q).

1.54“Holiday Premiums” means, with respect to a Non-Exempt Employee, the compensation received as a premium for services performed for the relevant period for working on a holiday recognized by the Employer pursuant to its applicable policy.

1.55“Hour of Service” means, with respect to any Employee, any of the following:

(a)each hour for which he is paid, or entitled to payment, by an Employer for the performance of duties for that Employer;

(b)each other hour for which back pay, irrespective of mitigation of damages, has been either awarded to him or agreed to be paid to him by an Employer;

(c)each other hour for which he is absent from his normal period of employment with his Employer due to an approved military leave, maternity leave, paternity leave, adoption leave, worker’s compensation leave, personal leave of six consecutive months or less, sick leave of six consecutive months or less, or total disability qualifying him for benefits under Cinergy’s Long-Term Disability Plan for a period of no more than twelve months for all purposes except that a Participant can receive more than twelve months for purposes of determining his Participation under Section 1.73; and

(d)each other hour for which he is paid, or entitled to payment, by an Employer for a period of time during which he does not perform any duties for that Employer (irrespective of whether or not his employment relationship with that Employer has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, witness duty, military duty, or leave of absence.

In computing an Hour of Service, the Plan may use the equivalencies set forth in paragraph (e) of 29 C.F.R. §2530.200b–3.  However, if different equivalencies are used for different classifications of Employees, then those classifications must be reasonable and consistently applied.  Each Hour of Service will be credited to the Employee for the appropriate computation period in accordance with the

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provisions of paragraphs (b) and (c) of 29 C.F.R. §2530.200b–2, and each Hour of Service, when aggregated for a particular computation period, will constitute the Hours of Service credited to the Employee for that computation period.  However, no Employee will be credited under Subsection (d) either with more than 501 Hours of Service on account of any single continuous period during which the Employee performs no duties for an Employer irrespective of whether or not that period occurs in a single computation period, or with an hour for which the Employee is paid, or entitled to payment, by an Employer if that payment is made solely for the purposes of either reimbursing the Employee for medical or medically related expenses incurred by the Employee or complying with applicable worker’s compensation, unemployment compensation, or disability insurance laws.  However, the crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in Subsection (d) of this Section will be subject to the same limitations set forth in the immediately preceding sentence with respect to Subsection (d).

1.56“Initial Separation Date” means, with respect to a Participant who is entitled to benefits under the provisions of Section 5.1 (Vesting Requirement), Section 5.2 (Severance from Service Before Vesting), or Section 5.3 (Severance from Service After Vesting), the first day of the calendar month coincident with or following the Participant’s initial Severance from Service Date.

1.57“Insurance Company” means any insurance company holding any part of the Pension Fund.

1.58“Interest Credits” means the credits to the Cash Balance Account described in Section 4.3A (Interest Credits).

1.59“Intermittent Employee” means an Eligible Employee who performs services intermittently from time to time as needed by the Employer and as mutually agreed by the Employer and the Employee.  An Employee who is an Intermittent Employee and becomes a Cash Balance Participant shall be deemed to have become and to be a Regular Employee (and not an Intermittent Employee) for periods on and after the first day on which he becomes a Cash Balance Participant.

1.60“Key Employee” means an Employee or former Employee of an Employer who, at any time during the determination period, is:

(a)an officer of an Employer having annual Section 415 Compensation from his Employer greater than 50 percent of the amount in effect under Code subparagraph 415(b)(1)(A) for any Plan Year;

(b)one of the ten Employees having annual Section 415 Compensation from his Employer of more than the limitation in effect under Code subparagraph 415(c)(1)(A) and owning (or considered as owning within the meaning of Code section 318) the largest interests in the Employer.

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(c)the owner (or considered as the owner within the meaning of Code section 318) either of more than five percent of the outstanding stock of Cinergy, or stock possessing more than five percent of the total combined voting power of all stock of Cinergy; or

(d)the recipient of at least $150,000 in annual Section 415 Compensation from the Employer and who owns (or is considered as owning within the meaning of Code section 318) either more than one percent of the outstanding stock of Cinergy or stock possessing more than one percent of the total combined voting power of all stock of Cinergy.

However, no more than 50 Employees of an Employer will be deemed to be officers for any particular Plan Year.  Also, the term Key Employee includes the beneficiaries of a Key Employee.  For purposes of Subsection (b) above, if two Employees have the same interest in the Employer, the Employee having greater annual Earnings from his Employer will be treated as having a larger interest.  The determination of who is a Key Employee will be made in accordance with Code paragraph 416(i)(1).

1.61“Leased Employee” means any person who performs services for another person, the “recipient,” but who is not an employee of the recipient, if (a) the services are provided pursuant to an agreement between the recipient and any other person, (b) the person has performed the services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least one year, and (c) the services are performed under the primary direction and control of the recipient.  A Leased Employee will not be considered an employee of the recipient if:

(a)that employee is covered by a money purchase pension plan providing:

(1)a non-integrated employer contribution rate of at least 10 percent of compensation, as defined in Code paragraph 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement that are excludable from the Employee’s gross income under Code section 125, Code paragraph 402(a)(8), or Code subsections 402(h) or 403(b);

(2)immediate participation;

(3)full and immediate vesting; and

(b)leased employees do not constitute more than 20 percent of the recipient’s non-highly compensated work force.

1.62“Long-Term Performance Awards” means, with respect to an Employee, the cash or stock-based award received by the Employee pursuant to the provisions of an Employer’s long-term bonus or incentive pay plan or program, including, but

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without limitation because of enumeration, the Cinergy Performance Shares Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan.

1.63“Medical/Dental Benefits” means the benefits specified and payable under Section 9.8 (Medical/Dental Benefits) from the Medical/Dental Benefits Account.

1.64“Medical/Dental Benefits Account” means the separate account established pursuant to Article 9 (Retiree Medical/Dental Benefits) for contributions to fund benefits payable under Article 9 (Retiree Medical/Dental Benefits).

1.65“Medical/Dental Plan” means any plan or program that is established by the Employer to provide medical or dental insurance coverage or medical or dental expense reimbursements to Eligible Individuals.

1.66“MRP” means The Cincinnati Gas & Electric Company Management Retirement Plan, as in effect immediately prior to January 1, 1998.

1.67“Non-Exempt Employee” means an Eligible Employee whose pay is customarily computed on an hourly, weekly, or bi-weekly basis, and whose employment is subject to FLSA overtime and record keeping provisions.

1.68“Nonforfeitable” means, with respect to a Participant’s claim for benefits under the Plan, that the claim is unconditional, legally enforceable, and not subject to divestment except in accordance with the Plan’s specific provisions, including, but without limitation because of enumeration, the provisions of Section 15.3 (Sufficiency of Pension Fund).

1.69“Normal Retirement Date” means, with respect to each Participant, the first day of the calendar month coincident with or following his 65th birthday.

1.70“Option Effective Date” means a Participant’s Actual Separation Date, unless further extended with respect to a Participant making a timely election during the applicable election period, in which case the Option Effective Date will be the first day of the calendar month coincident with or following the last day of the applicable election period, provided he has timely elected the option on or before that date.

1.71“Overtime Pay” means, with respect to an Employee, the compensation received as remuneration consistent with the requirements of the FLSA, or for services performed for the relevant period for hours worked beyond the Employee’s regularly scheduled work hours pursuant to the Employer’s applicable policy.

1.72“Participant” means any Eligible Employee who has met the eligibility requirements set forth in Article 3 (Eligibility and Participation) and for whom benefits are to be provided under the Plan.

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1.73“Participation” means, with respect to an Eligible Employee, the period of time during which he is treated as a Participant in the Plan, the length of which will be determined as follows:

(a)A Regular Employee will be credited with Participation for the period of time beginning with the later of (1) January 1, 1998, or (2) his Employment Commencement Date and ending on his Severance from Service Date.

(b)A Regular Employee will be credited with Participation for any Period of Credited Severance during which he is a Participant or former Participant.

(c)An Intermittent Employee or Temporary Employee who has become a Participant pursuant to Section 3.2 (Intermittent Employees and Temporary Employees) will be credited, retroactively if necessary, with Participation beginning on the later of (1) January 1, 1998, or (2) his Employment Commencement Date.  An Intermittent Employee or Temporary Employee will be credited with one year of Participation for each Plan Year in which he completes at least 1,000 Hours of Service.  An Intermittent Employee or Temporary Employee will not be credited with any Participation for any Plan Year in which he completes less than 1,000 Hours of Service.

(d)If an Intermittent or Temporary Employee becomes a Regular Employee on a date other than the first day of a Plan Year, all of his Hours of Service completed during the Plan Year in which the change in employment status occurred will be counted.  If the Employee completes at least 1,000 Hours of Service during that Plan Year, he will be credited with one year of Participation for the Plan Year in which the change occurred.  If the Employee does not complete at least 1,000 Hours of Service during the Plan Year in which the change occurred, he will be credited with one month of Participation for each calendar month during that Plan Year in which he is credited with at least one Hour of Service as a Regular Employee.

(e)Notwithstanding any other provision of this Plan to the contrary, an Eligible Employee who accrued “years of accredited service” (as defined in the MRP and the RIP) under the MRP or the RIP or “years of participation” (as defined in the PSI Plan) under the PSI Plan will be credited with years of Participation under this Plan for the years of accredited service credited to him under the MRP or the RIP and the years of participation credited to him under the PSI Plan before January 1, 1998.

(f)In determining an Eligible Employee’s total Participation for purposes of the Plan, all periods of service that are credited to the Employee under Subsections (a) through (e) above will be aggregated.  In no event will an Employee be credited more than once for the same period of Participation.

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(g)Notwithstanding Subsection (f), if an Eligible Employee is a Reemployed Retiree or a Reemployed Terminated Vested Participant, and his “years of participation” (as defined in the PSI Plan) under the PSI Plan or his “years of accredited service” (as defined in the MRP or RIP) under the MRP or RIP were subject to a maximum under the pension formula applicable to the Eligible Employee at the time he incurred a Severance from Service, that Eligible Employee’s total Participation when he again incurs a Severance from Service under the Plan will not exceed the sum of his maximum pre-1998 years and the Eligible Employee’s years of Participation during his period of reemployment.

1.74“Pay Credits” means the credits to the Cash Balance Account described in Section 4.2A (Pay Credits).

1.75“Pension Fund” or “Fund” means the fund established in consequence of and for the purposes of the Plan to provide the benefits under the Plan, including all funds held in all trusts and group annuity contracts that are being used as funding media for the Plan.

1.76“Performance Lump Sum Pay” means, with respect to an Exempt Employee or a Non-Exempt Employee, the compensation received as remuneration based upon the Employee’s performance when the Employer’s applicable merit pay policy would otherwise preclude a performance based increase.

1.77“Period of Credited Severance” means, with respect to each Regular Employee who has incurred a Severance from Service, and who, within 12 Months of his Severance from Service Date, performs an Hour of Service, the Period of Severance commencing on the Regular Employee’s Severance from Service Date and ending on the date thereafter upon which he first performs an Hour of Service.  In the case of a Regular Employee who has incurred a Severance from Service that occurs during an Absence from Service by reason of a maternity or paternity absence as defined in Subsection 1.99(b), the period between the first and second anniversaries of the first day of absence will not be a Period of Credited Severance.

1.78“Period of Severance” means, with respect to each Regular Employee, the period of time commencing on his Severance from Service Date and ending on the date thereafter upon which he first performs an Hour of Service.

1.79“Permissive Aggregation Group” means an Aggregation Group that may include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code paragraph 401(a)(4) and Code section 410.

1.80“Plan” means the pension plan known as the “Cinergy Corp. Non-Union Employees’ Pension Plan,” as amended, from time to time.  As effective January 1, 2003, this document sets forth the Plan.

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1.81“Plan Year” means the calendar year.

1.82“Present Value of Accrued Benefits” means, with respect to Top-Heavy Plan status, the sum of:

(a)the present value of the Plan’s accrued benefits using the 1994 Group Annuity Reserving Table with a 50/50 mix of males and females and 7–1/2% interest, and

(b)any Plan distributions made within the Plan Year that includes the Determination Date or within the four preceding Plan Years.  However, in the case of distributions made after the Valuation Date and prior to the Determination Date, the distributions are not included as distributions for Top-Heavy Plan purposes to the extent that the distributions are already included in the Participant’s present value of accrued benefits as of the Valuation Date.

1.83“Projected Annual Benefit” means, with respect to any Participant participating in a Qualified Defined Benefit Plan maintained by an Employer or an Affiliate, the annual straight life annuity benefit to which the Participant would be entitled under that Qualified Defined Benefit Plan based upon the following assumptions:

(a)the Participant will continue as an employee of an Employer until reaching the Participant’s normal retirement age under the plan (or the Participant’s current age if that is later);

(b)the Participant’s compensation used to determine benefits under the plan for the calendar year under consideration will remain the same until the date the Participant attains the age described in Paragraph (a); and

(c)all other relevant factors used to determine benefits under the plan for the calendar year under consideration will remain constant for all future calendar years.

1.84“PSI Plan” means the PSI Energy, Inc. Pension Plan, as in effect immediately prior to January 1, 1998.

1.85“Qualified Defined Benefit Plan” means any qualified defined benefit plan as defined in Code subsections 414(j) and 415(k).

1.86“Qualified Defined Contribution Plan” means any qualified defined contribution plan as defined in Code subsections 414(i) and 415(k).

1.87“Qualified Domestic Relations Order” means a qualified domestic relations order as defined in Code subsection 414(p).

1.88“Reduced Primary Social Security Benefit” means the reduced amount of primary federal old age insurance benefit estimated by the Committee that is, or would be,

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payable or estimated to become payable to a Participant at his earliest eligibility date.  The estimate is based on the Social Security Act as in effect at the Participant’s Option Effective Date.  If a Participant supplies documentation from the Social Security Administration of his or her actual Reduced Primary Social Security Benefit at least 60 days before his or her Option Effective Date, that amount will be used in lieu of the estimate referred to above.  A Reduced Primary Social Security Benefit calculated using actual documentation will not be recalculated.

1.89“Reemployed Retiree” means a Participant, other than a Terminated Vested Participant, who is reemployed by an Employer after his Initial Separation Date or an Additional Separation Date.

1.90“Reemployed Terminated Vested Participant” means a Terminated Vested Participant who is reemployed by an Employer after his Initial Separation Date or an Additional Separation Date.

1.91“Reemployment Commencement Date” means, with respect to an Eligible Employee who incurs a Severance from Service and is later reemployed by an Employer, the date upon which the Eligible Employee first performs an Hour of Service after his reemployment.

1.92“Regular Employee” means an Eligible Employee who is not an Intermittent Employee or a Temporary Employee.  An Employee who is an Intermittent or Temporary Employee and becomes a Cash Balance Participant shall be deemed to have become and to be a Regular Employee (and not an Intermittent Employee or Temporary Employee) for periods on and after the first day on which he becomes a Cash Balance Participant.

1.93“Required Aggregation Group” means an Aggregation Group consisting of each plan of an Employer, including any terminated plan, in which a Key Employee has been a Participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer that enables any plan in which a Key Employee participates to meet the requirements of Code subsection 401(a) or Code section 410.

1.94“Retired Participant” means a former Participant, other than a Terminated Vested Participant, while alive on and after his Actual Separation Date.

1.95“RIP” means The Cincinnati Gas & Electric Company Retirement Income Plan, as in effect immediately prior to January 1, 1998.

1.96“Section 415 Compensation” means an Eligible Employee’s earned income, wages, salaries, and fees for professional services, and other amounts received for personal services actually rendered in the course of employment with the Employer (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on

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insurance premiums, tips and bonuses) and, except as provided in the following sentence, excluding the following:  (a) Employer contributions to a plan of deferred compensation that are not included in the Employee’s gross income for the taxable year in which contributed or any distributions from a plan of deferred compensation; (b) amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; and (c) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option.  Notwithstanding the foregoing, Section 415 Compensation will include any elective deferral as defined in Code paragraph 402(g)(3) and amounts contributed by an Employer pursuant to a salary reduction agreement that are excludable from the Employee’s gross income under Code section 125 or 457.  For limitation years beginning on and after January 1, 2001, for purposes of applying the limitations described in Section 4.6 (Maximum Pension) of the Plan, Section 415 Compensation paid or made available during such limitation year shall include elective amounts that are not includable in the gross income of the Employee by reason of Code paragraph 132(f)(4).

1.97“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and interpretive rulings and regulations.

1.98“Service” means, with respect to an Eligible Employee, the period of time during which the employment relationship exists between the Eligible Employee and the Employer, the length of which is determined as follows:

(a)A Regular Employee will be credited with Service for the period of time beginning with his Employment Commencement Date and ending on his Severance from Service Date.

(b)A Regular Employee will be credited with Service for each Period of Credited Severance.

(c)An Intermittent Employee or Temporary Employee who has completed one Year of Eligibility Service will be credited, retroactively if necessary, with Service beginning on his Employment Commencement Date.  An Intermittent Employee or Temporary Employee will be credited with one year of Service for each Plan Year in which he completes at least 1,000 Hours of Service.  An Intermittent Employee or Temporary Employee will not be credited with any Service for any Plan Year in which he completes less than 1,000 Hours of Service.

(d)If an Intermittent or Temporary Employee becomes a Regular Employee on a date other than the first day of a Plan Year, all of his Hours of Service completed during the Plan Year in which the change in employment status occurred will be counted.  If the Employee completes at least 1,000 Hours of Service during that Plan Year, he will be credited with one year of Service for the Plan Year in which the change occurred.  If the Employee

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does not complete at least 1,000 Hours of Service during the Plan Year in which the change occurred, he will be credited with one month of Service for each calendar month during that Plan Year in which he is credited with at least one Hour of Service as a Regular Employee.

(e)An Eligible Employee will be credited with Service for any period of Service with an Affiliate (including an Employer) after he has reached age 18, which for an Affiliate will be determined as if he had been employed by the Employer during that period.

(f)Notwithstanding any other provision of the Plan to the contrary, any Eligible Employee who accrued “years of service” (as defined in the PSI Plan) under the PSI Plan or “years of vesting service” (as defined in the MRP or RIP) under the MRP or the RIP will be credited with Service for the years of service credited to him under the PSI Plan and the years of vesting service credited to him under the MRP or RIP before January 1, 1998.

(g)In determining an Eligible Employee’s total Service for purposes of the Plan, all periods of Service that are credited to the Employee under Subsections (a) through (f) above will be aggregated, subject to the provisions in Section 14.2 (Reemployment).  In no event will an Employee receive credit more than once for the same period of Service.

1.99         “Severance from Service” means, with respect to an Employee:

(a)the date of termination of his employment relationship with his Employer by reason of a quit, resignation, discharge, retirement, death, or layoff of the Employee for an indefinite period of time made without any expectation on the part of the Employer at the time of layoff to recall the Employee, for employment with the Employer as an Employee within 12 months from the date of the commencement of the layoff; or

(b)the first anniversary of the first date of the Employee’s Absence from Service or, if later, and solely for purposes of determining a Participant’s Participation under Section 1.73 (Participation), the expiration of an Absence from Service.  Notwithstanding the preceding sentence, if an Employee has an Absence from Service of more than one year by reason of a maternity or paternity absence, the Employee’s Severance from Service occurs on the second anniversary of that absence; provided that the period between the first and second anniversaries of the first day of such Absence from Service is neither a period of service nor a period of severance.  For purposes of this Subsection, an Absence from Service for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of that individual, (3) by reason of the placement of a child with the individual in connection with the adoption of the child by that individual, or (4) for

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purposes of caring for the child for a period beginning immediately following its birth or placement.

For purposes of this Subsection, the term “Employer” includes all Affiliates, and an Employee or former Employee will not be treated as having incurred a Severance from Service until the employment relationship between the Employee and all Employers and Affiliates is terminated.

1.100       “Severance from Service Date” means, with respect to each Employee, the date of his Severance from Service.

1.101“Shift Premiums” means, with respect to a Non-Exempt Employee, the compensation received as a premium for services performed for the relevant period for working a shift other than the Employer’s regular day shift pursuant to the Employer’s applicable policy.

1.102“Social Security Act” means the federal Social Security Act, 42 U.S.C. §301, et seq., as amended from time to time, and interpretive rulings and regulations.

1.103“Social Security Retirement Age” means respectively (a) age 65 for a Participant born before January 1, 1938; (b) age 66 for a Participant born after December 31, 1937, but before January 1, 1955; and (c) age 67 for a Participant born after December 31, 1954.

1.104“Spouse” means, with respect to any Participant, the Participant’s lawfully married spouse, if any, on the applicable date.  The Plan will not recognize common law marriages or similar arrangements unless required to do so by federal law.  A former Spouse will also be considered a Spouse to the extent provided under a Qualified Domestic Relations Order.

1.105“Super Top-Heavy Plan” means a Qualified Defined Benefit Plan or a Qualified Defined Contribution Plan described in Section 23.2 (Top-Heavy Determination).

1.106“Temporary Employee” means an Eligible Employee who is regularly scheduled to work less than 20 hours per week or to work on a non-fixed schedule.  An Employee who is a Temporary Employee and becomes a Cash Balance Participant shall be deemed to have become and to be a Regular Employee (and not a Temporary Employee) for periods on and after the first day on which he becomes a Cash Balance Participant.

1.107“Terminated Vested Participant” means a Participant who is entitled to benefits under the provisions of Section 5.3 (Severance from Service After Vesting).

1.108“Top-Heavy Group” means an Aggregation Group described in Section 23.2 (Top-Heavy Determination).

1.109“Top-Heavy Plan” means a Qualified Defined Benefit Plan or a Qualified Defined Contribution Plan described in Section 23.2 (Top-Heavy Determination).

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1.110“Top-Heavy Plan Year” means a particular Plan Year for which the Plan is a Top-Heavy Plan.

1.111“Trust Fund” means the trust established by the Employer to fund the Plan.

1.112“Trustee” means the person or entity designated by Cinergy to act as trustee of any trust forming a part of the Pension Fund.

1.113“Valuation Date” means, in connection with Article 23 (Provisions Relating to Top-Heavy Plans), the most recent valuation date for minimum funding purposes under the Plan that falls within or ends with the 12 month period ending on the Determination Date.

1.114“Vesting Requirement” means, with respect to each Participant, the requirements for the vesting of his accrued benefits under the Plan.

1.115“Work Schedule Recognition Pay” means, with respect to an Exempt Employee, the compensation received as remuneration for services performed for the relevant period for working a shift other than the Employer’s regular day shift pursuant to the Employer’s applicable policy.

1.116“Year of Eligibility Service” means, with respect to an Intermittent Employee or a Temporary Employee, a measuring year during which he completes at least 1,000 Hours of Service.  The first measuring year begins on the Employee’s Employment Commencement Date (or, with respect to any periods after a Severance from Service, his Reemployment Commencement Date) and subsequent measuring years will be the Plan Year, beginning with the first Plan Year that begins after the Employee’s Employment Commencement date (or, if applicable, Reemployment Commencement Date).  If an Intermittent Employee or a Temporary Employee has a Severance from Service during a measuring year and has a subsequent Reemployment Commencement Date during that measuring year, then:  (a) for purposes of determining whether the Employee accumulated a Year of Eligibility Service during the measuring year, the total Hours of Service accumulated by the Employee during that measuring year both before and after the Severance from Service will be aggregated, and (b) for purposes of determining whether the Employee accumulated a Year of Eligibility Service during the measuring year commencing on his Reemployment Commencement Date, the total Hours of Service accumulated by the Employee during that subsequent measuring year will be aggregated.

The uses of singular and masculine words are for practical purposes only and will be deemed to include the plural and feminine, respectively, unless the context plainly indicates a distinction.  Certain other definitions, as required, appear in the following Articles of the Plan.

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ARTICLE 2

EFFECTIVE DATE OF PLAN

The original effective date of the MRP was January 1, 1990.  The effective date of this Plan restatement is January 1, 2003 (except where an interim effective date is otherwise provided), as to Cinergy, and will be effective with respect to any other Employer as of the date that Employer elects to participate in the Plan pursuant to Section 21.1 (Adoption of Plan).

This Plan restatement applies only to Eligible Employees who are credited with at least one Hour of Service on or after January 1, 2003.  This Plan restatement will not affect the rights of former Eligible Employees (and their Beneficiaries) who retired, died, or otherwise terminated their employment with an Employer prior to January 1, 2003, except that such persons shall be subject to (i) the general administrative provisions of the Plan, (ii) any provisions of the Plan required by the Code, ERISA or other legislative or regulatory pronouncements to be effective prior to the effective date of this January 1, 2003 restatement (and only to the extent so required) and (iii) any provisions of the Plan as otherwise provided herein.  The rights, if any, of those former Eligible Employees (and their Beneficiaries), and the amounts of their benefits, if any, will be governed by the provisions of the PSI Plan, the RIP or the MRP, or the provisions of the Plan as in effect prior to January 1, 2003, whichever is applicable, except that such persons shall be subject to (i) the general administrative provisions of the Plan, (ii) any provisions of the Plan required by the Code, ERISA or other legislative or regulatory pronouncements to be effective prior to the effective date of this January 1, 2003 restatement (and only to the extent so required) and (iii) any provisions of the Plan as otherwise provided herein.

ARTICLE 3

ELIGIBILITY AND PARTICIPATION

3.1           Date of Participation

Each Employee who is an Eligible Employee on January 1, 2003, and who was participating in the Plan as of December 31, 2002, will become a Participant as of January 1, 2003.  Except as provided in Section 3.3 (Intermittent Employees and Temporary Employees), each other Eligible Employee will automatically become a Participant on the latest of January 1, 2003, his Employment Commencement Date, or the date he reaches age 18.  An Eligible Employee who becomes a Participant, subsequently incurs a Severance from Service, and is later reemployed by an Employer will again become a Participant on his Reemployment Commencement Date.

3.2           Cash Balance Participation

Each Employee who becomes a Cash Balance Participant in accordance with this Section 3.2 (Cash Balance Participation) shall accrue a benefit while a Cash

25

Balance Participant only under the terms of the Plan that are applicable to Cash Balance Participants.  The accrued benefit under the Plan (if any) of the Employee prior to becoming a Cash Balance Participant shall be determined as if the Employee had terminated employment with the Employer and all Affiliates as of the date immediately prior to becoming a Cash Balance Participant or, if earlier, for an Employee who becomes a Cash Balance Participant upon reemployment the date of the Employee’s prior termination of employment.

(a)Participants Who Choose in 2002 to Become a Cash Balance Participant.  Each Employee who attains age 18 on or before December 31, 2002 and who is an Eligible Employee on December 31, 2002 may elect in the form and manner and during an election period prior to December 31, 2002 as prescribed by the Committee to become a Cash Balance Participant, and if he has so elected and is an Eligible Employee on December 31, 2002, he shall become a Cash Balance Participant effective as of January 1, 2003.  An election to become a Cash Balance Participant shall designate whether the formula described in Subsection 4.2A(a) (Balanced Formula) or Subsection 4.2A(b) (Investor Formula) shall cover the Cash Balance Participant.  An Eligible Employee who elects to become a Cash Balance Participant during the applicable election period, dies after the applicable election period and prior to December 31, 2002, shall be deemed to be a Cash Balance Participant effective immediately prior to the Eligible Employee’s death.

(b)New Employees Who First Become Eligible to Participate in the Plan After 2002.  Each Eligible Employee who is not a participant in another defined benefit plan maintained by the Employer and first becomes a Participant on or after January 1, 2003 shall become a Cash Balance Participant as of the date he becomes a Participant, but shall accrue no benefit under the Plan until the Participant makes or is deemed to have made an election as provided in the immediately following sentence.  An Eligible Employee who becomes a Cash Balance Participant in accordance with this Subsection (b) shall be covered as of the date he becomes a Cash Balance Participant by the formula described in Subsection 4.2A(a) (Balanced Formula) or Subsection 4.2A(b) (Investor Formula) as elected by the Eligible Employee in the form and manner and during the election period prescribed by the Committee and shall be covered by the formula described in Subsection 4.2(a) (Balanced Formula) if no effective election is made.

(c)Transfer Employees

(1)New Participant who Transfers from Choice Plan.  Each Eligible Employee who first becomes a Participant on or after January 1, 2003 and who immediately prior to becoming an Eligible Employee is a participant in one or more defined benefit plans maintained by the Employer that covered the participant (pursuant

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to the participant’s election) under a cash balance formula shall become a Cash Balance Participant as of the date he becomes a Participant.  An Eligible Employee who becomes a Cash Balance Participant in accordance with this Paragraph (1) shall be covered as of the date he becomes a Cash Balance Participant by the formula described in Subsection 4.2A(a) (Balanced Formula) or Subsection 4.2A(b) (Investor Formula) that corresponds to his election (of the balanced formula or investor formula) under the other defined benefit plan(s) maintained by the Employer.

(2)New Participant who Transfers from Non-Choice Plan.  Each Eligible Employee who first becomes a Participant on or after January 1, 2003 and who immediately prior to becoming an Eligible Employee is a participant in one or more other defined benefit plans maintained by the Employer but was never in a class of employees who were given a choice to participate in a cash balance formula may elect in the form and manner and during the election period prescribed by the Committee to become a Cash Balance Participant, and if he has so elected shall become a Cash Balance Participant as of the date he becomes a Participant.  Notwithstanding anything to the contrary in the Plan, an Eligible Employee described in the immediately preceding sentence shall accrue no benefit under the Plan until the earlier of when the Participant makes an election or the election period has expired.  An Eligible Employee who becomes a Cash Balance Participant in accordance with this Paragraph (2) shall be covered as of the date he becomes a Cash Balance Participant by the formula described in Subsection 4.2A(a) (Balanced Formula) or Subsection 4.2A(b) (Investor Formula) as elected by the Eligible Employee in the form and manner and during the election period prescribed by the Committee (and shall not be a Cash Balance Participant if no effective election is made).

(3)Transferred Cash Balance Participants.  Each Eligible Employee who becomes a Cash Balance Participant, subsequently transfers to employment in which he is not an Eligible Employee, and is later transferred to employment as an Eligible Employee, will again become a Cash Balance Participant effective as of the first day of the month during which his change in Employee status becomes effective and will be covered by the formula described in Subsection 4.2A(a) (Balanced Formula) or Subsection 4.2A(b) (Investor Formula) under which the Eligible Employee was previously covered.

(d)Reemployed Cash Balance Participant.  Each Eligible Employee who becomes a Cash Balance Participant, subsequently incurs a Severance

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from Service, and is later reemployed by an Employer (as an Eligible Employee) will again become a Cash Balance Participant effective on his Reemployment Commencement Date.  An Eligible Employee who again becomes a Cash Balance Participant in accordance with this Subsection (d) shall be covered by the formula described in Subsection 4.2A(a) (Balanced Formula) or Subsection 4.2A(b) (Investor Formula) under which the Eligible Employee was previously covered.

(e)Reemployed Employees Who Never Had Retirement Choice.  Each Eligible Employee who was a Participant, but was never given the opportunity to elect to become a Cash Balance Participant, and is later reemployed by an Employer (as an Eligible Employee) will become a Cash Balance Participant effective on his Reemployment Commencement Date, but shall accrue no benefit under the Plan based on his becoming a Cash Balance Participant until the Participant makes or is deemed to have made an election as provided in the immediately following sentence.  An Eligible Employee who first becomes a Cash Balance Participant in accordance with this Subsection (e) shall be covered as of the date he becomes a Cash Balance Participant by the formula described in Subsection 4.2A(a) (Balanced Formula) or Subsection 4.2A(b) (Investor Formula) as elected by the Eligible Employee in the form and manner and during the election period prescribed by the Committee and shall be covered by the formula described in Subsection 4.2A(a) (Balanced Formula) if no effective election is made.

(f)Employees Who Are Not Cash Balance Participants.  An Eligible Employee who is not described in one or more of the foregoing Subsections 3.2(a)-(e), including but not limited to an Eligible Employee who immediately prior to becoming an Eligible Employee is a participant under one or more defined benefit plans maintained by an Employer that covered the participant (pursuant to the participant’s election) under a traditional formula, shall not become a Cash Balance Participant.  Notwithstanding the foregoing, no Eligible Employee who is entitled to benefits under Section 4.9 shall become a Cash Balance Participant.

3.3           Intermittent Employees and Temporary Employees

Notwithstanding the provisions in Section 3.1 (Date of Participation) and Subsection 3.2(b), an Intermittent Employee or a Temporary Employee who was not participating in the Plan as of December 31, 2002, who was eligible to make the election described in Subsection 3.2(a), and who did not elect to become a Cash Balance Participant in accordance with Subsection 3.2(a), will not become a Participant until he has completed one Year of Eligibility Service and reached age 18.  Upon completion of one Year of Eligibility Service and reaching age 18, an Intermittent or Temporary Employee described in this Section will become a Participant, but not a Cash Balance Participant, retroactive to the later of

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January 1, 2003, his Employment Commencement Date, or the date he reached age 18.

3.4           Leased Employees

A Leased Employee will be excluded from participation in the Plan.  However, if a Leased Employee is subsequently employed by an Employer as an Eligible Employee, his time as a Leased Employee of an Employer and any period described in Code subparagraph 414(n)(4)(B) will be considered for purposes of determining eligibility under this Article and vesting under Article 5 (Severance from Service -- Vesting).

3.5           Transfers of Employment

If a Participant is transferred from one Employer to another or from an Employer to an Affiliate, he will continue to participate in the Plan until an event occurs that would have terminated his participation had he continued in the service of an Employer, except that payments received by a Participant from any Affiliate that is not an Employer will not be treated as Earnings for purposes of determining the amount of retirement benefits to which the Participant will be entitled.  Any period of employment with an Affiliate that is not an Employer will be taken into account for purposes of determining when an Employee is eligible to participate in the Plan pursuant to Section 3.3 (Intermittent Employees and Temporary Employees) and for purposes of determining when a Participant has satisfied the Vesting Requirement.

If a Participant is transferred from an Employer to an Affiliate that has not elected to participate in the Plan pursuant to Section 21.1 (Adoption of Plan), the Participant’s accrued benefit under the Plan as of the date of the transfer will be preserved.  The Participant’s service after the transfer will not be considered in determining the Participant’s years of Participation, but will be considered in determining the Participant’s years of Service.  For a Participant who has a Cash Balance Account, the Participant’s Cash Balance Account will be credited with Pay Credits in accordance with Section 4.2A (Pay Credits) only with respect to the Participant’s Earnings (with an Employer) for a respective Plan Year and shall be credited with Interest Credits in accordance with Section 4.3A (Interest Credits).

3.6Transfers of Participants and Plan Assets To and From the Cinergy Corp. Union Employees’ Retirement Income Plan and Cinergy Corp. Union Employees’ Pension Plan.

(a)If a Participant in the Plan remains an Employee but becomes ineligible to participate in the Plan, he will become a participant in the Cinergy Corp. Union Employees’ Retirement Income Plan or the Cinergy Corp. Union Employees’ Pension Plan, if he is an “eligible employee” as defined in either of those plans, as of the first day of the month during which his change in Employee status becomes effective.

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(b)If a participant in the Cinergy Corp. Union Employees’ Retirement Income Plan or the Cinergy Corp. Union Employees’ Pension Plan remains an Employee but becomes ineligible to participate in his current plan, he will become a Participant in the Plan, if he is an Eligible Employee, as of the first day of the month during which his change in Employee status becomes effective.  The Participant will become a Cash Balance Participant if provided by (and in accordance with) Section 3.2 (Cash Balance Participation).

(c)A transfer of assets between the Plan and the Cinergy Corp. Union Employees’ Retirement Income Plan or the Cinergy Corp. Union Employees’ Pension Plan will follow the requirements of Code subsection 414(1).  The actual transfer of assets will occur as soon as administratively practicable after the change in the Participant’s Employee status.  Notwithstanding the foregoing provisions of this Subsection (c), a transfer of assets (and liabilities) from this Plan to another plan shall not occur if the Participant has a Cash Balance Account and transfers to a plan under which the Participant is not eligible to earn benefits under a cash balance formula.

(d)A Participant who has years and/or partial years of “participation” under the Cinergy Corp. Union Employees’ Retirement Income Plan or the Cinergy Corp. Union Employees’ Pension Plan, and who then becomes a Participant, but not a Cash Balance Participant (at the time of transfer), in this Plan, will be credited under this Plan with his total years of “participation” under the Cinergy Corp. Union Employees’ Retirement Income Plan or the Cinergy Corp. Union Employees’ Pension Plan as if the years were under this Plan.  A Participant will not be credited with more years of Participation than he would have had if the total of all his years of Participation under the Plan and all his years of “participation” under the Cinergy Corp. Union Employees’ Retirement Income Plan and the Cinergy Corp. Union Employees’ Pension Plan had been solely as a Participant of this Plan.  The benefit paid to a Participant under this Plan (with respect to whom assets and liabilities are transferred to this Plan from the Cinergy Corp. Union Employees’ Retirement Income Plan and/or Cinergy Corp. Union Employees’ Pension Plan) will never be less than the benefit the Participant accrued in the Cinergy Corp. Union Employees’ Retirement Income Plan and/or the Cinergy Corp. Union Employees’ Pension Plan prior to his change in Employee status.

3.7      ;      Reclassification

In the event that any governmental agency or court requires the Employer or an Affiliate to reclassify the common law employee or employment status of any independent contractor or otherwise excluded employee under the Plan, the reclassified individual nevertheless shall not be considered an Eligible Employee following such reclassification and, therefore, shall not be entitled to participate in

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the Plan as a result of the reclassification.  Similarly, in the event that any governmental agency or court otherwise requires the Employer or an Affiliate to reclassify the employment status of any individual eligible for participation under the Plan (such as a summer laborer or a summer employee), the reclassified individual nevertheless shall retain his original status for purposes of the Plan following such reclassification and, therefore, shall not be entitled to participate in the Plan in a different manner as a result of the reclassification.

ARTICLE 4

AMOUNT OF LIFE-ONLY PENSION

4.1           Normal Retirement Pension Formula

Except as otherwise expressly provided in this Article, a Participant who retires on or after his Normal Retirement Date will be entitled to a Nonforfeitable Annual Pension under this Plan equal to the sum of (a) plus (b), where (a) is equal to:

(1)           1.1 percent of the Participant’s Highest Average Earnings plus

(2)0.5 percent of the amount by which his Highest Average Earnings exceed his applicable Covered Compensation, multiplied by the number of his years of Participation not in excess of 35;

and (b) is equal to 1.4 percent of the Participant’s Highest Average Earnings, multiplied by the number of his years of Participation in excess of 35.

4.2           Normal Retirement Benefits for Participants in the PSI Plan

The normal retirement Nonforfeitable Annual Pension of a Participant who was a participant in the PSI Plan as of December 31, 1997, will be the greater of (a) or (b), where (a) is the Participant’s Annual Pension calculated under Section 4.1 (Normal Retirement Pension Formula) and (b) is the Participant’s annual accrued benefit calculated under the PSI Plan as of December 31, 1997.  The formulas used to calculate a Participant’s annual accrued benefit under the PSI Plan as in effect on December 31, 1997, are set forth in Addendum A to this Plan.

4.3           Normal Retirement Benefits for Participants in the MRP or RIP

The normal retirement Nonforfeitable Annual Pension of a Participant who was a participant in the MRP or RIP as of December 31, 1997, will be the greater of (a) or (b), where (a) is the Participant’s Annual Pension calculated under Section 4.1 (Normal Retirement Pension Formula) and (b) is the Participant’s annual accrued benefit calculated under the MRP or RIP as of December 31, 1997.  The formulas used to calculate a Participant’s annual accrued benefit under the MRP or RIP as in effect on December 31, 1997, are set forth in Addendum B to this Plan.

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4.4           General Method of Computing Annual Pension for Retirement at Early Retirement Date

(a)Subject to the following provisions of this Section, a Participant who retires on an Early Retirement Date will be entitled to a Nonforfeitable Annual Pension computed under Section 4.1 (Normal Retirement Pension Formula).  The benefits will begin on the Employee’s Normal Retirement Date, or, if the Employee so elects, at an earlier date on or after his Early Retirement Date.  If the Employee elects to have the benefit begin before his 62nd birthday, the amount of the Employee’s Nonforfeitable Annual Pension will be multiplied by the appropriate early payment factor as obtained from the following table:

EARLY PAYMENT PERIOD		EARLY PAYMENT FACTOR	EARLY PAYMENT PERIOD		EARLY PAYMENT FACTOR	EARLY PAYMENT PERIOD		EARLY PAYMENT FACTOR
YR.	MO.		YR.	MO.		YR.	MO.
0	0	1.0000	4	0	0.7333	8	0	0.5667
0	1	0.9944	4	1	0.7278	8	1	0.5639
0	2	0.9889	4	2	0.7222	8	2	0.5611
0	3	0.9833	4	3	0.7167	8	3	0.5584
0	4	0.9778	4	4	0.7111	8	4	0.5556
0	5	0.9722	4	5	0.7056	8	5	0.5528
0	6	0.9667	4	6	0.7000	8	6	0.5500
0	7	0.9611	4	7	0.6944	8	7	0.5473
0	8	0.9556	4	8	0.6889	8	8	0.5445
0	9	0.9500	4	9	0.6833	8	9	0.5417
0	10	0.9444	4	10	0.6778	8	10	0.5389
0	11	0.9389	4	11	0.6722	8	11	0.5361
1	0	0.9333	5	0	0.6667	9	0	0.5334
1	1	0.9278	5	1	0.6639	9	1	0.5300
1	2	0.9222	5	2	0.6611	9	2	0.5265
1	3	0.9167	5	3	0.6584	9	3	0.5231
1	4	0.9111	5	4	0.6556	9	4	0.5196
1	5	0.9056	5	5	0.6528	9	5	0.5162
1	6	0.9000	5	6	0.6500	9	6	0.5127
1	7	0.8944	5	7	0.6473	9	7	0.5093
1	8	0.8889	5	8	0.6445	9	8	0.5059
1	9	0.8833	5	9	0.6417	9	9	0.5024
1	10	0.8778	5	10	0.6389	9	10	0.4990
1	11	0.8722	5	11	0.6361	9	11	0.4955
2	0	0.8667	6	0	0.6334	10	0	0.4921
2	1	0.8611	6	1	0.6306	10	1	0.4889
2	2	0.8556	6	2	0.6278	10	2	0.4858
2	3	0.8500	6	3	0.6250	10	3	0.4826
2	4	0.8444	6	4	0.6223	10	4	0.4795
2	5	0.8389	6	5	0.6195	10	5	0.4763
2	6	0.8333	6	6	0.6167	10	6	0.4732
2	7	0.8278	6	7	0.6139	10	7	0.4700
2	8	0.8222	6	8	0.6111	10	8	0.4668
2	9	0.8167	6	9	0.6084	10	9	0.4637
2	10	0.8111	6	10	0.6056	10	10	0.4605
2	11	0.8056	6	11	0.6028	10	11	0.4574
3	0	0.8000	7	0	0.6000	11	0	0.4542
3	1	0.7944	7	1	0.5973	11	1	0.4513
3	2	0.7889	7	2	0.5945	11	2	0.4485
3	3	0.7833	7	3	0.5917	11	3	0.4456
3	4	0.7778	7	4	0.5889	11	4	0.4427
3	5	0.7722	7	5	0.5861	11	5	0.4398
3	6	0.7667	7	6	0.5834	11	6	0.4370
3	7	0.7611	7	7	0.5806	11	7	0.4341
3	8	0.7556	7	8	0.5778	11	8	0.4312
3	9	0.7500	7	9	0.5750	11	9	0.4283
3	10	0.7444	7	10	0.5723	11	10	0.4255
3	11	0.7389	7	11	0.5695	11	11	0.4226
						12	0	0.4197

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In using the above table, the order of required steps is as follows:

(1)determine the Participant’s “early payment period,” which is the number of whole calendar months by which the actual commencement of his pension payments precedes the first day of the calendar month coincident with or following his 62nd birthday;

(2)use the early payment period as determined in Step (1) to identify the applicable early payment factor; and

(3)multiply the applicable early payment factor times the amount of the Participant’s Annual Pension determined under Section 4.1 (Normal Retirement Pension Formula).

(b)Notwithstanding any other provision of this Section except Subsection (e) or (f), the early retirement Nonforfeitable Annual Pension payable to a Participant who (1) was a participant in the PSI Plan as of December 31, 1997, and (2) became a participant in the PSI Plan prior to May 1, 1970, will be computed under Section 4.2 (Normal Retirement Benefits for Participants in the PSI Plan) and will be reduced by multiplying the amount of the Participant’s Nonforfeitable Annual Pension by the early payment factor described in Subsection (a); provided, however, that his early retirement Nonforfeitable Annual Pension will not be less than the product of:

(A)the amount computed under PSI Pension Formula 3 (as described in Addendum A) as of the following date:

(i)December 31, 1989, with respect to an Employee who is not a Highly Compensated Participant; or

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(ii)December 31, 1988, with respect to a Highly Compensated Participant; and

(B)the early payment factor determined as described in Subsection (a), except that the early payment period will be the number of whole calendar months by which the commencement of the Participant’s pension payments precedes the first day of the calendar month coincident with or following his 60th birthday.

(c)Notwithstanding any other provision of this Section except Subsection (e) or (f), the early retirement Nonforfeitable Annual Pension payable to a Participant who (1) was a participant in the PSI Plan as of December 31, 1997, and (2) became a participant in the PSI Plan on or after May 1, 1970, will be computed under Section 4.2 (Normal Retirement Benefits for Participants in the PSI Plan) and will be reduced by multiplying the amount of the Participant’s Nonforfeitable Annual Pension by the early payment factor described in Subsection (a); provided, however, that his early retirement Nonforfeitable Annual Pension will not be less than the product of:

(A)the amount computed under PSI Pension Formula 2 (as described in Addendum A) as of the following date:

(i)December 31, 1989, with respect to an Employee who is not a Highly Compensated Participant; or

(ii)December 31, 1988, with respect to a Highly Compensated Participant; and

(B)the early payment factor determined as described in Subsection (a).

(d)Notwithstanding any other provision of this Section except Subsection (e) or (f), the early retirement Nonforfeitable Annual Pension payable to a Participant who was a participant in the MRP or the RIP as of December 31, 1997, will be the greater of the amounts calculated under (a) and (b) of Section 4.3 (Normal Retirement Benefits for Participants in the MRP or RIP), after those amounts are reduced as follows:

(1)The Participant’s Nonforfeitable Annual Pension calculated under Section 4.1(Normal Retirement Pension Formula) will be reduced by multiplying the amount of the Participant’s Annual Pension by the early payment factor described in Subsection (a).

(2)The Participant’s annual accrued benefit calculated under the MRP or the RIP as of December 31, 1997, will be reduced by multiplying the Participant’s annual accrued benefit as of December 31, 1997, by the product of (A) 5/12 of one percent and

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(B) the number of whole calendar months by which the actual commencement of the Participant’s pension payments precedes the first day of the calendar month coincident with or following the Participant’s 60th birthday.

(e)If, as of his applicable Severance from Service Date, a Participant has reached age 55, and the sum of his age (in whole years) attained as of that date and the number of his years of Service (in whole years) accumulated as of that date equals or exceeds 85, he will receive a Nonforfeitable Annual Pension computed under the appropriate early retirement Annual Pension formula described in this Section, but the amount of the Participant’s pension will not be multiplied by the early payment factor that otherwise would be applicable.

(f)A Participant who is eligible to terminate employment voluntarily under the Redeployment Status Opportunity provisions of the Severance Opportunity Plan for Non-Union Employees of Cinergy Corp., as amended from time to time, is eligible to receive a Nonforfeitable Annual Pension computed under the appropriate early retirement Annual Pension formula described in this Section, but the amount of the Participant’s pension will not be multiplied by the early payment factor that otherwise would be applicable, provided that:  (1) as of his applicable Severance from Service Date, the Participant has reached age 50, (2) he elects under Article 8 (Payment of Pension) to defer receipt of his pension to at least age 55, and (3) the sum of his age (in whole years) attained as of the date that the receipt of the pension under the Plan begins pursuant to Paragraph (2) and his years of Service (in whole years) accumulated as of his Severance from Service Date equals or exceeds 85.

4.5           General Method of Computing Annual Pension for a Terminated Vested Participant

(a)Subject to the following provisions of this Section, the amount of Nonforfeitable Annual Pension payable to a former Participant who is described in Section 5.3 (Severance from Service After Vesting), and whose Actual Separation Date occurred on or before his Normal Retirement Date, will be computed under Section 4.1 (Normal Retirement Pension Formula).  The benefits will begin on the Employee’s Normal Retirement Date or, if the Employee so elects, at an earlier date on or after his Early Retirement Date.  If the Employee elects to have the benefits begin before his Normal Retirement Date, the amount of the Employee’s Nonforfeitable Annual Pension will be reduced by five percent for each calendar year (or .4166 percent for each calendar month) by which the commencement of his pension payments precedes his Normal Retirement Date.

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(b)Notwithstanding any other provision of this Section, the terminated vested Nonforfeitable Annual Pension payable to a Participant who was a participant in the PSI Plan as of December 31, 1997, will be the greater of the amounts calculated under (a) and (b) of Section 4.2 (Normal Retirement Benefits for Participants in the PSI Plan), after those amounts are reduced for early payment as follows:

(1)The Participant’s Annual Pension calculated under Section 4.1 (Normal Retirement Pension Formula) is reduced as described in Subsection (a).

(2)If  the Participant elects to have his benefit begin before his Normal Retirement Date, the Participant’s annual accrued benefit under the PSI Plan as of December 31, 1997, is reduced by multiplying that annual accrued benefit by the appropriate early payment factor as obtained from the table in Subsection 4.4(a) (General Method of Computing Annual Pension for Retirement at Early Retirement Date).

(c)Notwithstanding any other provisions of this Section, the terminated vested Nonforfeitable Annual Pension payable to a Participant who (1) was a participant in the PSI Plan as of December 31, 1997, and (2) became a participant in the PSI Plan prior to May 1, 1970, will not be less than the product of:

(A)The amount computed under PSI Pension Formula 5 (as set forth in Addendum A) as of the following date:

(i)December 31, 1989, with respect to an Employee who is not a Highly Compensated Participant; or

(ii)December 31, 1988, with respect to a Highly Compensated Participant; and

(B)If the Participant elects to have his benefit begin before his Normal Retirement Date, the early payment factor as obtained from the table in Subsection 4.4(a) (General Method of Computing Annual Pension for Retirement at Early Retirement Date), except that the early payment period will be the number of whole calendar months by which the commencement of the Participant’s pension payments precedes the first day of the calendar month coincident or following his 60th birthday.

(d)Notwithstanding any other provisions of this Section, the terminated vested Nonforfeitable Annual Pension payable to a Participant who (1) was a participant in the PSI Plan as of December 31, 1997, and

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(2) became a participant in the PSI Plan on or after May 1, 1970, will not be less than the product of:

(A)The amount computed under PSI Pension Formula 6 (as set forth in Addendum A) as of the following date:

(i)December 31, 1989, with respect to an Employee who is not a Highly Compensated Participant; or

(ii)December 31, 1988, with respect to a Highly Compensated Participant; and

(B)If the Participant elects to have his benefit begin before his Normal Retirement Date, the early payment factor determined as obtained from the table in Subsection 4.4(a) (General Method of Computing Annual Pension for Retirement at Early Retirement Date).

(e)Notwithstanding any other provision of this Section, the terminated vested Nonforfeitable Annual Pension payable to a Participant who was a participant in the MRP or the RIP as of December 31, 1997, will be the greater of the amounts calculated under (a) or (b) of Section 4.3 (Normal Retirement Benefits for Participants in the MRP or RIP), after each of those amounts is reduced by five percent for each calendar year (or .4166 percent for each calendar month) by which the commencement of the Participant’s pension payments precedes his Normal Retirement Date.

4.6           Maximum Pension

(a)Each Participant whose Annual Pension as otherwise determined pursuant to the provisions of this Article and as modified by the applicable provisions of Section 7.1 (Normal Forms of Pension) exceeds $1,000 multiplied by the Employee’s years of Service with the Employer (not exceeding ten), or who has ever participated in a Qualified Defined Contribution Plan, will in no event be entitled to an Annual Pension that exceeds the lesser of:

(1)$90,000 (as adjusted for increases in the limitation pursuant to Code subsection 415(d)); or

(2)100 percent of his highest average annual Section 415 Compensation from his Employer for any three consecutive years of Service; provided, that if he has fewer than three years of Service, then 100 percent of his highest average annual Section 415 Compensation from his Employer for his total years of Service will be construed as the limiting amount.

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However, if a Participant has fewer than ten years of Participation at his Normal Retirement Date or Early Retirement Date, whichever is applicable, then the dollar limitation of Paragraph (1) will be multiplied by a fraction, the numerator of which is the number of the Participant’s years of Participation (including fractional years of Participation) and the denominator of which is ten.  However, the maximum benefit will never be reduced to less than 1/10th of the applicable limitation.

(b)If any benefit under the Plan begins before the Participant’s Social Security Retirement Age, but on or after the Participant reaches age 62, the determination as to whether the $90,000 limit set forth in Subsection (a) has been satisfied will be made, in accordance with regulations prescribed by the Secretary, by reducing the limitation of Subsection (a).  The reduction under the preceding sentence will be made in the manner as the Secretary may prescribe that is consistent with the reduction for old-age insurance benefits commencing before the Social Security Retirement Age under the Social Security Act.  If any benefit under the Plan begins before the Participant reaches age 62, the determination as to whether the $90,000 limit set forth in Subsection (a) has been satisfied will be made, in accordance with regulations prescribed by the Secretary, by reducing the limitation of Subsection (a) so that the limitation (as reduced) equals an Annual Pension (beginning when the retirement income benefit begins) that is actuarially equivalent to the reduced $90,000 Annual Pension beginning at age 62 as determined under this Subsection.  If a Participant’s benefit commences prior to his Social Security Retirement Age, but on or after age 62, the dollar limitation in Paragraph 4.6(a)(1) shall be reduced to the date of commencement in accordance with Code subparagraph 415(b)(2)(C) as follows:

(1)If the Participant’s Social Security Retirement Age is age 65, the dollar limitation in Paragraph 4.6(a)(1) shall be reduced by 5/9 of one percent for each month by which the Participant’s benefit commences before the month in which the Participant attains age 65; or

(2)If the Participant’s Social Security Retirement Age is greater than age 65, the dollar limitation in Paragraph 4.6(a)(1) shall be reduced by 5/9 of one percent for each of the first 36 months and 5/12 of one percent for each of the additional months (up to 24 months) by which the Participant’s benefit commences before the month of the Participant’s Social Security Retirement Age.

(c)If any benefit under the Plan begins after the Participant’s Social Security Retirement Age, the determination as to whether the $90,000 limitation set forth in Subsection (a) has been satisfied will be made, in accordance with regulations prescribed by the Secretary, by increasing, if necessary, the limitation of Subsection (a) so that the limitation (as increased) equals an

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Annual Pension (beginning when the retirement income benefit begins) that is actuarially equivalent to a $90,000 Annual Pension beginning at the Social Security Retirement Age.

(d)In general, the maximum annual benefit means a benefit payable annually in the form of a single life annuity (without ancillary benefits).  If a Participant’s pension under the Plan is payable in any form other than a single life annuity, the determination as to whether the limitations of this Section have been satisfied will be made by adjusting the benefit so that it is the actuarial equivalent of a single life annuity.  For purposes of this Section, any ancillary benefit not directly related to retirement income benefits, and that portion of any joint and survivor annuity that constitutes a Qualified Joint and Survivor Annuity under Subsection 7.1(b) (Normal Forms of Pension), will not be taken into account.

(e)For benefits commencing in Plan Years beginning on or after January 1, 1995, and except as provided in this Plan, the adjustments to the limitations under Subsections (b), (c), and (d) will be calculated as described in this Subsection.  For purposes of adjusting the limit for an Annual Pension commencing prior to age 62 under Subsection (b), the $90,000 limitation will be equal to the lesser of the equivalent $90,000 limitation that is computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for equivalence for early retirement benefits, and the equivalent $90,000 limitation that is computed using a 5 percent interest rate assumption and the mortality table prescribed from time to time by the Secretary for this purpose.  For purposes of adjusting any form of optional benefit to a straight life annuity under Subsection (d), the actuarially equivalent life annuity will be equal to the greater of the annuity benefit that is computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for adjusting benefits in the same form, and the annuity benefit that is computed using a 5 percent interest rate assumption and the mortality table prescribed from time to time by the Secretary for this purpose.  For purposes of adjusting for any form of benefit subject to Code paragraph 417(e)(3), an interest rate assumption equal to the applicable interest rate as defined in Section 1.5 (Actuarial Equivalent) will be substituted for the 5 percent interest rate assumption set forth in the preceding sentences.  For purposes of adjusting the limit under Subsection (c), the $90,000 limitation for an Annual Pension beginning after Social Security Retirement Age will be the lesser of the equivalent $90,000 limitation that is computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for equivalence of delayed retirement benefits, and the equivalent $90,000 limitation that is computed using a 5 percent interest rate assumption and the mortality table prescribed from time to time by the Secretary for this purpose.  Notwithstanding the preceding provisions of this Subsection, this

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Subsection will not apply to the accrued benefit of any Participant under the Plan as of December 31, 1997, after applying Code section 415 as in effect on December 7, 1994, for each possible Annuity Starting Date and each optional form of benefit under the Plan.

(f)Notwithstanding the foregoing, the maximum annual benefit payable under this Section will not be less than the actuarial equivalent of the Participant’s single life annuity, accrued under the Plan, as of December 31, 1997, determined by using the Plan’s actuarial assumptions as in effect on December 31, 1997.

(g)If for any particular Plan Year, a Participant is also participating in one or more Qualified Defined Contribution Plans maintained by his Employer, then the sum of the Participant’s aggregate Defined Benefit Plan Fraction and the Participant’s aggregate Defined Contribution Plan Fraction will not exceed 1.0.  If the sum exceeds 1.0, then the Employer will reduce the Participant’s benefits in this Plan so that the sum equals 1.0.  The Participant’s maximum Annual Pension will be determined under the provisions of this Article without regard to the $10,000 minimum amount referred to in the first paragraph of this Section.  This Subsection will be repealed, effective January 1, 2000, for any Participant who is credited with at least one Hour of Service on or after January 1, 2000.

4.7Benefits if Plan Becomes a Top-Heavy Plan

If the Plan becomes a Top-Heavy Plan, the minimum accrued benefit of any Participant who was at no time a Key Employee will be equal to two percent of the Participant’s Final Average Earnings multiplied by the number of Top-Heavy Plan Years in which he completed at least 1,000 Hours of Service, but not more than ten years.

If a non-Key Employee participates in the Plan and a Qualified Defined Contribution Plan included in a Required Aggregation Group that is Top-Heavy, the minimum benefits will be provided under this Plan.

No increase in addition to the minimum accrued benefit described above will be made in the event the Plan becomes a Super Top-Heavy Plan.

4.82000 Limited Early Retirement Program

(a)Eligibility

The provisions of this Section, which govern Cinergy’s 2000 Limited Early Retirement Program (“2000 LERP”), apply to a Participant who:

(1)is an Exempt Employee or a Non-Exempt Employee;

(2)attains age 54 on or before May 31, 2000;

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(3)attains at least five years of Service with an Employer on or before May 31, 2000;

(4)elects between March 31, 2000, and May 15, 2000, to incur a Severance from Service on June 1, 2000, and agrees that his Employer may select the Severance from Service Date;

(5)is employed in one of the following departments or locations as of  January 1, 2000:

(i)Any corporate center area, including:

Cinergy Executive	Human Resources
Cinergy Foundation	Information Technology
Corporate Communications	Legal
Corporate Services	PSI Energy, Inc. and CG&E Executive
Finance	Site Services;

(ii)Business Units Finance (Accounting and Capital Projects)
Business Units Information Technology, including the
Customer Management Solutions (CMS) Project Team;

(iii)Energy Delivery Business Unit (EDBU) Retail Sales
EDBU Community Affairs/Community Development
EDBU Economic Development
EDBU District and Area Managers in Field Customer Services; or

(iv)EDBU Labor Relations and Safety; and

(6)signs a waiver of claims in the form specified by his Employer.

The following Exempt Employees and Non-Exempt Employees are not eligible to participate in the 2000 LERP:

(1)Officers of Cinergy;

(2)Co-op employees, retirees working part-time (rehired retirees), and intermittent employees;

(3)Employees who are disabled from any occupation and who are receiving long-term disability benefits under Cinergy’s Long Term Disability Plan, as of March 31, 2000; or

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(4)Except as provided in Subsection 4.8 (d), any Employee who has received retirement benefits or severance pay under any plan previously or currently offered by an Employer or an Affiliate.

(b)2000 LERP Benefits

(1)Waiver of Early Payment Factor

For each Participant who elects to incur a Severance from Service under the provisions of this Section and whose Nonforfeitable Annual Pension is otherwise computed pursuant to the terms of Section 4.4 (General Method of Computing Annual Pension for Retirement at Early Retirement Date) the Nonforfeitable Annual Pension will be calculated by waiving the application of the Early Payment Factor.

(2)Special Supplemental Benefit

Each eligible Participant who elects to incur a Severance from Service under the provisions of this Section will receive a special supplemental benefit the form of which will be elected by the Participant from the following options:

(A)An amount equal to the product of two times his weekly Base Salary or weekly Base Wage as of his Severance from Service Date multiplied by his whole years of Service with his Employer, payable as a life annuity; or

(B)An amount equal to the product of one times his weekly Base Salary or weekly Base Wage as of his Severance from Service Date multiplied by his whole years of Service payable as a life annuity, plus $600.00 per month as a Social Security Act bridge payment until the Participant attains age 62.

(3)Lump Sum Payment Available in Lieu of Annuity

(A)In lieu of the normal form of payment that would otherwise apply to the special supplemental benefit payable to the Participant under Article 7 (Forms of Pension), his Spouse or any other Beneficiary or Contingent Annuitant under the Plan, a lump sum distribution of the special supplemental benefit is available at the eligible Participant’s election with spousal consent in accordance with Section 7.2 (Optional Forms of Retirement Income).  However, the Social Security Act bridge payments described in

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Subparagraph 4.8 (b)(2)(B) will be paid to the Participant or his Beneficiary or Contingent Annuitant monthly.

(B)The lump sum distribution of the special supplemental benefit described in Subparagraph 4.8 (b)(2)(A) will be equal to the product of 52 times the Participant’s weekly Base Salary or weekly Base Wage as of his Severance from Service Date multiplied by 3.85% multiplied by his whole years of Service.

The lump sum distribution of the special supplemental benefit described in Subparagraph 4.8 (b)(2)(B) will be equal to the product of 52 times the Participant’s weekly Base Salary or weekly Base Wage as of his Severance from Service Date multiplied by 1.925% multiplied by his whole years of Service.

(C)Time of Payment

The lump sum form of the special supplemental benefit will be payable as of the Participant’s Annuity Starting Date or as soon as administratively feasible thereafter.

(D)Election Period

A lump sum distribution of the special supplemental benefit must  be elected within the 90 day period ending on the Participant’s Annuity Starting Date.  If the Participant chooses an annuity option and selects a Beneficiary other than a Spouse for the special supplemental benefit, the Participant must do so in writing and confirm or withdraw that election within 90 days preceding the Annuity Starting Date.

(E)Beneficiary

A Participant’s Beneficiary of the lump sum distribution of the special supplemental benefit will be his Spouse unless the Participant’s Spouse has consented to another Beneficiary pursuant to Section 7.2 (Optional Forms of Retirement Income).

A Beneficiary who elects a lump sum distribution of the special supplemental benefit may designate one Beneficiary for the special supplemental benefit in the event the Participant dies before the lump sum is distributed.  A married Participant’s designation of a Beneficiary other than

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the Participant’s Spouse will not be effective unless the Participant’s Spouse consents to the election and designation in accordance with Section 7.2 (Optional Forms of Retirement Income).

(F)Death of a Participant

In the event of the death of a Participant who elected a lump sum distribution of the special supplemental benefit prior to the distribution date, the lump sum will be distributed as soon as administratively feasible following the Participant’s death.  If the Participant’s Spouse is his Beneficiary, the Spouse may elect payment in the form of a lump sum or in the form that applies to other benefits payable to the Spouse under the Plan after the Participant’s death.

(c)Construction of the 2000 LERP Provisions

The benefits provided under the 2000 LERP will be paid in accordance with and consistent with Plan provisions that apply to the payment of normal or early retirement benefits, except where specific exceptions or provisions are included in this Section.

(d)Special Eligibility Rule

Any Retired Participant who incurred a Severance from Service between January 1, 2000 and May 1, 2000, is eligible to receive the 2000 LERP benefits described in Subsection 4.8 (b) if he meets all of the eligibility and participation requirements described in Subsection 4.8 (a) and he returns to his Employer any termination related benefits, if any, previously received.

(e)Election Information

Prior to electing to participate in the 2000 LERP, an eligible Participant will be provided with a written explanation of the terms and conditions of the survivor annuity which will be paid to the Participant’s Spouse if the Participant dies without electing a lump sum distribution of the special supplemental benefit, the Participant’s right to elect a lump sum distribution in lieu of a survivor annuity of this benefit and the effect of such an election, the rights of the Participant’s Spouse described in Section 7.2 (Optional Forms of Retirement Income), and the right of a Participant to revoke and the effect of revoking such an election.

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4.92002 Voluntary Early Retirement Program

(a)Eligibility

The provisions of this Section, which govern the 2002 Voluntary Early Retirement Program (“2002 VERP”), apply to an individual who:

(1)is a Participant in the Plan who is classified by the Employer as a “full-time” employee and who is not an officer of an Employer;

(2)attains age 54 on or before June 1, 2002;

(3)attains at least five years of Service with an Employer on or before June 1, 2002 (or would have attained at least five years of Service with an Employer on or before June 1, 2002 if he had remained employed with an Employer until such date);

(4)on a form provided by Cinergy, elects between March 15, 2002 and April 30, 2002 to incur a Severance from Service on May 31, 2002 (or such other date selected by his Employer), agrees that his Employer may select the Severance from Service Date and remains employed until such date;

(5)is employed in one or more of the following departments or locations as of March 15, 2002:

(i)The Corporate Center;

(ii)The Energy Merchant Business Unit; or

(iii)The Regulated Business Unit, but only if the Participant has been selected by his Employer for participation in the 2002 VERP based upon such Participant’s job classification; and

(6)signs and does not revoke a waiver of claims in the form specified by his Employer.

(b)2002 VERP Benefits

(1)Waiver of Early Payment Factor

For each Participant who elects to incur a Severance from Service under the provisions of this Section and whose Nonforfeitable Annual Pension is otherwise computed pursuant to the terms of Section 4.4 (General Method of Computing Annual Pension for Retirement at Early Retirement Date), the Nonforfeitable Annual Pension will be calculated without applying an early payment factor.

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(2)Special Supplemental Benefit

Each Participant who elects to incur a Severance from Service under the provisions of this Section will receive a special supplemental benefit equal to the Actuarial Equivalent of the product of two times his weekly Base Salary or weekly Base Wage as of his Severance from Service Date multiplied by his whole years of Service as of his Severance from Service Date, payable in accordance with Section 7.1 (Normal Forms of Pension). The Participant may elect to receive his special supplemental benefit in any optional form of payment provided in Section 7.2 (Optional Forms of Retirement Income) other than those described in Subsections 7.2(d) and (e).

(3)Lump Sum Payment Available in Lieu of Annuity

(A)In lieu of the normal form of payment that would otherwise apply to the special supplemental benefit payable to the Participant under Article 7 (Forms of Pension), his Spouse or any other Beneficiary or Contingent Annuitant under the Plan, a lump sum distribution of the special supplemental benefit is available at the eligible Participant’s election with spousal consent in accordance with Section 7.2 (Optional Forms of Retirement Income).

(B)The lump sum distribution of the special supplemental benefit will be in an amount equal to the Actuarial Equivalent of the special supplemental benefit.

(C)Time of Payment

The lump sum distribution of the special supplemental benefit will be payable as of the Participant’s Annuity Starting Date or as soon as administratively feasible thereafter.

(D)Election Period

A lump sum distribution of the special supplemental benefit must be elected within the 90 day period ending on the Participant’s Annuity Starting Date.  If the Participant chooses an annuity option and selects a Beneficiary other than a Spouse for the special supplemental benefit, the Participant must do so in writing and confirm or withdraw that election within 90 days preceding the Annuity Starting Date.

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(E)Beneficiary

A Participant’s Beneficiary of the lump sum distribution of the special supplemental benefit will be his Spouse unless the Participant’s Spouse has consented to another Beneficiary pursuant to Section 7.2 (Optional Forms of Retirement Income).  A Beneficiary who elects a lump sum distribution of the special supplemental benefit may designate one Beneficiary for the special supplemental benefit in the event the Participant dies before the lump sum is distributed.  A married Participant’s designation of a Beneficiary other than the Participant’s Spouse will not be effective unless the Participant’s Spouse consents to the election and designation in accordance with Section 7.2 (Optional Forms of Retirement Income).

(F)Death of a Participant

In the event of the death of a Participant who elected a lump sum distribution of the special supplemental benefit prior to the distribution date, the lump sum will be distributed as soon as administratively feasible following the Participant’s death.  If the Participant’s Spouse is his Beneficiary, the Spouse may elect payment in the form of a lump sum or in the form that applies to other benefits payable to the Spouse under the Plan after the Participant’s death.

(4)Actuarial Equivalent.  For purposes of calculating the Actuarial Equivalent amount of the benefit described in Sections 4.9(b)(2) and (3), “Actuarial Equivalent” means a benefit having the same actuarially determined value as the benefit that the Actuarial Equivalent replaces, calculated using the “applicable mortality table” described in Section 417(e)(3)(A)(ii)(I) of the Code and the “applicable interest rate” described in Section 417(e)(3)(A)(ii)(II) of the Code for the calendar month specified by the Plan for purposes of calculating the Actuarial Equivalent amount of any lump sum payment.

(c)Construction of the 2002 VERP Provisions

The benefits provided under the 2002 VERP will be paid in accordance with and consistent with Plan provisions that apply to the payment of normal or early retirement benefits, except where specific exceptions or provisions are included in this Section.

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(d)Special Eligibility Rule

Any Retired Participant who incurred a Severance from Service between January 1, 2002 and March 1, 2002, is eligible to receive the 2002 VERP benefits described in Subsection 4.9(b) if he meets the applicable eligibility and participation requirements described in Subsection 4.9(a) and he returns to his Employer any termination related benefits previously received.

(e)Election Information

Prior to electing to participate in the 2002 VERP, an eligible Participant will be provided with a written explanation of the terms and conditions of the survivor annuity which will be paid to the Participant’s Spouse if the Participant dies without electing a lump sum distribution of the special supplemental benefit, the Participant’s right to elect a lump sum distribution in lieu of a survivor annuity of this benefit and the effect of such an election, the rights of the Participant’s Spouse described in Section 7.2 (Optional Forms of Retirement Income), and the right of a Participant to revoke and the effect of revoking such an election.”

4.10Nonapplicability of Article

This Article shall not apply to a Participant for periods on and after the Participant becomes a Cash Balance Participant except as otherwise provided in Article 4A (Cash Balance Accounts).

ARTICLE 4A

CASH BALANCE ACCOUNTS

4.1AOpening Account

Each Participant who becomes a Cash Balance Participant shall have a notional account (the “Cash Balance Account”) established for him on the date he becomes a Cash Balance Participant.  Each Cash Balance Participant shall have an opening balance in his Cash Balance Account of zero, except as provided in (a), (b) or (c) of this Section.

(a)Participants Who Choose in 2002 to Become a Cash Balance Participant.  A Participant who becomes a Cash Balance Participant in accordance with Subsection 3.2(a) shall have an opening balance in his Cash Balance Account (as of the date he becomes a Cash Balance Participant) equal to the “Conversion Present Value” (as defined below in this Subsection (a)) of the Participant’s Annual Pension under Subsection 1.11(a) payable beginning at the Participant’s Normal Retirement Date (or, if later, December 31, 2002) determined as if the Participant had terminated employment with the Employer and all Affiliates as of December 31, 2002.  “Conversion Present Value” for purposes of this Subsection (a)

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shall be the actuarial present value determined as of December 31, 2002 using the 1994 Group Annuity Reserving Table with a 50/50 mix of males and females (i.e., the table prescribed in Rev. Rul. 2001-62) and an interest rate equal to 5.08% (i.e., the “applicable interest rate” under Code subsection 417(e) for August 2002).

(b)Transfer Employees.  A Participant who (i) first becomes a Cash Balance Participant in accordance with Subsection 3.2(c) and (ii) with respect to whom assets and liabilities are transferred to the Plan from the Cinergy Corp. Union Employees’ Retirement Income Plan or the Cinergy Corp. Union Employees’ Pension Plan in accordance with Section 3.6 (Transfers of Participants and Plan Assets To and From the Cinergy Corp. Union Employees’ Retirement Income Plan and Cinergy Corp. Union Employees’ Pension Plan) shall have an opening balance or an addition to his opening balance in his Cash Balance Account (as of the date he becomes or again becomes a Cash Balance Participant, as applicable) equal to the “Conversion Present Value” (as defined below in this Subsection (b)) of the accrued benefit (payable in the form of an annuity for the life of the Participant beginning at the later of the Participant’s normal retirement date under the transferor plan or the first day immediately prior to the date the Participant becomes or again becomes a Cash Balance Participant) with respect to which assets (and liabilities) were transferred from the Cinergy Corp. Union Employees’ Retirement Income Plan or Cinergy Corp. Union Employees’ Pension Plan).  “Conversion Present Value” for purposes of this Subsection (b) shall be the actuarial present value determined as of the first day immediately prior to the date the Participant becomes or again becomes a Cash Balance Participant, as applicable, using the 1994 Group Annuity Reserving Table with a 50/50 mix of males and females and an interest rate equal to the “applicable interest rate” under Code subsection 417(e) as specified by the Commissioner of Internal Revenue in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin (currently based on the annual rate of interest on 30–year Treasury securities) for the fifth full calendar month preceding the first day of the Plan Year in which the determination occurs.

(c)Reemployed Employees Who Never Had Retirement Choice.  A Participant who first becomes a Cash Balance Participant in accordance with Subsection 3.2(e) shall have an opening balance in his Cash Balance Account (as of the date he becomes a Cash Balance Participant) equal to the “Conversion Present Value” (as defined below in this Subsection (c)) of the Participant’s Annual Pension payable beginning at the Participant’s Normal Retirement Date (or, if later, the first day immediately prior to the date the Participant becomes a Cash Balance Participant) and based on the benefit accrued through the Participant’s most recent Severance from Service (prior to reemployment as described in Section 3.2(e)).  “Conversion Present Value” for purposes of this Subsection (c) shall be

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the actuarial present value determined as of the first day immediately prior to the date the Participant becomes a Cash Balance Participant using the 1994 Group Annuity Reserving Table with a 50/50 mix of males and females and an interest rate equal to the “applicable interest rate” under Code subsection 417(e) as specified by the Commissioner of Internal Revenue in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin (currently based on the annual rate of interest on 30–year Treasury securities) for the fifth full calendar month preceding the first day of the Plan Year in which the determination occurs.

4.2APay Credits

(a)Balanced Formula

As of the last day of each Plan Year, the Cash Balance Account of each Participant who was a Cash Balance Participant during the Plan Year and was covered by the formula in this Subsection (a) shall be credited with a Pay Credit equal to the applicable percentage specified in the table below (based on the Participant’s years of Service as of December 31 of such Plan Year) of the Participant’s Earnings for such Plan Year.  Notwithstanding the foregoing provisions of this Subsection (a), if a Participant who was a Cash Balance Participant during the Plan Year and was covered by the formula in this Subsection (a) has an Annuity Starting Date during the Plan Year, the Cash Balance Account of such Participant shall be credited with a Pay Credit as of the day before the Participant’s Annuity Starting Date equal to the applicable percentage specified below (based on the Participant’s years of Service as of his Severance from Service Date) of the Participant’s Earnings for such Plan Year through his Severance from Service Date (and if such Participant is reemployed during such Plan Year after his Severance from Service Date, the Cash Balance Account of such Participant shall be credited with a Pay Credit for the Participant’s Earnings for such Plan Year after his Reemployment Commencement Date in accordance with the immediately preceding sentence).

Years of Service	Percentage
Less than 6 years	3	%
6 or more years, but less than 11 years	4	%
11 years or more	5	%

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(b)Investor Formula

As of the last day of each Plan Year, the Cash Balance Account of each Participant who was a Cash Balance Participant during the Plan Year and was covered by the formula in this Subsection (b) shall be credited with a Pay Credit equal to 2% of the Participant’s Earnings for such Plan Year.  Notwithstanding the foregoing provisions of this Subsection (b), if a Participant who was a Cash Balance Participant during the Plan Year and was covered by the formula in this Subsection (b) has an Annuity Starting Date during the Plan Year, the Cash Balance Account of such Participant shall be credited with a Pay Credit as of the day before the Participant’s Annuity Starting Date equal to 2% of the Participant’s Earnings for such Plan Year through his Severance from Service Date (and if such Participant is reemployed during such Plan Year after his Severance from Service Date, the Cash Balance Account of such Participant shall be credited with a Pay Credit for the Participant’s Earnings for such Plan Year after his Reemployment Commencement Date in accordance with the immediately preceding sentence).

4.3AInterest Credits

As of the last day of each Plan Year, each Cash Balance Account shall be credited with an Interest Credit in an amount equal to the Cash Balance Account as of the first day of the Plan Year multiplied by the “interest credit percentage” (as defined below) for the Plan Year.  The “interest credit percentage” for a Plan Year shall be equal to the “applicable interest rate” under Code subsection 417(e) as specified by the Commissioner of Internal Revenue in revenue rulings, notices or other guidance published in the Internal Revenue bulletin (currently based on the annual rate of interest on 30–year Treasury securities) for the fifth full calendar month preceding the first day of the Plan Year for which the credit occurs.  Notwithstanding the foregoing provisions of this Section, if a Participant with a Cash Balance Account has an Annuity Starting Date during the Plan Year, the Cash Balance Account of such Participant shall be credited with an Interest Credit on the last day of the month immediately preceding the month during which the Participant’s Annuity Starting Date occurs in an amount equal to the Cash Balance Account as of the first day of the Plan Year multiplied by the “applicable fraction” (as defined below) of the “interest credit percentage” (as defined in the immediately preceding sentence) for the Plan Year.  The “applicable fraction” is a fraction, the numerator of which is the number of months during the Plan Year in which the Participant’s Annuity Starting Date occurs that precede the month during which the Participant’s Annuity Starting Date occurs and the denominator of which is 12.  The foregoing provisions of this Section do not and shall not be construed to credit a Participant (or the Participant’s Cash Balance Account) with Interest Credits for the period commencing on the Participant’s (or Beneficiary’s) Annuity Starting Date.

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4.4ACash Balance Annual Pension

(a)General Rule

As of his Annuity Starting Date, the Annual Pension of a Participant with a Cash Balance Account (other than a Participant described in Subsection 4.4A(b) (Special Rule for Certain Participants)) shall be equal to the Actuarial Equivalent of either (i) the Participant’s Cash Balance Account if the Participant has attained his Normal Retirement Date or (ii) the Participant’s “Projected Cash Balance Account” (as defined in this Section) if the Participant has not attained his Normal Retirement Date.  As of his Annuity Starting Date, the Participant’s “Projected Cash Balance Account” shall be equal to the Participant’s Cash Balance Account projected to his Normal Retirement Date with Interest Credits based on the interest credit percentage as defined in Section 4.3A (Interests Credits) in effect for the Plan Year which includes the Annuity Starting Date and with Interest Credits being credited at the intervals and in the manner provided in Section 4.3A (Interest Credits).

(b)Special Rule for Certain Participants

If a Participant with a Cash Balance Account has had an amount credited to his Cash Balance Account in accordance with Section 4.1A (Opening Account), the Annual Pension of the Participant shall be the greater of the Annual Pension determined under Subsection 4.4(A)(a) (General Rule) or the sum of the Participant’s Prior Conversion Pension and the Annual Pension that the Participant would have had under Subsection 4.4A(a)(General Rule) if the Participant had no accrued benefit other than his Cash Balance Account and had no amount credited to his Cash Balance Account in accordance with Section 4.1A (Opening Account).

(c)Overriding Provision

Notwithstanding the foregoing provisions of this Section 4.4A (Cash Balance Annual Pension), the Annual Pension shall be subject to and determined in accordance with Section 4.6 (Maximum Pension), Section 4.7 (Benefits if Plan Becomes a Top-Heavy Plan) and Section 8.5 (Benefits for Late Retirees, Reemployed Retirees and Reemployed Terminated Vested Participants).

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ARTICLE 5

SEVERANCE FROM SERVICE-VESTING

5.1Vesting Requirement

(a)A Participant will satisfy the Vesting Requirement under the Plan upon his completion of five years of Service and then will have a Nonforfeitable right to his accrued benefit under the Plan.  A Participant who is an Employee on his Normal Retirement Date will be deemed to satisfy the Vesting Requirement as of that date if he has not already satisfied the Vesting Requirement under the Plan.  Notwithstanding the preceding provisions of this Subsection, the Nonforfeitable percentage of each Participant’s right to his accrued benefit derived from Employer contributions, because of a change to the vesting schedule, will be not less than the Participant’s vested percentage, computed under the Plan as of the date immediately prior to the change, without regard to the change.  Moreover, each Participant whose Nonforfeitable percentage of his accrued benefit derived from Employer contributions is determined under an amended vesting schedule, and who has completed at least three years of Service as of the date of the amendment may elect, within a reasonable period after the adoption of the amended vesting schedule, to have the Nonforfeitable percentage of his accrued benefit derived from Employer contributions determined without regard to the amendment if his Nonforfeitable percentage under the Plan as amended is, at any time, less than the percentage determined without regard to the amendment.

(b)If the Plan becomes a Top-Heavy Plan, the above Vesting Requirement will not apply.  Instead, each Participant’s Accrued Benefit under the Plan will be partially or fully vested in accordance with the following schedule:

Years of Service	Percent Vested
2	20	%
3	40	%
4	60	%
5 or more	100	%

In any Plan Year (other than a Top-Heavy Plan Year) that succeeds one or more Top-Heavy Plan Years the following will apply:

(1)a Participant with five or more years of Service as of the beginning of the Plan Year will become 100 percent vested in all his accrued benefits;

(2)a Participant with at least two but less than five years of Service as of the beginning of the Plan Year will remain vested in his accrued

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benefit as of that date in accordance with the Top-Heavy Vesting schedule, but will vest in any forfeitable portion and in any further accruals in accordance with Subsection (a); and

(3)any other Participant will, as of that date, again be subject to the provisions of Subsection (a) with respect to all of his accrued benefit.

5.2Severance from Service Before Vesting

If a Participant incurs a Severance from Service before he has satisfied the Vesting Requirement and is not reemployed by an Employer, he will have no further interest in, or right to, any benefits under the Plan, except as otherwise provided in Section 14.2 (Reemployment).  If upon a Severance from Service, a Participant is zero percent vested in his benefits under the Plan, the vested portion of his Plan benefits will be deemed distributed to him as of his Severance from Service Date.

5.3Severance from Service After Vesting

If a Participant who had not become a Cash Balance Participant incurs a Severance from Service before his 50^th birthday, but after satisfying the Vesting Requirement, he will be entitled to receive a pension commencing on his 50^th birthday, if he is then living, or the Participant may elect to begin receiving his benefit at any time on or after his Early Retirement Date (subject to the provisions of Article 8 (Payment of Pension)).  If a Participant who had become a Cash Balance Participant incurs a Severance from Service after satisfying the Vesting Requirement, he will be entitled to receive a pension commencing after his Severance from Service (subject to the provisions of Article 8 (Payment of Pension)).  Subject to the provisions of Section 4.6 (Maximum Pension) and Article 7 (Forms of Pension), the amount of Nonforfeitable Annual Pension payable will be determined pursuant to the provisions of Section 4.5 (General Method of Computing Annual Pension for a Terminated Vested Participant) or Section 4.4A (Cash Balance Annual Pension), as applicable.

ARTICLE 6

DEATH BENEFIT

6.1Determination of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant

Notwithstanding anything to the contrary, this Section 6.1 (Determination of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant) shall not apply to a Participant for periods on and after the Participant becomes a Cash Balance Participant.  Upon the death of either (a) an Active

54

Participant who has satisfied the Vesting Requirement (an “Eligible Active Participant”), or (b) a former Participant who has satisfied the Vesting Requirement, whose employment with his Employer terminated before the Participant reached age 50, and whose pension under the Plan had not yet begun on the date of his death (an “Eligible Former Participant”), the Participant’s Spouse on the date of his death, if living on the date of the first installment payable, as set forth below, will be entitled to receive a pension under the Plan as a Spouse’s Benefit.  The annual amount of the Spouse’s Benefit will be determined as follows:

(a)If, at the date of his death, the Participant was either an Eligible Active Participant or an Eligible Former Participant who had reached age 50, the Spouse’s benefit will equal 100 percent of the Annual Pension that the Participant would have received, commencing on the first day of the calendar month coincident with or following the date of his death, if (1) he had retired as of the first day of the calendar month coincident with or following his death, thus establishing an Early Retirement Date, (2) the amount of Annual Pension commencing on the Early Retirement Date had been determined pursuant to the applicable provisions of Section 4.4 (General Method of Computing Annual Pension for Retirement at Early Retirement Date), and (3) his pension had been payable under the single-life option applicable to him pursuant to Subsection 7.1(a) (Normal Forms of Pension).  However, subject to Subsection (b), if the Participant’s Spouse is more than eight years younger than the Participant, the Spouse will receive the greater of (i) the benefit that would have been payable to the Spouse if the Participant had elected to begin receiving pension payments immediately prior to his death under the 100 percent option applicable to him pursuant to Subsection 7.1(b) (Normal Forms of Pension) or (ii) the actuarial equivalent of the benefit payable to a Spouse exactly eight years younger than the Participant, calculated by multiplying the Annual Pension that the Participant would have received times the appropriate early payment factor under Subsection 4.4(a) (General Method of Computing Annual Pension for Retirement at Early Retirement Date) and then multiplying the resulting product by the appropriate Spouse’s benefit factor as obtained from the following table:

55

Participant’s Age Less Spouse’s Age (in years)		Participant’s Age at Death
		50-59	60 or older
8	or less	1.00	1.00
9		.91	.90
10		.82	.81
11		.75	.72
12		.68	.65
13		.62	.59
14		.56	.54
15		.51	.49
16		.47	.44
17		.43	.40
18		.39	.36
19		.36	.33
20		.33	.30
21		.30	.28
22		.28	.26
23		.26	.24
24		.24	.22
25		.22	.20

(b)Notwithstanding Subsection (a), if a Participant who had reached age 50 at the date of his death was a participant in the MRP or the RIP as of December 31, 1997, the Spouse’s benefit attributable to the Participant’s accrued benefit under the MRP or the RIP as of December 31, 1997, will be calculated by multiplying the Participant’s annual accrued benefit under the MRP or the RIP as of December 31, 1997, by the early payment factor described under Paragraph 4.4(d)(2) (General Method of Computing Annual Pension for Retirement at Early Retirement Date), and then multiplying the resulting product by the MRP/RIP Spousal and Contingent Annuitant benefit factor as obtained from the table in Addendum C of the Plan.

(c)If, at the date of his death, the Participant was either an Eligible Active Participant or an Eligible Former Participant who, in either case, had not reached age 50, the Spouse’s benefit will equal 100 percent of the Annual Pension that the Participant would have received commencing on the first day of the calendar month coincident with or following his 50th birthday, if (1) his Severance from Service Date, in the case of an Eligible Active Participant, had been the date of his death, (2) the amount of Annual Pension (including the appropriate early payment reduction factor) had been determined pursuant to the applicable provisions of Section 4.5 (General Method of Computing Annual Pension for Terminated Vested Participant), (3) he had survived and elected to begin receiving pension payments on the first day of the calendar month coincident with or following his 50th birthday, and (4) his pension had been payable under

56

the 100 percent option applicable to him pursuant to Subsection 7.1(b) (Normal Forms of Pension).

(d)Notwithstanding Subsection (c), if a Participant who had not attained age 50 at the date of his death was a participant in the MRP or the RIP as of December 31, 1997, the Spouse’s benefit attributable to the Participant’s accrued benefit under the MRP or the RIP as of December 31, 1997, will be calculated by multiplying the Participant’s annual accrued benefit under the MRP or the RIP as of December 31, 1997, by the early payment factor described under Subsection 4.5(e) (General Method of Computing Annual Pension for Terminated Vested Participant) and then multiplying the resulting product by the MRP/RIP Spousal and Contingent Annuitant benefit factor as obtained from the table in Addendum C of the Plan.

6.2Method of Payment of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant

Notwithstanding anything to the contrary, this Section 6.2 (Method of Payment of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant) shall not apply to a Participant for periods on and after the Participant becomes a Cash Balance Participant.  A Spouse’s benefit will be payable in equal monthly installments, each equal to 1/12th of the Annual Pension as determined pursuant to this Article.  If at the date of his death the Eligible Active Participant or Eligible Former Participant had reached age 50, the first monthly installment of the Spouse’s benefit will be payable to the Participant’s Spouse on the first day of the calendar month coincident with or following the date of the Participant’s death, if his Spouse is then living, unless the Spouse elects to defer payment until the date the Participant would have reached age 62.  If at the date of his death the Participant had not reached age 50, the first monthly installment will be payable to the Participant’s Spouse on the first day of the calendar month coincident with or following the date the Participant would have reached age 50, had he survived until that date, if his Spouse is then living, unless the Spouse elects to defer payment until the date the Participant would have reached age 65.  In either event, subsequent monthly installments will be payable on the first day of each month and will cease upon the payment of the installment due on the first day of the calendar month in which the Spouse dies.

6.3Preretirement Death Benefit for Cash Balance Participant

Upon the death of a Participant with a Cash Balance Account who is either an Employee or has satisfied the Vesting Requirement, and whose pension under the Plan had not yet begun on the date of his death, a death benefit shall be payable as follows:

(a)If the Participant’s Beneficiary at the date of death is his Spouse, such Spouse shall be entitled to receive a single life annuity payable during the Spouse’s life commencing on the date the Participant under this Plan

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would have attained his Normal Retirement Date or if elected (in the form and manner prescribed by the Committee) by the Spouse, on the first day of any month on or after the date the Participant died and before the date the Participant would have attained his Normal Retirement Date.  The Spouse’s single life annuity shall be the greater of the Actuarial Equivalent of the Participant’s Cash Balance Account as of the last day of the month prior to the month of distribution or the pension payable to the Spouse if the Participant had terminated employment on the last day of the month prior to the month of distribution, commenced payment in the form of a Qualified Joint and Survivor Annuity as provided in Section 7.1 (Normal Forms of Pension) and died on the next day.  The Spouse may elect (in the form and manner prescribed by the Committee), in lieu of the foregoing single life annuity, to receive a lump sum payment equal to the greater of the Actuarial Equivalent of such single life annuity or 100% of the balance of the Participant’s Cash Balance Account as of the last day of the month prior to the month of distribution (which distribution shall be as of or before the first day of the month coincident with or immediately following the later of the Participant’s death or the Participant’s Normal Retirement Date).

(b)If the Participant’s Beneficiary at the date of his death is any person other than his Spouse, there shall be paid to the Participant’s Beneficiary as soon as practicable after the Participant’s death occurs a lump sum payment equal to 100% of the balance of Participant’s Cash Balance Account as of the last day of the month prior to the month of distribution.

(c)A Participant’s Beneficiary shall be his Spouse unless (i) the Participant elects to waive the death benefit payable to his Spouse in accordance with Subsection (a) and to designate a Beneficiary to receive the death benefit payable in accordance with Subsection (b), (ii) his Spouse consents to the election and such consent is in writing, acknowledges the effect of such election, and is witnessed by a Plan representative or notary public, and (iii) the election and consent are made in the form and manner prescribed by the Committee.  A Spouse’s consent shall not be required (for a Participant’s election of a Beneficiary death benefit) if it is established to the satisfaction of the Committee that the Participant is not married or that the consent cannot be obtained because the Spouse cannot be located or because of such other circumstances as may be prescribed in regulations issued by the Internal Revenue Service.  Any election made pursuant to this Subsection (c) may be revoked prior to the Participant’s Annuity Starting Date (and a new election made as described above in this Subsection (c)) in the form and manner prescribed by the Committee.  A Spouse’s consent shall not be effective with respect to any other subsequent spouse.  A Participant’s election prior to the first day of the Plan Year in which the Participant attains age 35 shall be invalid upon the first day of the Plan Year in which the Participant attains age 35 (a

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Participant who again desires to elect a Beneficiary death benefit must make a new election as described above in this Subsection (c)); provided, however, that an election by a Participant after the Participant has terminated employment shall not become invalid under the foregoing provisions of this sentence.

(d)Within a reasonable period after an Employee becomes a Cash Balance Participant and either prior to the first day of the Plan Year in which such Participant attains age 35, or if earlier, within a reasonable period after a Separation from Service (prior to age 35) by such Participant, the Committee shall provide the Participant with a written explanation of (1) the terms and conditions of the death benefit payable to his Spouse under Subsection (a), (2) the Participant’s right to waive the death benefit payable to his Spouse under Subsection (a) (and to designate a Beneficiary for the death benefit payable under Subsection (b)) and the effect of such waiver, (3) the rights of his Spouse and (4) his right to revoke any prior waiver and designation and the effect of such revocation.

ARTICLE 7

FORMS OF PENSION

7.1Normal Forms of Pension

(a)Unmarried Participants

The normal form of pension payable under the Plan to a Participant who is not married on his Annuity Starting Date and who does not otherwise elect an optional form of pension under Section 7.2 (Optional Forms of Retirement Income), will be a single-life income payable in equal monthly installments throughout the Participant’s lifetime, ceasing with the installment due on the first day of the calendar month in which his death occurs.

(1)Non-Cash Balance Participant.  For a Participant who had not become a Cash Balance Participant, each monthly installment will equal 1/12th of the Annual Pension (payable as of his Annuity Starting Date) as determined pursuant to Article 4 (Amount of Life-Only Pension) (including application of any early payment factors).

(2)Cash Balance Participant Without Prior Conversion Pension.  For a Participant who had become a Cash Balance Participant and is not described in Subsection 4.4A(b) (Special Rule for Certain Participants)), each monthly installment will equal 1/12th of the annual life annuity payable as of his Annuity Starting Date that is

59

the greater of (i) the Participant’s Annual Pension as determined pursuant to Subsection 4.4A(a) (General Rule), reduced for an Annuity Starting Date before his Normal Retirement Date to an Actuarial Equivalent annual annuity payable for the Participant’s life commencing as of his Annuity Starting Date or (ii) the Participant’s Cash Balance Account converted into an Actuarial Equivalent annual annuity payable for the Participant’s life commencing as of his Annuity Starting Date.

(3)Cash Balance Participant With Prior Conversion Pension.  For a Participant who had become a Cash Balance Participant and is described in Subsection 4.4A(b) (Special Rule for Certain Participants)), each monthly installment will equal 1/12th of the annual life annuity payable as of his Annuity Starting Date that is the greatest of (i), (ii) or (iii):

(i)Annual Pension Equivalent

The Participant’s Annual Pension as determined pursuant to Subsection 4.4A(b) (Special Rule for Certain Participants), reduced for an Annuity Starting Date before his Normal Retirement Date to an Actuarial Equivalent annual annuity payable for the Participant’s life commencing as of his Annuity Starting Date.

(ii)Cash Balance Account Equivalent

The Participant’s Cash Balance Account converted into an Actuarial Equivalent annual annuity payable for the Participant’s life commencing as of his Annuity Starting Date.

(iii)Special Rule

The sum of (A) the Prior Conversion Pension, reduced for an Annuity Starting Date before his Normal Retirement Date to an annual annuity payable for the Participant’s life commencing as of his Annuity Starting Date using the applicable early payment factors that would otherwise have been applicable to the Prior Conversion Pension (for any reduction down to the Participant’s age 50) and if the Participant has not attained age 50 as of his Annuity Starting Date, reduced for payment prior to Participant’s age 50 using the Actuarial Equivalent factors (of Subsection 1.5(a) and (b)) and (B) the greater of (x) the Annual Pension that the Participant would have had under Section 4.4A(a)(General Rule) if the Participant had no accrued benefit other than his Cash Balance Account and had no amount credited to his Cash Balance Account in accordance with Section 4.1A (Opening Account), reduced for an Annuity Starting Date before his Normal Retirement Date to an Actuarial Equivalent annual annuity payable for the Participant’s life commencing as of his Annuity Starting Date or (y) the Cash Balance Account that the Participant would have had under Section 4.4A(a)(General Rule) if the Participant had no accrued

60

benefit other than his Cash Balance Account and had no amount credited to his Cash Balance Account in accordance with Section 4.1A (Opening Account), converted into an Actuarial Equivalent annual annuity payable for the Participant’s life commencing as of his Annuity Starting Date.

(b)Married Participants

The normal form of pension payable under the Plan to a Participant who is married on his Annuity Starting Date and who does not otherwise elect an optional form of pension under Section 7.2 (Optional Forms of Retirement Income) is a “Qualified Joint and Survivor Annuity,” which will be paid as follows:

(1)To the Participant:

A reduced pension based on the 100 percent option in equal monthly installments payable on his Annuity Starting Date and on the first day of each calendar month thereafter.  Payments will cease with the installment due on the first day of the calendar month in which the Participant dies.  The reduced amount payable to the Participant will be the Actuarial Equivalent of the amount that would otherwise be paid to the Participant if he were unmarried.

If a Participant has an annual accrued benefit under the MRP or the RIP as of December 31, 1997, the reduced pension payable to him will not be less than the Participant’s annual accrued benefit under the MRP or the RIP as of December 31, 1997, multiplied by the applicable MRP/RIP Spousal and Contingent Annuitant benefit factor from the table in Addendum C to the Plan.

(2)To his Spouse:

A pension payable in equal monthly installments, each monthly installment being equal to 100 percent of the monthly installment paid to the Participant.  The first installment will be payable on the first day of the calendar month following the Participant’s death, if

61

the Spouse is then living; subsequent installments are payable on the first day of each calendar month, ceasing with the installment due on the first day of the calendar month in which the Spouse dies.  If the Participant’s Annuity Starting Date is on or after the date of the Participant’s 50^th birthday and the Participant’s Spouse predeceases the Participant after reduced pension payments under this Subsection have begun, payments will be made to the Participant after the Spouse’s death in the form of an unreduced single life annuity pursuant to Subsection (a) as of the first day of the month after the Participant notifies the Committee of the Spouse’s death.

If a Participant who has not become a Cash Balance Participant and who is entitled to benefits under the provisions of Section 4.4 (General Method of Computing Annual Pension for Retirement at Early Retirement Date) dies after his Actual Separation Date, but prior to the commencement of pension payments, and if the Participant’s Actual Separation Date is on or after his 50th birthday, under the normal form of pension applicable to him, his Spouse will be entitled to receive, commencing on the first day of the calendar month following the Participant’s death, if the Spouse is then living, a monthly pension, with each monthly installment equal to the amount that would have been payable to the Spouse following the Participant’s death pursuant to his election, or if no election is made, then pursuant to the provisions of this Paragraph (b)(2), if the Participant had begun receiving pension benefits on the first day of the calendar month in which the Participant died.

7.2Optional Forms of Retirement Income

Subject to the following conditions, a Participant, by making a request to the Committee or its designee within the election period specified in this Section, may elect to receive, in lieu of the normal form of pension applicable to him under Section 7.1 (Normal Forms of Pension), one of the optional forms of pension specified under this Section (the “Contingent Pension Option”).  Each election must be made by the Participant in a manner prescribed by the Committee or its designee.  The election of the Contingent Pension Option will take effect at a specified date, referred to as the “Option Effective Date.”  The amount of pension payable under any optional form will be the Actuarial Equivalent of the pension that would have been payable to the Participant under Subsection 7.1(a) (Unmarried Participants).

At least 30 days but no more than 90 days before a Participant’s Annuity Starting Date, the Committee or its designee will provide the Participant whose normal form of pension applicable to him is described in Subsection 7.1(a) (Normal Forms of Pension) with a written explanation of (a) the terms and conditions of

62

the normal form of pension benefits applicable to him under Subsection 7.1(a) (Normal Forms of Pension); (b) the Participant’s ability to elect to receive, in lieu of the normal form of pension applicable to him under Subsection 7.1(a) (Normal Forms of Pension), an optional form of pension under this Section; (c) the relative financial effect of the election on his pension benefits; (d) the availability of additional information describing the particular financial effect of the election upon his pension benefit; and (e) the procedures the Participants must follow to obtain the additional information.

The Committee or its designee will provide each Participant whose normal form of pension is a Qualified Joint and Survivor Annuity, at least 30 days but no more than 90 days before the Participant’s Annuity Starting Date, a written explanation of (a) the terms and conditions of the Qualified Joint and Survivor Annuity, (b) the Participant’s right to make and the effect of an election to waive a Qualified Joint and Survivor Annuity, (c) the rights of a Participant’s Spouse with respect to the selection of benefit forms, and (d) the right to make and the effect of a revocation of a previous election to waive the Qualified Joint and Survivor Annuity.  A Participant may elect to waive any requirement that the Applicable Election Period extend at least 30 days after the Committee provides the Participant with the written explanations described in this Section, if the distribution begins more than seven days after the applicable written explanation is provided.  If the Participant is married, the Participant’s Spouse must consent to the waiver in writing before a notary public or a Plan representative.

To be effective, an election to waive the Qualified Joint and Survivor Annuity must be made in writing during the 90 day period ending on the Annuity Starting Date and, if the Participant is married, it must be consented to by the Participant’s Spouse.  The election must designate a Beneficiary (or a form of benefits) that may not be changed (except back to a Qualified Joint and Survivor Annuity) without the Spouse’s consent, unless the Spouse’s original consent expressly permits designations by the Participant without any requirements of further consent by the Spouse.  The Spouse’s consent must be given in writing during the 90 day period ending on the Annuity Starting Date, must acknowledge the effect of the election and the consent, and must be witnessed by a Plan representative or notary public.  If the Participant establishes to the satisfaction of a Plan representative that the Spouse’s written consent cannot be obtained because there is no Spouse or the Spouse cannot be located, the Spouse’s consent will be deemed to have been given.  If a Participant is legally separated from his Spouse or has been abandoned by his Spouse (within the meaning of local law) and the Participant has a court order to such effect, the Spouse’s consent will not be required unless a Qualified Domestic Relations Order provides otherwise.  Any Spousal consent will be valid only with respect to the Spouse who signs the consent, or in the event of a deemed consent, the designated Spouse.  If a Participant’s Spouse is legally incompetent to give consent, the Spouse’s legal guardian (even if the guardian is the Participant) may give consent.  A Participant may revoke a prior effective election at any time prior to the receipt of benefits.

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(a)Single-Life Option

A married Participant whose normal form of pension is a Qualified Joint and Survivor Annuity may elect, in lieu of all payments otherwise payable, a single-life pension that provides payments to the Participant in equal monthly installments throughout his lifetime, ceasing with the installment due on the first day of the calendar month in which the Participant dies.  Each monthly installment will equal the monthly installment that would have been payable to the Participant under Subsection 7.1(a) (Unmarried Participants).

(b)Contingent Pension Option

A Participant may elect, in lieu of all payments otherwise payable on and after the Option Effective Date, the Contingent Pension Option providing payments as follows:

(1)To the Participant:

A reduced pension beginning on the Option Effective Date, with subsequent monthly payments payable on the first day of each subsequent calendar month throughout his remaining lifetime, terminating with the payment due on the first day of the calendar month in which he dies.  The reduced amount payable to the Participant will be determined in accordance with the Participant’s choice of the 100 percent, 66²/₃ percent, or 50 percent option and will be the Actuarial Equivalent of the amount that would otherwise be paid to the Participant under the single-life annuity option applicable to him pursuant to Subsection 7.2(a) (Optional Forms of Retirement Income).  An option cannot be elected, modified, or rescinded after the Option Effective Date.

If a Participant has an annual accrued benefit under the MRP or the RIP as of December 31, 1997, the reduced pension payable to him will not be less than the Participant’s annual accrued benefit under the MRP or the RIP as of December 31, 1997, multiplied by (A) for the 100 percent option, the applicable MRP/RIP Spousal and Contingent Annuitant Benefit factor from the table in Addendum C to the Plan, or (B) for the 50 percent option, the applicable 50 percent Contingent Annuitant Benefit factor from the table in Addendum D to the Plan.

(2)To the Contingent Annuitant designated by the Participant at the time he elects this option:

A contingent pension beginning on the first day of the calendar month following the calendar month in which the Participant’s

64

death occurs if the Participant dies on or after the Option Effective Date, and if the Contingent Annuitant is then living, with subsequent monthly payments payable on the first day of each subsequent calendar month throughout the Contingent Annuitant’s remaining lifetime, terminating with the monthly payment due on the first day of the calendar month in which the Contingent Annuitant dies.  However, if the Participant had elected to defer his pension payments, the Contingent Annuitant may elect, at any time prior to the date contingent pension payments actually begin, to have the payments begin after the Participant’s death on the first day of any calendar month coincident with or prior to the date the Participant had elected to start receiving his pension payments.

The monthly amount payable to the Contingent Annuitant will be a specified percentage of the reduced pension payable under this option to the Participant, as specified by the Participant.  This percentage will be either 100 percent, 66²/₃ percent, or 50 percent.  Notwithstanding the foregoing, if the Contingent Annuitant is other than the Participant’s Spouse, the Contingent Pension Option may be elected only if the requirements of 26 C.F.R. §1.401(a)(9)-2 are satisfied.

An option will not become effective, and payments will be made as otherwise provided in the Plan as if this option had never been elected, if:  (a) the Participant is not living on the Option Effective Date, (b) the Participant does not, within 90 days after his election, and not later than the Option Effective Date, furnish evidence, satisfactory to the Committee, of the age of his Contingent Annuitant, or (c) the Participant elects, prior to the Option Effective Date, to cancel the option.  If the Participant’s Annuity Starting Date is on or after the date of the Participant’s 50^th birthday and the Participant’s Contingent Annuitant predeceases the Participant after the contingent pension payments have begun, the option will be canceled and no longer effective, and payments will be made to the Participant in the form of an unreduced single-life annuity applicable to him pursuant to Subsection 7.2(a) (Optional Forms of Retirement Income) as of the first day of the month after the Participant notifies the Committee of the Contingent Annuitant’s death.

Notwithstanding anything to the contrary in this Subsection (b), the Contingent Pension Option in the form of a 66-2/3 percent or 50 percent option shall only be available if the Participant has or will have attained age 50 by his Annuity Starting Date.

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(c)Life with Ten Year Certain Option

A Participant who has or will have attained age 50 by the Annuity Starting Date may, in lieu of all payments otherwise payable on and after the Option Effective Date, elect the Life with Ten Year Certain Option providing payments as follows:

(1)To the Participant:

A reduced pension beginning on the Option Effective Date with subsequent monthly payments payable on the first day of each calendar month thereafter for ten years or throughout his remaining lifetime, whichever is longer, terminating with the payment due on the first day of the calendar month after the end of ten years or in which the Participant dies, whichever is applicable.

If the Participant elects the Life with Ten Year Certain Option, the amount of the Participant’s Nonforfeitable annual pension will be determined by multiplying his Annual Pension by the appropriate Life with Ten Year Certain Factor as obtained from the following table:

LIFE WITH TEN YEAR CERTAIN FACTORS
Age	Factor	Age	Factor
50	.9869	70	.9065
51	.9855	71	.8977
52	.9839	72	.8883
53	.9823	73	.8780
54	.9803	74	.8670
55	.9783	75	.8553
56	.9760	76	.8429
57	.9734	77	.8299
58	.9706	78	.8163
59	.9674	79	.8021
60	.9639	80	.7875
61	.9601	81	.7723
62	.9558	82	.7569
63	.9511	83	.7413
64	.9461	84	.7253
65	.9407	85	.7090
66	.9347	86	.6925
67	.9285	87	.6758
68	.9217	88	.6591
69	.9145	89	.6424
		90	.6259

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(2)To the Beneficiary designated by the Participant at the time he elects this option:

If the Participant dies prior to the end of ten years from the date of his initial pension payment, a contingent pension payable on the first day of the calendar month following the calendar month in which the Participant dies if the Participant’s death is on or after the Option Effective Date and if the Beneficiary is then living, with subsequent monthly payments being payable on the first day of each calendar month for the balance of ten years from the date of the Participant’s Option Effective Date; provided that if the Beneficiary is not then living, or if the Beneficiary dies before the first day of the last calendar month of such ten year period from the date of the Participant’s Option Effective Date, any remaining monthly payments for such ten year period shall be paid to the Beneficiary’s estate.

(d)Life Annuity Level Income Option

A Participant who has or will have attained age 50 by the Annuity Starting Date and who retires prior to reaching age 62 may elect, in lieu of all payments otherwise payable on and after the Option Effective Date, the Life Annuity Level Income Option, which provides payments to the Participant that are adjusted for the months before and after the Participant is eligible to receive benefits under the Social Security Act at age 62.

The Participant will receive a reduced pension on the Option Effective Date, with subsequent monthly payments payable on the first day of each calendar month thereafter for his remaining lifetime, terminating with the payment due on the first day of the calendar month in which his death occurs.  The reduced pension the Participant receives will be calculated as follows:

(1)Subject to Paragraph (5), Participant’s Annual Pension will be determined pursuant to Article 4 (Amount of Life-Only Pension) or Article 4A (Cash Balance Accounts), whichever is applicable.

(2)Subject to Paragraph (5), the Participant’s Reduced Primary Social Security Benefit will be multiplied by the appropriate Level Income Option factor from the table in Addendum E to the Plan.

(3)The sum of the amounts determined under Paragraphs (1) and (2) will equal the Level Income Option benefit payable to the Participant prior to age 62, which is the first date he is eligible to begin receiving Social Security Act benefits.

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(4)The Level Income Option benefit payable to the Participant after he reaches age 62 will equal the amount determined in Paragraph (3), minus the Participant’s Reduced Primary Social Security Benefit.

(5)If a Participant has an annual accrued benefit under the MRP or the RIP as of December 31, 1997, the Level Income Option benefit payable to that Participant will not be less than the sum of (A) and (B), where (A) equals the Participant’s annual accrued benefit under the MRP or the RIP as of December 31, 1997, and (B) equals the Participant’s Reduced Primary Social Security Benefit multiplied by the appropriate MRP/RIP Level Income Option factor from the table in Addendum F to the Plan.

(e)100 Percent Contingent Annuitant Level Income Option

A Participant who has or will have attained age 50 by the Annuity Starting Date and who retires prior to reaching age 62 may, in lieu of all payments otherwise payable on or after the Option Effective Date, elect the 100 Percent Contingent Annuitant Level Income Option, which provides payments as follows:

(1)To the Participant:

A reduced pension that is adjusted for the months before and after the Participant is eligible to receive benefits under the Social Security Act at age 62.  The Participant will receive a reduced pension on the Option Effective Date, with subsequent monthly payments payable on the first day of the calendar month thereafter for his remaining lifetime, terminating with the payment due on the first day of the calendar month in which the Participant dies.

The reduced pension the Participant receives under this option will be calculated as follows:

(A)The amount that would otherwise be payable with respect to the Participant under the 100 percent Contingent Pension Option under Subsection 7.2(b) (Optional Forms of Retirement Income) is determined.

(B)Subject to Subparagraph (E), the Participant’s Reduced Primary Social Security Benefit will be multiplied by the appropriate Level Income Option factor from the table in Addendum E to the Plan.

(C)The sum of the amounts determined under Subparagraphs (A) and (B) will equal the Level Income Option benefit payable to the Participant prior to age 62,

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which is the first date he is eligible to begin receiving Social Security Act benefits.

(D)The Level Income Option benefit payable to the Participant after he attains age 62 will equal the amount determined in Subparagraph (C), minus the Participant’s Reduced Primary Social Security Benefit.

(E)If a Participant has an annual accrued benefit under the MRP or the RIP as of December 31, 1997, the Level Income Option benefit payable to that Participant will not be less than the sum of (i) and (ii), where (i) equals the Participant’s annual accrued benefit under the MRP or RIP as of December 31, 1997, converted to a reduced pension based on the 100 percent Contingent Annuitant Pension Option under Subsection 7.2(b) (Optional Forms of Retirement Income), and (ii) equals the Participant’s Reduced Primary Social Security Benefit multiplied by the appropriate MRP/RIP Level Income Option factor from the table in Addendum F to the Plan.

(2)To the Contingent Annuitant:

A contingent pension beginning on the first day of the calendar month following the calendar month in which the Participant dies if the Participant dies on or after the Option Effective Date, and if the Contingent Annuitant is then living; with subsequent monthly payments payable on the first day of each subsequent calendar month throughout the Contingent Annuitant’s remaining lifetime, terminating with the monthly payment due on the first day of the calendar month in which the Contingent Annuitant dies.  However, if the Participant had elected to defer his pension payments, the Contingent Annuitant may elect at any time prior to the date contingent pension payments actually begin, to have the payments begin after the Participant’s death on the first day of any calendar month coincident with or prior to the date the Participant had elected to start receiving payments.

The monthly amount payable to the Contingent Annuitant will equal 100 percent of the reduced pension that would have been payable under this option to the Participant.

An option will not become effective, and payments will be made as otherwise provided in the Plan as if this option had never been elected, if:  (a) the Participant is not living on the Option Effective Date, (b) the Participant does not, within 90 days after his election, but not later than the Option Effective Date, furnish evidence,

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satisfactory to the Committee, of the age of his Contingent Annuitant, or (c) the Participant elects, prior to the Option Effective Date, to cancel the option.  If the Participant’s Annuity Starting Date is on or after the date of the Participant’s 50^th birthday and the Participant’s Contingent Annuitant predeceases the Participant after the contingent pension payments have begun, the option will be canceled and no longer effective, and payments will be made to the Participant in the form of a reduced single-life annuity level income option applicable to him pursuant to Subsection 7.2(d) (Optional Forms of Retirement Income) as of the first day of the month after the Participant notifies the Committee of the Contingent Annuitant’s death.  An option cannot be elected, modified, or rescinded after the Option Effective Date.

(f)Cash Balance Account Single Sum

A Participant with a Cash Balance Account may elect, in lieu of all payments otherwise payable on and after the Option Effective Date, the Cash Balance Account single sum which shall be a lump sum payment equal to the greatest of (i) the balance of the Participant’s Cash Balance Account as of the day prior to his Annuity Starting Date, (ii) the Actuarial Equivalent lump sum amount of the Participant’s Annual Pension, or (iii) the sum of the Cash Balance Account that the Participant would have had under Article 4A(Cash Balance Accounts) if the Participant had no accrued benefit other than his Cash Balance Account and had no amount credited to his Cash Balance Account in accordance with Section 4.1A (Opening Account) and the Actuarial Equivalent lump sum amount of his Prior Conversion Pension.

ARTICLE 8

PAYMENT OF PENSION

8.1Timing of Payment

This Section is subject to the provisions of Section 8.3 (Small Benefits) and Section 8.6 (Required Payment of Benefits).

A Participant who ceases to be an Employee as of his Normal Retirement Date will begin receiving any pension payable to him under the Plan as of his Normal Retirement Date.  A Participant who continues as an Employee after his Normal Retirement Date will begin receiving the pension payable to him under the Plan as of the first day of the calendar month coincident with or following his Severance from Service.

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A Participant who had not become a Cash Balance Participant and who ceases to be an Employee as of an Early Retirement Date will begin receiving his pension at his Normal Retirement Date unless he elects to begin receiving his pension on either his Early Retirement Date or the first day of a calendar month between his Early Retirement Date and his Normal Retirement Date (the “Deferred Pension Payment Date”); provided he has made the required election, in a manner prescribed by the Committee, prior to the date he wants his pension to begin.  A Participant who had become a Cash Balance Participant will begin receiving his pension at his Normal Retirement Date unless he elects to begin receiving his pension on the first day of a calendar month following his Severance from Service.

8.2Method of Payment

Unless specified elsewhere in the Plan, all pension payments under the Plan will normally be payable in equal monthly installments, with each monthly installment equal to 1/12th of the annual amount payable.  Pension payments will be (a) made by check to the order of the Participant, his Spouse, his Beneficiary or his Contingent Annuitant, as applicable, and mailed to that person’s address as it appears on the Employer’s records, or (b) deposited directly into an account of the Participant, his Spouse, his Beneficiary or his Contingent Annuitant, as applicable, maintained by the recipient at a bank, savings and loan, or other financial institution, as directed by the recipient.

8.3Small Benefits

Notwithstanding the provisions of Sections 6.2 (Method of Payment of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant) and 7.2 (Optional Forms of Retirement Income), for a Participant who had not become a Cash Balance Participant or for a Spouse with a benefit under Section 6.1 (Determination of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant), where the Actuarial Equivalent present value of the Nonforfeitable Annual Pension of the Participant or the Spouse’s benefit under Section 6.1 (Determination of Spouse’s Benefit for Participant Who Had Not Become a Cash Balance Participant) does not exceed $5,000 as of his Severance from Service Date (and as of the date as of which payment is made), the Committee or its designee will pay the Nonforfeitable Annual Pension or Spouse’s benefit (if applicable) in a single-sum cash payment equal to the Actuarial Equivalent of the pension or Spouse’s benefit otherwise payable in lieu of all other benefits under the Plan.  Notwithstanding the provisions of Sections 6.3 (Preretirement Death Benefit for Cash Balance Participant), 7.1 (Normal Forms of Pension) and 7.2 (Optional Forms of Retirement Income), for a Participant who had become a Cash Balance Participant or for a Spouse or Beneficiary (if applicable) with respect to a Participant who had become a Cash Balance Participant, where the single sum value of Participant’s accrued benefit as determined under Subsection 7.2(f) (Cash Balance Account Single Sum) or Spouse’s or Beneficiary’s death benefit (if applicable) does not exceed $5,000 as

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of the Participant’s Severance from Service Date (and as of the date as of which payment is made), the Committee or its designee will pay such single sum value or Spouse’s or Beneficiary’s death benefit (if applicable) in a single-sum cash payment to the Participant, Spouse or Beneficiary (as applicable) in lieu of all other benefits under the Plan.

8.4Facility of Payment

If any benefit under the Plan is payable to a person whom the Committee knows is a minor or otherwise under legal incapacity, the Committee or its designee may have the payment made to the legal guardian of that person or to the person or organization as a court of competent jurisdiction may direct.  To the extent permitted by law, any payment under this Section will be a complete discharge of any liability under the Plan to that person.

8.5Benefits for Late Retirees, Reemployed Retirees and Reemployed Terminated Vested Participants

(a)Late Retirees

A Participant may postpone his retirement and continue his employment with an Employer after his Normal Retirement Date.  If a Participant who had not become a Cash Balance Participant continues employment after his Normal Retirement Date, he will continue to accrue years of Service and years of Participation during this time period up to the date of his actual retirement.  If a Participant who had become a Cash Balance Participant continues employment after his Normal Retirement Date, he will continue to accrue Pay Credits during this time period up to the date of his actual retirement and Interest Credits up to the Participant’s Annuity Starting Date.  The Participant’s benefit will be calculated under Article 4 (Amount of Life-Only Pension) or Article 4A (Cash Balance Annual Pension), or Article 6 (Spouse’s Benefit), whichever is applicable, as of his Severance from Service Date.

(b)Suspension of Retirement Benefit Notice for Participant Who Continues Employment After His Normal Retirement Date

When a Participant continues in employment with an Employer beyond his Normal Retirement Date, benefits will not begin during that continued period of employment unless required under Section 8.6 (Required Payment of Benefits).  The Participant will be sent a notification described in § 2530.203-3(b)(4) of the Department of Labor regulations, provided that the suspension of benefits notice is limited to periods of service within the context of § 2530.203-3(c) of the Department of Labor regulations.

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(c)Reemployed Retirees and Reemployed Terminated Vested Participants

(1)Reemployed Retiree or Reemployed Terminated Vested Participant Who Had Not Become a Cash Balance Participant.

A Reemployed Retiree or Reemployed Terminated Vested Participant who had not become a Cash Balance Participant and who resumes employment will continue to receive any pension benefit payments under the Plan to which he is entitled, and will begin to receive any pension benefit payments under the Plan, as if he were not reemployed.  When such Reemployed Retiree or Reemployed Terminated Vested Participant again incurs a Severance from Service, his Annual Pension will, subject to all of the provisions of the Plan, be recalculated by aggregating his years of Participation and by considering his Earnings during his period of reemployment; provided, however, that the Participant’s benefits as recalculated will not be less than the Actuarial Equivalent of his Annual Pension prior to his reemployment.  The Participant’s recalculated Annual Pension will be reduced by the Actuarial Equivalent of the pension benefits already paid to the Participant.  Any pension benefit payable to a Spouse or Contingent Annuitant will also be based on the Participant’s pension benefit, as so recalculated and reduced.

(2)Reemployed Retiree or Reemployed Terminated Vested Participant Who Had Become a Cash Balance Participant.

(I)A Reemployed Retiree or Reemployed Terminated Vested Participant who had become a Cash Balance Participant and who does not have his years of Service prior to his Severance from Service reinstated will have his Cash Balance Account reinstated with a zero balance.

(II)A Reemployed Retiree or Reemployed Terminated Vested Participant who had become a Cash Balance Participant, who has his years of Service prior to his Severance from Service reinstated, and who has had a distribution of his entire benefit under the Plan will have his Cash Balance Account reinstated with a zero balance.

(III)A Reemployed Retiree or Reemployed Terminated Vested Participant who had become a Cash Balance Participant, who has his years of Service prior to his Severance from Service reinstated, and who has not had a distribution of his entire benefit under the Plan will continue to receive any pension benefit payments under the Plan to which he is

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entitled as if he were not reemployed and will have his Cash Balance Account reinstated with a zero balance.

(d)Questions Concerning Effect on Reemployment

The Plan’s benefit claims procedures may be used by an individual who has questions concerning the effect of reemployment by his Employer upon his pension benefit payments.

(e)Additional Rules and Procedures

The Committee is authorized to develop more fully the provisions of this Section by establishing, from time to time, various rules and procedures consistent with ERISA, the Code, and the Plan.

8.6Required Payment of Benefits

This Section has been included in the Plan to comply with the limitations imposed by Code paragraphs 401(a)(9) and 401(a)(14), and it will not be construed as providing for a form of benefit not otherwise provided under the Plan.  Notwithstanding any provision of this Plan to the contrary, any distribution under the Plan will be made in accordance with regulations under Code paragraph 401(a)(9), including proposed federal income tax regulation 1.401(a)(9)–2, and will comply with the following rules:

(a)Unless a Participant elects otherwise, the payment of his benefits under the Plan must begin not later than the 60th day after the end of the Plan Year in which occurs the latest of:  (1) the Participant’s 65th birthday; (2) the 10th anniversary of the Plan Year in which the Participant began participation in the Plan; or (3) termination of the Participant’s employment with the Employer.

(b)For purposes of this Article, “required beginning date” means (1) with respect to a Participant who is not a 5 percent owner as described in Code section 416 and who did not reach age 70½ before January 1, 1997, April 1 of the calendar year following the later of (A) the calendar year in which the Participant reaches age 70½, or (B) the calendar year in which the Participant retires; or (2) with respect to a Participant who is a 5 percent owner as described in Code section 416, or any Participant who reached age 70½ before January 1, 1997, April 1 of the calendar year following the calendar year in which the Participant reaches age 70½.  The Plan will provide an actuarial increase in accordance with the actuarial assumptions specified in Section 1.5 to a Participant’s interest in the Plan for the period beginning on the April 1 of the calendar year following the calendar year in which the Participant reaches age 70½ and ending on the date on which benefits begin after the Participant’s retirement in an amount sufficient to satisfy Code paragraph 401(a)(9).  The benefits payable to the

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Participant at the end of the period described in the preceding sentence will be no less than the Actuarial Equivalent of the benefit that would have been payable to the Participant as of the April 1 of the calendar year following the calendar year in which the Participant reached 70½.

(c)Notwithstanding any other provision of this Plan, the entire interest of each Participant will be distributed either:  (1) in a lump sum payment not later than the required beginning date, or (2) in a series of payments beginning not later than the required beginning date over the life of the Participant or over the lives of the Participant and the designated Beneficiary (or over a period not extending beyond the life expectancy of the Participant or the life expectancy of the Participant and a designated Beneficiary).  If the Participant’s interest is to be paid in the form of annuity distributions under the Plan, payments under the annuity will satisfy the following requirements:

(1)The annuity distributions must be paid in periodic payments made at intervals not longer than one year.

(2)For purposes of computing the distribution period, life expectancies or joint and last survivor expectancies will not be recalculated.

(3)Once payments have begun, the distribution period may not be lengthened even if that period would be shorter than the permitted maximum period.

(4)Payments must either be non-increasing or increase only as follows:

(A)with any percentage increase in a specified and generally recognized cost-of-living index;

(B)to the extent of the reduction to the amount of the Participant’s payments to provide for a survivor benefit upon death, but only if the Beneficiary or Contingent Annuitant whose life was being used to determine the distribution period dies and the payments continue otherwise over the life of the Participant;

(C)to provide cash refunds of employee contributions upon the Participant’s death; or

(D)because of an increase in benefits under the Plan.

(5)If the annuity is a life annuity (or a life annuity with a period certain not exceeding 20 years), the amount that must be

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distributed on or before the Participant’s required beginning date (or, in the case of distributions after the death of the Participant, the date distributions are required to begin after the Participant’s death) will be the payment that is required for one payment interval.  The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year.  Payment intervals are the periods for which payments are received, e.g., bi-monthly, monthly, semi-annually or annually.  If the annuity is a period certain annuity without a life contingency (or is a life annuity with a period exceeding 20 years), periodic payments for each distribution calendar year will be combined and treated as an annual amount.  The amount that must be distributed by the Participant’s required beginning date (or, in the case of distributions after the death of the Participant, the date distributions are required to begin after the Participant’s death) is the annual amount for the first distribution calendar year.  The annual amount for other distribution calendar years, including the annual amount for the calendar year in which the Participant’s required beginning date (or the date distributions are required to begin after the Participant’s death) occurs, must be distributed on or before December 31 of the calendar year for which the distribution is required.

(d)If (1) the distribution of a Participant’s interest has begun in accordance with Subsection (c), and (2) the Participant dies before his entire interest has been distributed to him, the remaining portion of his interest will be distributed at least as rapidly as under the method of distribution being used under Subsection (c) as of the date of his death.

(e)Except as provided in Subsection (f), if a Participant dies before the distribution of his interest has begun in accordance with Subsection (c), the Participant’s entire interest will be distributed within five years after his death.

(f)For purposes of Subsection (c), any portion of a distribution that is payable to (or for the benefit of) a designated Beneficiary will be treated as completely distributed on the date on which distribution began if:

(1)that portion is to be distributed (in accordance with regulations prescribed by the Secretary) over the life of the designated Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary), and

(2)distributions begin by the latest of (A) one year after the date of the Participant’s death, (B) any later date that the Secretary may establish by regulations, or (C) if the Beneficiary is the

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Participant’s surviving Spouse, the date on which the Participant would have attained age 70–1/2.

(g)If the designated Beneficiary is the Participant’s surviving Spouse, and if the surviving Spouse dies before the distributions to the Spouse begin, Subsections (c), (e), and (f) will be applied as if the surviving Spouse were the Participant.

(h)For purposes of Subsection (f), payment will be calculated by use of the expected return multiples specified in Tables V and VI of 26 C.F.R. §1.72-9.  The life expectancy of a designated Beneficiary will be calculated at the time payment first commences without further recalculation.

(i)For purposes of Subsections (c), (d), (e), and (f), if any amounts payable to a child of the Participant becomes payable to the Participant’s surviving Spouse and the child reaches the age of majority, that amount will be treated as if it had been paid to the surviving Spouse.

(j)If a Participant reaches age 70½ on or after January 1, 1997, but before January 1, 1999, the Plan will deem the Participant’s “required beginning date” to be April 1 of the calendar year following the calendar year in which the Participant reaches age 70½ unless the Participant elects, with his Spouse’s consent, to defer commencement of his Plan benefits until a date no later than April 1 of the calendar year following the calendar year in which the Participant retires.

8.7Direct Rollovers of Eligible Distributions

Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.

ARTICLE 9

RETIREE MEDICAL/DENTAL BENEFITS

9.1Purpose

This Article provides for the payment of certain Medical/Dental Benefits to Eligible Retirees and to their Dependents under the Plan.  The Medical/Dental Benefits described in this Article are intended to meet the requirements of Code subsection 401(h) and its interpretive regulations.

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9.2           Eligibility

Only Eligible Individuals will be eligible to receive Medical/Dental Benefits (or to have Medical/Dental Benefits paid on their behalf) under this Article.

9.3           Separate Account

A Medical/Dental Benefits Account will be established and maintained with respect to contributions made to fund the benefits payable under this Article, which will be kept separate (for recordkeeping purposes only) from the amounts contributed to the Plan to fund all other benefits.  The funds in the Medical/Dental Benefits Account may be invested with funds contributed to the Plan to fund other benefits without identification of which assets of the Plan are allocable to the Medical/Dental Benefits Account and which are allocable to fund other benefits.  Where the assets are not so allocated, however, the earnings on the assets will be allocated in a reasonable manner between the Medical/Dental Benefits Account and the amounts funding other benefits under the Plan.

9.4           Impossibility of Diversion Prior To Satisfaction of All Liabilities

Prior to the satisfaction of all liabilities under this Article to provide for the payment of Medical/Dental Benefits, no part of the corpus or income of the Medical/Dental Benefits Account may be (within the taxable year or thereafter) used for, or diverted to, any purpose other than providing Medical/Dental Benefits or paying any reasonable expenses attributable to the administration of the Medical/Dental Benefits Account.

9.5           Reversion Upon Satisfaction of All Liabilities

Notwithstanding the provisions of Section 14.8 (No Diversion of Assets), any amounts that are contributed to fund Medical/Dental Benefits and that remain in the Medical/Dental Benefits Account upon the satisfaction of all liabilities arising out of the operation of this Article are to be returned to Eligible Retirees, in proportion to their respective total contributions to the Medical/Dental Benefits Account.

9.6           Forfeitures

In the event an Eligible Individual’s interest in the Medical/Dental Benefits Account is forfeited prior to termination of the Plan, an amount equal to the amount of the forfeiture will be applied as soon as possible to reduce Employer contributions to the Plan to fund the Medical/Dental Benefits under this Article.

9.7           Employer Contributions To The Medical/Dental Benefits Account

For each Plan Year, the Employer will contribute to the Medical/Dental Benefits Account the amount necessary to fund Medical/Dental Benefits, as determined by the Plan’s actuaries, provided that the contributions mandated by this sentence will

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be reasonable, and will be reduced (but not below zero) as required so that the aggregate actual contributions made to the Medical/Dental Benefits Account will not exceed 25% of the total aggregate actual contributions (other than any contributions to fund past service credits) made to the Plan.  All contributions to the Medical/Dental Benefits Account will be paid to the Trustee, who will hold them in Trust for the payment of Medical/Dental Benefits under this Article.  At the time an Employer makes a contribution to the Plan, it will designate the portion allocable to the Medical/Dental Benefits Account.

9.8           Medical/Dental Benefits

The Medical/Dental Benefits under the Plan will be those benefits payable to or on behalf of Eligible Individuals in accordance with the terms of a Medical/Dental Plan.

ARTICLE 10

NONALIENATION OF BENEFITS

The Pension Fund will not in any manner be liable for, or subject to, the debts or liabilities of any Participant, Beneficiary, Contingent Annuitant, or Spouse, or any other person entitled to any benefit.  No payee may assign any payment due him under the Plan.  No pension or other benefits at any time payable from the Pension Fund will be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, attachment, garnishment, levy, execution, or other legal or equitable process or encumbrance of any kind.  Any attempt to alienate, sell, transfer, assign, or otherwise encumber any such benefit, whether presently or thereafter payable, will be void.  However, the payment of benefits under the Plan will be made in accordance with the applicable requirements of any Qualified Domestic Relations Order entered by a court of competent jurisdiction or a state administrative agency.  The Committee will establish procedures to determine whether the domestic relations orders are Qualified Domestic Relations Orders and to administer distributions under Qualified Domestic Relations Orders.  Effective as of August 5, 1997, notwithstanding any provision of the Plan to the contrary, the Plan shall honor a judgment, order, decree or settlement providing for the offset of all or a part of a Participant’s benefit under the Plan, to the extent permitted under Code subparagraph 401(a)(13)(C); provided that the requirements of Code subparagraph 401(a)(13)(C)(iii) relating to the protection of the Participant’s Spouse (if any) are satisfied.

ARTICLE 11

ADMINISTRATION

11.1         Administrator

The Committee will be the administrator of the Plan.  The Committee will consist of the number of members, not fewer than three, that is specified from time to

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time by the Board of Directors.  All members of the Committee will be Employees or officers of an Employer.  All members of the Committee will serve without compensation.

11.2         Removal and Replacement of Committee Members

The members of the Committee will serve at the pleasure of the Board of Directors and may be removed by the Board of Directors with or without cause.  Any vacancy among the members will be filled by the Board of Directors.

11.3         Disqualification and Resignation

On the date when a Committee member is neither an Employee nor an officer of an Employer, he will be disqualified from membership on the Committee.  A member of the Committee may resign by delivering his written resignation to any other member of the Committee.  A resignation will become effective on the date specified in the instrument of resignation.

11.4         Chairperson, Services, and Counsel

The members of the Committee will elect one of their members as Chairperson and will elect a Secretary, who may be, but need not be, one of the members of the Committee.  Cinergy will provide the Committee, at Cinergy’s expense, with such clerical, accounting, actuarial, and other services as may be reasonably required by the Committee in carrying out its responsibilities.  The Committee may employ counsel, who may be, but need not be, counsel to Cinergy.

11.5         Meetings

The Committee will hold meetings upon such notice, at the places, and at the times as the Committee may from time to time determine, but no less often than quarterly.

11.6Quorum

A majority of the members of the Committee at the time holding office will constitute a quorum for the transaction of business.  All resolutions and other action taken by the Committee at any meeting will be by the vote of the majority of the members of the Committee present at the meeting.

11.7         Action Without Meeting

Any decision, order, direction, or other action, including orders and directions to the Trustee or Insurance Company, made in writing signed by a majority of the members of the Committee at the time holding office will constitute valid and effective action of the Committee, whether or not the matter to which that decision, order, direction, or other action pertains had already been acted upon at a duly called and held meeting of the Committee.

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11.8         Notice to Trustee of Changes in Membership

The Trustee will not be charged with notice of any change in the membership of the Committee unless and until it has received a certified copy of the resolution or vote of the Board of Directors effecting the change.

11.9         Correction of Defects

The Committee may correct any defect or supply any omission or reconcile any error or inconsistency in its previous proceedings, decisions, orders, directions, or other actions in a manner and to such extent as it will deem advisable to carry out the purposes of the Plan.

11.10       Reliance Upon Legal Counsel

The members of the Committee, and Cinergy, and Cinergy’s officers and directors, will be entitled to rely upon all opinions given by legal counsel selected by the Committee.

11.11       Expenses

In the performance of its duties, the Committee is authorized to incur reasonable expenses, including counsel fees.  All operating expenses of the Plan, including insurance premiums payable to the Pension Benefit Guaranty Corporation, fees for professional services, and technical or clerical assistance, will be paid from the Pension Fund, to the extent not paid by the Employer.  Investment expenses and any federal, state, or local taxes that may be levied against the Pension Fund will also be paid from the Pension Fund.

11.12       Indemnification

Cinergy agrees to indemnify and hold harmless each member of the Committee against any cost, expense, or liability (including any sum paid in settlement of any claim with the approval of the Board of Directors) arising out of any act or omission to act as a member of the Committee, except only acts and omissions representing willful misconduct, fraud, or lack of good faith.

11.13       Powers and Duties of Committee

Subject to the specific limitations stated in this document, the Committee will have the following powers, duties, and responsibilities:

(a)           to carry out the Plan’s general administration;

(b)           to cause to be prepared all forms necessary or appropriate for the Plan’s administration;

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(c)           to keep appropriate books and records, including minutes of the Committee’s meetings;

(d)to determine, consistent with the provisions of this document, the manner in which the Pension Fund will be allocated and disbursed;

(e)to give directions to the Trustee or Insurance Company as to the amounts to be disbursed to Participants and others under the Plan’s provisions;

(f)to determine, with discretionary authority and consistent with the provisions of this document, all questions of the eligibility, rights, and status of Participants and others under the Plan;

(g)to exercise all other powers and duties specifically conferred upon the Committee elsewhere in this document and the Trust Agreement or Group Annuity Contract;

(h)to exercise all duties and responsibilities imposed by ERISA upon the Committee as the Plan’s administrator;

(i)to interpret, with discretionary authority, the provisions of the Plan and to resolve, with discretionary authority, all disputed questions of Plan interpretation and benefit eligibility;

(j)to employ agents to assist it in performing its administrative duties; and

(k)to allocate and delegate its fiduciary responsibilities in accordance with ERISA section 405.

The Committee will at all times make similar decisions on similar questions involving similar circumstances.  Subject to the provisions of ERISA and to the provisions of Article 12 (Benefit Claims Procedures) relating to claims, all decisions of the Committee made in good faith on all matters within the scope of its authority under the provisions of this document will be final and binding upon all persons.

11.14       Matters Specifically Excluded from Jurisdiction

Notwithstanding any other provision of this document, the Committee will have no power, duty, or authority with respect to determination of the amounts to be contributed by the Employer to the Pension Fund or Trust Fund.

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ARTICLE 12

BENEFIT CLAIMS PROCEDURES

Claims for benefits under the Plan will be made in writing to the Committee or its designee.  If a claim for benefits is wholly or partially denied, the Committee or its designee will notify the Claimant of the claim’s denial within a reasonable period of time not to exceed 90 days after the claim’s receipt, unless special circumstances require an extension of time for processing, in which case notification will be rendered as soon as possible, but not later than 180 days after the claim’s receipt.  If an extension of time for processing is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 90 day period.  The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render final notification.  The notice of denial will be written in a manner calculated to be understood by the Claimant and will set forth (a) the specific reason or reasons for the denial, (b) a specific reference to the pertinent Plan provisions on which the denial is based, (c) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why that material or information is necessary, and (d) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review.  The Committee or its designee is authorized to develop more fully the Plan’s benefit claims procedures by establishing from time to time, various rules and procedures consistent with ERISA.

Within 60 days after the Claimant’s receipt of written notice of the claim’s denial, the Claimant, or his duly authorized representative, may file a written request with the Committee requesting a full and fair review of the denial of the Claimant’s claim for benefits.  In connection with the Claimant’s appeal of the denial of his claim for benefits, the Claimant may review pertinent documents in the Committee’s possession and may submit issues and comments in writing.  The Committee will make a decision on review promptly, but not later than the date of the Committee meeting that immediately follows the receipt of the Claimant’s request for review, unless the request for review is filed within 30 days before the date of that meeting.  In that case, a decision will be made as soon as possible, but not later than the date of the second Committee meeting following receipt of the request for review.  If special circumstances require a further extension of time for processing, a decision will be rendered not later than the third Committee meeting following receipt of the Claimant’s request for review.  If an extension of time for review is required because of special circumstances, written notice of the extension will be sent to the Claimant before the extension begins.  The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the final decision.  The decision on review will be in writing and written in a manner calculated to be understood by the Claimant, will set forth the specific reason or reasons for the decision, and will contain a specific reference to the pertinent Plan provisions on which the decision is based.  If the decision on review is not furnished to the Claimant within 60 days of receipt of the request for review, or within 120 days after its receipt if special circumstances required an extension of time, the claim will be deemed denied on review.

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ARTICLE 13

FUNDING POLICY AND METHOD

Cinergy will establish and carry out a funding policy and method for the Plan consistent with (a) the Plan’s past experience, (b) the Plan’s anticipated experience, (c) the Plan’s objectives, (d) the requirements of ERISA, and (e) the requirements of the Code.  Cinergy will (a) communicate the funding policy and method to the Committee, (b) periodically review the funding policy and method, and (c) document all action taken with respect to the funding policy and method.

ARTICLE 14

MISCELLANEOUS

14.1         No Enlargement of Employee Benefits

This Plan is strictly a voluntary undertaking on the part of each Employer and will not be deemed to constitute a contract between an Employer and any Employee or to be consideration for, or an inducement to, or a condition of, the employment of any Employee.  Nothing contained in the Plan will be deemed to give any Employee the right to be retained in the service of an Employer or to interfere with the right of the Employer to discharge any Employee at any time.  No Employee, prior to his retirement under conditions of eligibility for pension benefits or prior to his satisfying the Vesting Requirement will have any right to, or interest in, any portion of any fund arising from his Employer’s contributions under this Plan or, in any event, other than as specifically provided in the Plan.  No person will have any right to pension benefits except to the extent provided in the Plan.

14.2         Reemployment

If an Eligible Employee who first became an Employee prior to January 1, 2003 incurs a Severance from Service and is later reemployed by an Employer, his two (or more) periods of employment will, subject to all of the provisions of the Plan, be aggregated for the purpose of determining his Year of Eligibility Service, his years of Participation, and his years of Service.

If an Eligible Employee who first became an Employee after December 31, 2002 incurs a Severance from Service and is later reemployed by an Employer (or Affiliate), his period of employment prior to his Severance from Service will, subject to all of the provisions of the Plan, be aggregated for the purpose of determining his years of Service, his Years of Eligibility Service and his years of Participation only if the Employee either had satisfied the Vesting Requirement at his Severance from Service or if his Period of Severance is less than 60

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consecutive months.  If an Employee’s period of employment prior to his Severance from Service is not aggregated pursuant to the immediately preceding sentence, the Service, Years of Eligibility Service and Participation shall be disregarded.

14.3         Qualified Military Service

Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits, and service credits with respect to qualified military service will be provided in accordance with Code subsection 414(u).  For a Participant who had become a Cash Balance Participant, to comply with (and not in addition to the benefits under) Code subsection 414(u), Pay Credits will be credited during the Participant’s military leave that would qualify as qualified military service if the Participant would return to employment as provided in Chapter 43 of Title 38, United States Code.

14.4         Notice of Address

Each Participant, Retired Participant, Terminated Vested Participant, Beneficiary, Contingent Annuitant, and Spouse entitled to benefits under the Plan must submit to the Committee or its designee his post office address and each change of post office address.  Any communication, statement, or notice addressed to a person at his latest post office address filed with the Committee or its designee will, upon deposit in the United States mail with postage prepaid, be binding upon that person for all purposes of the Plan, and neither the Insurance Company, the Committee, nor the Trustee will be obliged to search for, or to ascertain the whereabouts of, any person.

14.5         Data

Participants, Retired Participants, Terminated Vested Participants, Beneficiaries, Contingent Annuitants, and Spouses must furnish to the Committee, the Insurance Company, and the Trustee any documents, evidence, or information that the Committee, the Insurance Company, or the Trustee considers necessary or desirable for the purpose of administering the Plan, or to protect the Committee, the Insurance Company, or Trustee; and it will be a condition of the Plan that each person must furnish this information promptly and sign required documents before any benefits become payable under the Plan.

14.6         No Individual Liability

It is the express purpose and intention of the Plan that, except as otherwise required by law, no individual liability whatever will attach to, or be incurred by, the shareholders, officers, or members of the board of directors of any Employer, or the Committee, or its members, or any fiduciary designated pursuant to Section 11.13 (Powers and Duties of Committee), or any representatives

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appointed by Cinergy under the Plan, under or by reason of any of the terms or conditions of the Plan.

14.7         Participant’s Statement of Agreement

Cinergy will have the right, at any time, to require any Participant to agree in writing to be bound by the Plan’s provisions.  However, the absence of an agreement will not relieve any Participant from being legally bound by the provisions of the Plan.

14.8         No Diversion of Assets

None of the assets of the Pension Fund may be used for, or diverted to, purposes other than the exclusive benefit of the Participants and their Beneficiaries.  However, nothing in this Section will prohibit the return to the Employers, in accordance with the provisions of ERISA subsection 403(c), of a contribution (or a portion of a contribution) by the Employers to the Pension Fund if the contribution is (a) made by reason of mistake of fact, (b) conditioned on the initial qualification of the Plan under Code subsection 401(a), or (c) conditioned upon its deductibility under Code section 404 and the deduction is not fully allowed.

14.9         Governing Laws

The Plan will be construed and administered according to the internal laws of the State of Ohio to the extent that those laws are not preempted by federal law.

14.10       Severability

If any part of the Plan is adjudged by a court of competent jurisdiction to be contrary to the laws governing the Plan, then the Plan will, in all other respects, be and remain legally effective and binding to the full extent permissible under the law.

14.11       Interpretation and Regulation of Plan

Cinergy, by action of the Committee, reserves the right to interpret and regulate the Plan, by exercise of discretionary authority, and its interpretation and regulation will be legally effective and binding on all parties concerned.

14.12       Communications by Participants

All communications by Participants and other concerned parties concerning the Plan will be in writing and directed to the Committee or its designee.

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14.13       Headings

The headings of Articles, Sections, Subsections, Paragraphs or other parts of the Plan are for convenience of reference only and do not define, limit, construe, or otherwise affect the contents of this document.

14.14       Accrued Benefit Not to be Decreased by Amendment

Notwithstanding any other provisions of the Plan to the contrary, no accrued benefit of a Participant under the Plan will be decreased by an amendment to the Plan, other than an amendment described in Code paragraph 412(c)(8) or ERISA section 4281.  For purposes of this Subsection, an amendment to the Plan that has the effect of:

(a)eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in the regulations under Code paragraph 411(d)(6)), or

(b)eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment, will be treated as reducing the accrued benefit of a Participant.  In the case of any retirement-type subsidy, the preceding sentence will apply only with respect to a Participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy.

ARTICLE 15

TRUSTS AND INSURANCE CONTRACTS

15.1         Trusts and Insurance Contracts

As part of the Plan, the Employers have established a Pension Fund.  The Pension Fund may consist of a trust, or a fund under a group annuity contract issued by an Insurance Company, or a combination of each.  Benefits may, however, be provided through other trusts or insurance contracts as Cinergy, in its sole discretion, may establish or cause to be established or entered into for the purposes of carrying out the Plan.  Cinergy will determine the form and terms of any trust and will also determine the terms and provisions of any group annuity contract.  Cinergy may also, in its sole discretion, cause any funds held by any Insurance Company, or any Trust Fund held by any Trustee, for the purpose of providing benefits under the Plan, to be transferred to any other Insurance Company, or qualified Trustee, to be held for the same purpose.

15.2         Irrevocability

The Employers will have no right, title, or interest in the Pension Fund or to the contributions made under the Plan, and no part of the Pension Fund will revert to

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the Employers, except that upon termination of the Plan and after satisfaction or provision for the satisfaction of all fixed and contingent liabilities or obligations to persons entitled to benefits upon the termination, any balance remaining in the Pension Fund will be distributed to the Employers.  However, nothing in this Section will prohibit the return, in accordance with the provisions of ERISA subsection 403(c), to the Employers of a contribution (or a portion of a contribution) by the Employers to the Pension Fund if the contribution is (a) made by reason of mistake of fact, (b) conditioned on the initial qualification of the Plan under Code subsection 401(a), or (c) conditioned upon its deductibility under Code section 404 and the deduction is not fully allowed.

15.3         Sufficiency of Pension Fund

The Employer intends the Plan to be a permanent, as distinguished from a temporary, program.  Except as otherwise provided by the Code or ERISA, however, the Employer will not be under any liability to make contributions to the Pension Fund.  Benefits under the Plan are to be paid only from the Pension Fund and only to the extent that the Pension Fund is sufficient for that purpose.  Neither Cinergy, nor any of the officers, employees, members of the Board of Directors, the Committee, or representatives of Cinergy guarantees in any manner nor, unless otherwise required by law, will be liable for the payment of benefits under the Plan.  Except as otherwise provided by ERISA, any person having any claim under, or in connection with, the Plan must look solely to the Pension Fund for satisfaction.

ARTICLE 16

CONTRIBUTIONS

No contributions to the Plan by Participants will be required or permitted under the Plan.

During the continuance of the Plan and for the purpose of providing the benefits contemplated under the Plan, the Employer intends to deposit, from time to time, with the Trustee or with the Insurance Company, sums of money, to be held in the Pension Fund, which, together with the earnings of the Pension Fund, will be deemed sufficient to provide the benefits of the Plan and to satisfy the minimum funding standards set forth in ERISA.  All contributions by the Employer to the Pension Fund are expressly conditioned upon deductibility under Code section 404.

ARTICLE 17

APPROVAL UNDER INTERNAL REVENUE CODE

The Plan as set forth in this document is intended to comply with the requirements of Code subsection 401(a), so that the income of the Pension Fund may be exempt from federal

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income taxes and so that contributions of the Employers under the Plan may be deductible for federal income tax purposes under Code section 404.  Any modification or amendment of the Plan may be made, retroactive or otherwise, as necessary or appropriate to establish and maintain its qualified status under the Code, or to otherwise comply with ERISA.

ARTICLE 18

TEMPORARY RESTRICTIONS ON BENEFITS

18.1         Temporary Restrictions

(a)Notwithstanding any other provisions of the Plan, the benefit of any Highly Compensated Participant upon the Plan’s termination will be limited to a benefit that is nondiscriminatory under Code paragraph 401(a)(4).

(b)Upon the Plan’s termination, annual payments of Plan benefits made on behalf of any of the 25 highest paid Employees or former Employees of the Employer and the Affiliates in a particular Plan Year will be restricted to an amount equal in each Plan Year to:

(1)the payments that would be made on behalf of the Employee under a single life annuity that is the Actuarial Equivalent of the accrued benefit and other benefits to which the Employee is entitled under the Plan (other than a social security supplement), plus

(2)the amount of the payments that the Employee is entitled to receive under a social security supplement.

(c)The restrictions of Subsection (b) will not apply to payments made to an Employee who is one of the 25 highest paid Employees or former Employees if any one of the following requirements is satisfied:

(1)After payment to the Employee of all benefits payable to the Employee under the Plan, the value of the Plan’s assets equals or exceeds 110 percent of the value of the Plan’s current liabilities as defined under Code paragraph 412(l)(7).  The value of Plan assets and the value of current liabilities for this purpose must be determined as of the same date;

(2)The value of the benefits payable to the Employee under the Plan is less than one percent of the value of the Plan’s current liabilities before distribution, or

(3)The value of the benefits payable to the Employee does not exceed $5,000.

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ARTICLE 19

AMENDMENT AND TERMINATION

19.1         Right to Amend or Terminate

Cinergy reserves the right to modify, alter, amend, revoke or terminate the Plan and/or any Trust Fund or group annuity contract that may be established or entered into to effectuate and implement the Plan at any time.  The Board of Directors will generally have the authority to adopt amendments; provided, however, that such authority may be delegated from time to time to the Cinergy Corp. Benefits Committee or otherwise; provided further, however, that the Committee or the compensation committee of the Board of Directors may adopt any amendment to ensure the continued qualification of the Plan and Pension Fund under Code subsections 401(a) and 501(a), to comply with the provisions of any federal statute or regulation impacting pension plans, to enhance the delivery of benefits to Participants and Beneficiaries, to ease Plan administration, or to respond to the withdrawal of any Employer from the Plan.

The Board of Directors, or any person or persons duly authorized by the Board of Directors, will also have the right, authority, and power to terminate the Plan and to discontinue or suspend the payment of contributions to provide benefits under the Plan (except for the provision of any agreement which has been entered into between an Employer and a labor union representing Eligible Employees).  However, no action taken pursuant to this Section will operate to enlarge the right of Cinergy under Section 15.2 (Irrevocability).

19.2         Effect of Termination

If a partial or complete termination of the Plan occurs, all Participants with respect to whom the Plan is being so terminated will have a Nonforfeitable right to their benefits accrued under the Plan up to the date of termination of the Plan to the extent then funded.

Except as otherwise required by ERISA section 4044, Cinergy will direct the Trustee and/or Insurance Company to segregate the Pension Fund, as determined by Cinergy to be attributable to the group that is terminating its participation in the Plan, and to make separate allocations of the segregated assets among the respective persons having interests in them.  The separate allocations will be made as follows:

(a)           First, either:

(1)in the case of the pension of a Retired Participant, a Terminated Vested Participant, a Spouse, or a Contingent Annuitant that began at least three years prior to the termination date of the Plan, that

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portion of the pension that is based on the provisions of the Plan as in effect at any time during the five-year period ending on the termination date, which would result in the least amount, or

(2)in the case of the pension of an Active Participant, a Participant who has incurred a Severance from Service, or either a Retired Participant or a Terminated Vested Participant not included in Paragraph (1) of this Subsection (a) that three years prior to the termination date of the Plan would have began had the Participant then become a Retired Participant, a Terminated Vested Participant, or the Participant’s Spouse or Contingent Annuitant, that portion of the pension that is based on the provisions of the Plan that were in effect at any time during the five-year period ending on the termination date, which would result in the least amount;

(b)Second, all other pensions under the Plan that are guaranteed by the Pension Benefit Guaranty Corporation;

(c)Third, all other pensions with respect to both (1) Retired Participants, Terminated Vested Participants, Spouses, and Contingent Annuitants and (2) Active Participants and Participants who have incurred a Severance from Service who, as of the date of termination of the Plan, have completed the Vesting Requirement of the Plan; and

(d)All other pensions under the Plan.

If the balance of the Pension Fund allocable to the terminating group that is remaining after allocations have been made with respect to all pensions in a preceding class or group is insufficient to allocate the full Actuarial Equivalent of pensions to all persons in the class or group for which it is then being applied, the balance will be allocated to each person in the class or group in the proportion to which the Actuarial Equivalent of the pension allocable to him pursuant to the class or group bears to the total Actuarial Equivalent of the pensions so allocable to all persons in the class or group.  However, if the balance is sufficient to allocate a portion only of the full Actuarial Equivalent of the pensions set forth in Subsection (c), then the amounts of pension otherwise provided will be redetermined based on the provisions of the Plan as in effect five years prior to the termination date, or, if applicable, as of the later date as will provide for the allocation of the full Actuarial Equivalent thereof.

The amounts so allocated will, subject to the rights of the Insurance Company under the Group Annuity Contract governing allocations of small annuities, be purchased under the Group Annuity Contract or other group annuity contract.

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Any balance remaining in the Pension Fund that is allocable to the terminating group, and after all allocations have been made pursuant to the foregoing provisions of this Subsection, will be allocated to the Employers.

19.3         Merger and Consolidation of Plan

In the case of any merger or consolidation with, or transfer of assets and liabilities to, any other plan, provisions will be made so that each Participant in the Plan on the date thereof (if the Plan had then terminated) would receive a benefit immediately after the merger, consolidation or transfer that is equal to, or greater than, the benefit he would have been entitled to receive immediately prior to the merger, consolidation, or transfer if the Plan had then terminated.

19.4         Post-Change in Control Merger, Consolidation, or Transfer of Pension Plan Assets or Liabilities

Notwithstanding the preceding provisions of this Article or any other provision of this Plan, in the event of any merger or consolidation of this Plan with another employee benefit plan or any transfer of assets or liabilities of this Plan to another plan that is effected within three years following a Change in Control, (a) the accrued benefit of each Participant who is actively employed by an Employer as of the effective date of the merger, consolidation, or transfer of assets or liabilities and with respect to whom liability for the payment of benefits under the Plan is being merged or consolidated with or transferred to another plan will become fully vested; (b) the vested accrued benefit of each Participant, former Participant, and Beneficiary with respect to whom any liability for the payment of benefits under the Plan is being merged or consolidated with or transferred to another plan will be increased in accordance with Section 19.6 (Post-Change in Control Surplus Reversion) as if the Plan had terminated immediately prior to any merger, consolidation, or transfer (and for purposes of calculating the increase, the accrued benefits of all other Participants, former Participants and their Beneficiaries will be deemed to have increased in accordance with Section 19.6 (Post-Change in Control Surplus Reversion)); and (c) prior to consummation of any merger, consolidation, or transfer, the accrued benefit (as increased, if applicable) of each Participant, former Participant, and Beneficiary with respect to whom liability for the payment of benefits under the Plan is being merged or consolidated with or transferred to another plan will be satisfied by the purchase of a guaranteed annuity contract from a financially sound insurance company that represents an irrevocable commitment to satisfy the accrued benefit (as increased, if applicable) of the person.  Notwithstanding the provisions of Section 19.1 (Right to Amend or Terminate), the provisions of this Section may not be amended by an amendment to the Plan effective within three years following a Change in Control.

19.5         General Protection of Benefits in the Event of a Change in Control

Notwithstanding any other provisions of this Plan, for a period of three years following a Change in Control, the provisions of this Plan may not be amended in

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any manner that would adversely affect in any way the computation or amount of or the entitlement to retirement benefits under the Plan, including, but not limited to, any adverse change in or to (a) the rate at which benefits accrue or vest, (b) the compensation recognized under the Plan, or (c) the optional forms of payment available to a Participant or Beneficiary under the Plan, including the time of commencement of benefits and any actuarial factors utilized.  Notwithstanding the provisions of Section 19.1 (Right to Amend or Terminate), the provisions of this Section may not be amended by an amendment effective within three years following a Change in Control.

19.6         Post-Change in Control Surplus Reversion

Notwithstanding the preceding provisions of this Article or any other provision of the Plan, in the event this Plan is terminated within three years following a Change in Control, the assets of the Plan will be applied in accordance with the preceding provisions of this Article to satisfy all liabilities to Participants, former Participants, and their Beneficiaries.  If, after satisfaction of the liabilities, there are assets remaining in the Plan, the balance will be applied on a pro rata basis based upon final vested benefit to increase the benefits of the Participants, former Participants, and their Beneficiaries, subject however, to the applicable legal limitations on benefits payable from tax qualified plans.  Notwithstanding the provisions of Section 19.1 (Right to Amend or Terminate), the provisions of this Section may not be amended by an amendment to the Plan effected within three years following a Change in Control.

ARTICLE 20

AUTHORIZED TRANSACTION

                Cinergy will have the right, authority, and power to transfer some or all of the assets of the Plan, including contributions and earnings, to a pooled investment fund of an insurance company qualified to do business in one or more states of the United States, even though that insurance company might otherwise be a “party in interest,” as that term is defined in ERISA; provided, the insurance company receives not more than reasonable compensation with respect to the transaction

ARTICLE 21

PARTICIPATION BY OTHER EMPLOYERS

21.1         Adoption of Plan

With Cinergy’s consent, any Affiliate may become a participating Employer under the Plan by (a) taking appropriate action to adopt the Plan, (b) filing with Cinergy a duly certified copy of the Plan as adopted by the Affiliate, (c) becoming a party

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to the trust agreement establishing the Trust Fund, and (d) executing and delivering documents and taking any other action as may be necessary or desirable to put the Plan into effect with respect to it.

21.2         Withdrawal from Participation

Any Employer may, with Cinergy’s consent, withdraw from participation in the Plan at any time by filing with Cinergy a duly certified copy of a resolution of its board of directors to that effect and giving notice of its intended withdrawal to Cinergy, the Trustee, and Insurance Company prior to the effective date of withdrawal.  If an Employer withdraws from the Plan, Cinergy will determine the portion of the Pension Fund held by the Trustee or Insurance Company that is applicable to the Participants and former Participants of the withdrawing Employer and direct the Trustee and Insurance Company to segregate its portion in a separate trust.  The separate trust will be held and administered as a part of the separate plan of the withdrawn Employer.  The portion of the Pension Fund applicable to the Participants and former Participants of a particular Employer will be the sum of:

(a)the total amount of the accrued benefits applicable to the Participants and former Participants of the withdrawing Employer, and

(b)an amount that bears the same ratio to the excess, if any, of:

(1)the total of the Pension Fund over

(2)the total amount of the accrued benefits applicable to the Participants and former Participants of the withdrawing Employer bears to the total amount of the accrued benefits applicable to all Participants and former Participants.

Notwithstanding the preceding sentence, if the total amount of the present value of the accrued benefits applicable to the Participants and former Participants of the withdrawing Employer (when combined with the value of any other assets segregated during that Plan Year) is less than three percent of the total of the Pension Fund as of at least one day in the Plan Year during which the withdrawal occurs, the portion of the Pension Fund applicable to the Participants and former Participants of the withdrawing Employer will be equal to the present value of those Participants’ accrued benefits.

21.3         Cinergy as Agent for Employers

Each Affiliate that becomes a participating Employer pursuant to Section 21.1 (Adoption of Plan) or Article 22 (Continuance by a Successor) by so doing will be deemed to have appointed Cinergy its agent to exercise on its behalf all of the powers and authorities conferred upon Cinergy by the terms of the Plan,

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including, but not limited to the power to amend and terminate the Plan.  Cinergy’s authority to act as agent will continue unless and until the portion of the Pension Fund held for the benefit of Employees of the particular Employer and their Beneficiaries is set aside in a separate trust as provided in Section 21.2 (Withdrawal from Participation).  Each Employer will, from time to time, upon Cinergy’s request, furnish to Cinergy any data and information as Cinergy requires in the performance of its duties.

ARTICLE 22

CONTINUANCE BY A SUCCESSOR

If Cinergy or any other Employer is reorganized by way of merger, consolidation, transfer of assets, or otherwise, so that a corporation, partnership, or person other than an Employer succeeds to all or substantially all of the Employer’s business, the successor may be substituted for the Employer under the Plan by adopting the Plan and becoming a party to the trust agreement.  Contributions by the Employer will be automatically suspended from the effective date of any reorganization until the date upon which the substitution of the successor corporation for the Employer under the Plan becomes effective.  If, within 90 days following the effective date of any reorganization, the successor does not elect to become a party to the Plan, or if the Employer adopts a plan of complete liquidation other than in connection with a reorganization, the Plan will be automatically terminated with respect to employees of the Employer as of the close of business on the 90th day following the effective date of reorganization or as of the close of business on the date of adoption of a plan of complete liquidation, as the case may be, and Cinergy will direct the Trustee to distribute the portion of the Trust Fund applicable to that Employer in the manner provided in Section 21.2 (Withdrawal from Participation).

ARTICLE 23

PROVISIONS RELATING TO TOP-HEAVY PLAN

23.1         Construction of this Section

This Article will be construed in accordance with Code section 416.

23.2         Top-Heavy Determination

For each Plan Year, the Committee will determine whether the Plan is a Top-Heavy Plan or a Super Top-Heavy Plan.

(a)The Plan constitutes a “Top-Heavy Plan” for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees or (2) the sum of the Present Value of Accrued Benefits of Key Employees under the Plan and the Aggregate Accounts of Key Employees under any Qualified Defined Contribution Plan of an Aggregation Group, exceeds 60 percent of the Present Value of Accrued Benefits or the Present

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Value of Accrued Benefits under the Plan and the Aggregate Accounts of all Participants under any Qualified Defined Contribution Plan of an Aggregation Group.

If any Participant is a non-Key Employee for any Plan Year, but the Participant was a Key Employee for any prior Plan Year, the Participant’s Present Value of Accrued Benefits and/or Aggregate Account Balance will not be taken into account for purposes of determining whether this Plan is a Top-Heavy Plan (or whether any Aggregation Group that includes this Plan is a Top-Heavy Group)

(b)The Plan constitutes a “Super Top-Heavy Plan” for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees or (2) the sum of the Present Value of Accrued Benefits of Key Employees under the Plan and the Aggregate Accounts of Key Employees under any Qualified Defined Contribution Plan of an Aggregation Group, exceeds 90 percent of the Present Value of Accrued Benefits or the Present Value of Accrued Benefits under the Plan and the Aggregate Accounts of all Participants under any Qualified Defined Contribution Plan of an Aggregation Group.

(c)Top-Heavy Group means an Aggregation Group in which, as of the Determination Date, the sum of:

(1)the Present Value of Accrued Benefits of Key Employees under all Qualified Defined Benefit Plans included in the group, and

(2)the Aggregate Accounts of Key Employees under Qualified Defined Contribution Plans included in the group,

exceeds 60 percent of a similar sum determined for all Participants.

(d)In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is a Top-Heavy Group.  No plan in the Permissive Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is not a Top-Heavy Group.

(e)In the case of a Required Aggregation Group, each plan in the group will be considered a Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy Group.

23.3         Effects of a Top-Heavy Determinations

If, for any Plan Year, the Committee determines that the Plan is a Top-Heavy Plan or a Super Top-Heavy Plan, the effect of that determination on the Vesting Requirement and on the benefits payable under the Plan are described in

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Section 5.1(b) (Vesting Requirement) and Section 4.7 (Benefits if Plan Becomes a Top-Heavy Plan), respectively.

Terms that relate to this Article are defined in the Plan in the following sections:

Defined Term Section	Section
Aggregate Account	1.8
Defined Benefit Plan Fraction	1.29
Defined Contribution Plan Fraction	1.30
Determination Date	1.32
Final Average Earnings	1.49
Present Value of Accrued Benefits	1.82
Super Top-Heavy Plan	1.105
Top-Heavy Group	1.108
Top-Heavy Plan	1.109
Top-Heavy Plan Year	1.110
Valuation Date	1.113

ARTICLE 24

MERGER WITH THE MRP

24.1         Acceptance of Assets and Liabilities of MRP Trust

As soon as practicable after January 1, 1998 (but not before 30 days after the required notification has been filed with the Internal Revenue Service), the Trustee will accept a transfer from the trustee or funding agent of the MRP of all of the assets and liabilities of the trust or insurance or annuity contracts through which the MRP is funded.

24.2         Participation of MRP Participants

Each individual who was a participant in the MRP as of December 31, 1997, will remain a Participant in the Plan on January 1, 1998.  Each participant or former participant in the MRP who as of the date of the transfer referred to in Section 24.1 (the “Transfer Date”) is receiving benefits under the MRP or has retired or incurred a severance from service with CG&E and has a right to receive future benefits under the MRP will be entitled to receive benefits under the Plan as of the Transfer Date.  A beneficiary entitled to benefits under the MRP as of the Transfer Date will become entitled to benefits under the restated Plan as of that date.  The Annual Pension of a Participant described in this Section will at no time be less than the Participant’s accrued benefit under the MRP as of the Transfer Date.

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ARTICLE 25

SPIN OFF OF PSI PLAN

25.1         Acceptance of Assets and Liabilities of PSI Plan Trust

On December 31, 1997, the assets and liabilities attributable to Exempt Employees and Non-Exempt Employees who were participants in the PSI Plan as of that date were spun off from the PSI Plan.  As soon as practicable after January 1, 1998 (but not before 30 days after the required notification has been filed with the Internal Revenue Service), the Trustee will accept a transfer from the trustee or funding agent of that spun-off portion of the PSI Plan of all of the assets and liabilities of the trust or insurance or annuity contracts through which the spun-off portion of the PSI Plan is funded.

25.2         Participation of PSI Plan Participants

Each Exempt Employee or Non-Exempt Employee who was a participant in the PSI Plan as of December 31, 1997 became a participant in this Plan on January 1, 1998.  Each participant or former participant in the PSI Plan who as of the date of the transfer referred to in Section 25.1 (the “PSI Transfer Date”) is receiving benefits under the PSI Plan or has retired or incurred a severance from service with PSI and has a right to receive future benefits under the PSI Plan will become a Participant as of the PSI Transfer Date.  A beneficiary entitled to benefits under the PSI Plan as of the PSI Transfer Date will instead become entitled to benefits under this Plan as of that date.  The Annual Pension of a Participant described in this Section will at no time be less than the Participant’s accrued benefit under the PSI Plan as of the PSI Transfer Date.

ARTICLE 26

MRP, RIP, PSI PLAN RETIREE INCREASE

26.1         Eligible Recipient: Benefit Increase

(a)Notwithstanding Article 2 of the Plan, effective January 1, 2002, the Benefit Amount of each Eligible Recipient that is otherwise payable from the Plan on or after January 1, 2002 shall be increased by an amount equal to the product of the Eligible Recipient’s Applicable Percentage, as determined under Section 26.2, multiplied by his Benefit Amount.

(b)Notwithstanding Section 26.1(a), the increase for each Eligible Recipient shall be at least $50 per month.

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26.2         Applicable Percentage

(a)Pre-1981 Eligible Recipients:

Eligible Recipient	Applicable Percentage
A Retiree whose Actual Separation Date occurred before January 1, 1981.	20	%
A Contingent Annuitant or Spouse (if any) of the foregoing Retiree (if deceased).	20	%
A Preretirement Spouse of any Retiree who died on or before December 1, 1980.	20	%
A Disabled Participant whose Actual Separation Date occurred before January 1, 1981.	20	%

(b)1981-1988 Eligible Recipients:

Eligible Recipient	Applicable Percentage
A Retiree whose Actual Separation Date occurred on or after January 1, 1981 and before January 1, 1989.	10	%
A Contingent Annuitant or Spouse (if any) of the foregoing Retiree (if deceased).	10	%
A Preretirement Spouse of any Retiree who died after December 1, 1980 and on or before December 1, 1988.	10	%
A Disabled Participant whose Actual Separation Date occurred on or after January 1, 1981 and before January 1, 1989.	10	%

(c)1989-1993 Eligible Recipients:

Eligible Recipient	Applicable Percentage
A Retiree whose Actual Separation Date occurred on or after January 1, 1989 and before January 1, 1994.	5	%
A Contingent Annuitant or Spouse (if any) of the foregoing Retiree (if deceased).	5	%
A Preretirement Spouse of any Retiree who died after December 1, 1988 and before December 1, 1993.	5	%
A Disabled Participant whose Actual Separation Date occurred on or after January 1, 1989 and before January 1, 1994.	5	%

26.3         Definitions

Terms used in this Article 26 with initial capital letters shall have the meanings indicated in the Plan or below, whichever is applicable:

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(a)“Benefit Amount” means, subject to paragraph (3) below, the applicable amount in paragraph (1) or (2) below:

(1)The amount of the monthly benefit actually being paid to the Eligible Recipient from the Plan as of January 1, 2002, in whatever annuity or other ongoing payment form, as the same may have been increased by any amendment to the MRP, RIP or PSI Plan.

(2)In all other cases, the amount of the monthly benefit that is first payable to the Eligible Recipient after January 1, 2002, as the same may have been increased by any amendment to the MRP, RIP or PSI Plan.

(3)The Benefit Amount of an Eligible Recipient shall in no event include any temporary supplemental benefit, including but not limited to any supplemental benefit payable pursuant to (i) Article 15 of the MRP (as amended and restated effective as of January 1, 1990) or (ii) Article 15 of the RIP (as amended and restated effective as of January 1, 1987).

(b)“Disabled Participant” means a Retiree whose separation date occurred while he was receiving disability benefits under an LTD Plan.

(c)“Eligible Recipient” means each individual listed in Section 26.2.

(d)“LTD Plan” means a long-term disability benefits plan maintained by an Employer or its Affiliates.

(e)“Preretirement Spouse” means a Spouse (1) of a Retiree who died prior to the commencement of his retirement benefit and (2) who qualified for the spousal preretirement death benefit under the MRP, RIP or PSI Plan, as applicable.

(f)“Retiree” means a participant of the MRP, RIP or PSI Plan, as applicable, whose Actual Separation Date occurred on or after his Early Retirement Date (as such term is defined in the MRP, RIP or PSI Plan), provided, however, that the term “Retiree” shall not include any participant who received benefits under a special early retirement window program (including but not limited to the Special Retirement Option under the PSI Plan, the 1989 Voluntary Work Force Reduction Plan, the 1992 Voluntary Early Retirement Program or the 1992 Involuntary Reduction in Force).  In the event that a participant of the MRP, RIP or PSI Plan, as applicable, had more than one Actual Separation Date, for purposes of this Article 26 the participant’s first Actual Separation Date that occurs on or after his Early Retirement Date (as such term is defined in the MRP, RIP or PSI Plan) shall be the relevant Actual Separation Date.

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26.4         Code Section 415 Limits

Notwithstanding Section 26.1, the amount thereunder shall be subject to the limitations of Section 4.6 (Maximum Pension).

26.5         Miscellaneous

(a)No benefit amount shall be increased more than one time pursuant to the provisions of this Article 26.

(b)The increase in Section 26.1 shall not be guaranteed by the Group Annuity Contract.

(c)No alternate payee under a Qualified Domestic Relations Order shall be entitled to an increase pursuant to the provisions of this Article 26 unless such Qualified Domestic Relations Order specifically requires such increase, in which case the alternate payee’s Applicable Percentage, if any, shall be the same as his or her former spouse’s Applicable Percentage, which shall be determined under Section 26.2 of the Plan.

Cinergy Corp. has caused this document to be executed by its duly authorized officer.

By:
	Timothy J. Verhagen
	Vice President
	Human Resources
	Date:12/20/02

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CINERGY CORP. NON-UNION EMPLOYEES’ PENSION PLAN

(As Amended And Restated Effective January 1, 2003)

ADDENDUM

EGTRRA and 401(a)(9) MODEL PROVISIONS

PREAMBLE

1.             Adoption and effective date of Addendum.  This Addendum of the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”).  This Addendum is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder.  Except as otherwise provided, this Addendum shall be effective as of the first day of the first Plan Year beginning after December 31, 2001.

2.             Supersession of inconsistent provisions.  This Addendum shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Addendum.

SECTION 1.  LIMITATIONS ON BENEFITS.

1.             Effective date.  This section shall be effective for limitation years ending after December 31, 2001.

2.             Effect on participants.  Benefit increases resulting from the increase in the limitations of Code subsection 415(b) will be provided to all employees participating in the Plan who have one hour of service on or after the first day of the first limitation year ending after December 31, 2001.

3.             Definitions.

3.1           Defined benefit dollar limitation.  The “defined benefit dollar limitation” is $160,000, as adjusted, effective January 1 of each year, under Code subsection 415(d) in such manner as the Secretary shall prescribe, and payable in the form of a straight life annuity.  A limitation as adjusted under Code subsection 415(d) will apply to limitation years ending with or within the calendar year for which the adjustment applies.

3.2           Maximum permissible benefit:  The “maximum permissible benefit” is the lesser of the defined benefit dollar limitation or the defined benefit compensation limitation (both adjusted where required in (a) and, if applicable, in (b) or (c) below).

(a)           If the participant has fewer than 10 years of participation in the Plan, the defined benefit dollar limitation shall be multiplied by a fraction, (i) the numerator of which is the number of years (or part thereof) of participation in the Plan and (ii) the denominator of which is 10.  In the case of a participant who has fewer than 10 years of service with the employer, the defined benefit compensation limitation shall be multiplied by a fraction, (i) the numerator of which is the number of years (or part thereof) of service with the employer and (ii) the denominator of which is 10.

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(b)           If the benefit of a participant begins prior to age 62, the defined benefit dollar limitation applicable to the participant at such earlier age is an annual benefit payable in the form of a straight life annuity beginning at the earlier age that is the actuarial equivalent of the defined benefit dollar limitation applicable to the participant at age 62 (adjusted under (a) above, if required).  The defined benefit dollar limitation applicable at an age prior to age 62 is determined as the lesser of (i) the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for equivalence of early retirement benefits and (ii) the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using a 5 percent interest rate and the applicable mortality table under Code subsection 417(e) as prescribed from time to time by the Secretary of the Treasury (for distributions with Annuity Starting Dates after December 30, 2002 the mortality table prescribed in Revenue Ruling 2001–62).  Any decrease in the defined benefit dollar limitation determined in accordance with this paragraph (b) shall not reflect a mortality decrement if benefits are not forfeited upon the death of the participant.  If any benefits are forfeited upon death, the full mortality decrement is taken into account.

(c)           If the benefit of a participant begins after the participant attains age 65, the defined benefit dollar limitation applicable to the participant at the later age is the annual benefit payable in the form of a straight life annuity beginning at the later age that is actuarially equivalent to the defined benefit dollar limitation applicable to the participant at age 65 (adjusted under (a) above, if required).  The actuarial equivalent of the defined benefit dollar limitation applicable at an age after age 65 is determined as (i) the lesser of the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for equivalence of delayed retirement benefits and (ii) the actuarial equivalent (at such age) of the defined benefit dollar limitation computed using a 5 percent interest rate assumption and the applicable mortality table under Code subsection 417(e) as prescribed from time to time by the Secretary of the Treasury (for distributions with Annuity Starting Dates after December 30, 2002 the mortality table prescribed in Revenue Ruling 2001–62).  For these purposes, mortality between age 65 and the age at which benefits commence shall be ignored.

SECTION 2.  INCREASE IN COMPENSATION LIMIT

1.             Increase in limit.  The annual compensation of each participant taken into account in determining benefit accruals in any Plan Year beginning after December 31, 2001, shall not exceed $200,000.  Annual compensation means compensation during the Plan Year or such other consecutive 12-month period over which compensation is otherwise determined under the Plan (the determination period).  For purposes of determining benefit accruals in a Plan Year beginning after December 31, 2001, the annual compensation limit for determination periods beginning before January 1, 2002, shall be $200,000.

2.             Cost-of-living adjustment.  The $200,000 limit on annual compensation in paragraph 1 shall be adjusted for cost-of-living increases in accordance with Code subparagraph 401(a)(17)(B).  The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year.

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SECTION 3.  MODIFICATION OF TOP-HEAVY RULES

1.             Effective date.  This section shall apply for purposes of determining whether the Plan is a top-heavy plan under Code subsection 416(g) for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Code subsection 416(c) for such years.  This section amends Article 23 of the Plan.

2.             Determination of top-heavy status.

2.1           Key employee.  Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the employer having annual compensation greater than $130,000 (as adjusted under Code paragraph 416(i)(1) for Plan Years beginning after December 31, 2002), a 5–percent owner of the employer, or a 1–percent owner of the employer having annual compensation of more than $150,000.  For this purpose, annual compensation means compensation within the meaning of Code paragraph 415(c)(3).  The determination of who is a key employee will be made in accordance with Code paragraph 416(i)(1) and the applicable regulations and other guidance of general applicability issued thereunder.

2.2           Determination of present values and amounts.  This Section 2.2 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the determination date.

2.2.1        Distributions during year ending on the determination date.  The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the Plan and any plan aggregated with the Plan under Code paragraph 416(g)(2) during the 1–year period ending on the determination date.  The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code clause 416(g)(2)(A)(i).  In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “5–year period” for “1–year period.”

2.2.2        Employees not performing services during year ending on the determination date.  The accrued benefits and accounts of any individual who has not performed services for the employer during the 1–year period ending on the determination date shall not be taken into account.

3.             Minimum benefits.  For purposes of satisfying the minimum benefit requirements of Code paragraph 416(c)(1) and the Plan, in determining years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a Plan Year when the Plan benefits (within the meaning of Code subsection 410(b)) no key employee or former key employee.

SECTION 4.  DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS

1.             Effective date.  This section shall apply to distributions made after December 31, 2001.

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2.             Modification of definition of eligible retirement plan.  For purposes of the direct rollover provisions in Section 8.7 of the Plan, an eligible retirement plan shall also mean an annuity contract described in Code subsection 403(b) and an eligible plan under Code subsection 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan.  The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Code subsection 414(p).

3.             Modification of definition of eligible rollover distribution to include after-tax employee contributions.  For purposes of the direct rollover provisions in Section 8.7 of the Plan, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income.  However, such portion may be paid only to an individual retirement account or annuity described in Code subsections 408(a) or (b), or to a qualified defined contribution plan described in Code subsections 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

SECTION 5.           MINIMUM DISTRIBUTION REQUIREMENTS

1.             General Rules.

1.1           Effective Date.  The provisions of this Section will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

1.2           Precedence.  The requirements of this Section will take precedence over any inconsistent provisions of the plan.

1.3           Requirements of Treasury Regulations Incorporated.  All distributions required under this Section will be determined and made in accordance with the Treasury regulations under Code paragraph 401(a)(9).

1.4           TEFRA Section 242(b)(2) Elections.  Notwithstanding the other provisions of this article, other than Subsection 1.3, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the plan that relate to section 242(b)(2) of TEFRA.

2.             Time and Manner of Distribution.

2.1           Required Beginning Date.  The participant’s entire interest will be distributed, or begin to be distributed, to the participant no later than the participant’s required beginning date.

2.2           Death of Participant Before Distributions Begin.  If the participant dies before distributions begin, the participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

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(a)           If the participant’s surviving spouse is the participant’s sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the participant died, or by December 31 of the calendar year in which the participant would have attained age 70 1/2, if later.

(b)           If the participant’s surviving spouse is not the participant’s sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the participant died.

(c)           If there is no designated beneficiary as of September 30 of the year following the year of the participant’s death, the participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the participant’s death.

(d)           If the participant’s surviving spouse is the participant’s sole designated beneficiary and the surviving spouse dies after the participant but before distributions to the surviving spouse begin, this Subsection 2.2, other than Subsection 2.2(a), will apply as if the surviving spouse were the participant.

For purposes of this Subsection 2.2 and Subsection 5, distributions are considered to begin on the participant’s required beginning date (or, if Subsection 2.2(d) applies, the date distributions are required to begin to the surviving spouse under Subsection 2.2(a)).  If annuity payments irrevocably commence to the participant before the participant’s required beginning date (or to the participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Subsection 2.2(a)), the date distributions are considered to begin is the date distributions actually commence.

2.3           Form of Distribution.  Unless the participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Subsections 3, 4 and 5.  If the participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code paragraph 401(a)(9) and the Treasury regulations.  Any part of the participant’s interest which is in the form of an individual account described in Code subsection 414(k) will be distributed in a manner satisfying the requirements of Code paragraph 401(a)(9) of the Code and the Treasury regulations that apply to individual accounts.

3.             Determination of Amount to be Distributed Each Year.

3.1           General Annuity Requirements.  If the participant’s interest is paid in the form of annuity distributions under the plan, payments under the annuity will satisfy the following requirements:

(a)           the annuity distributions will be paid in periodic payments made at intervals not longer than one year;

(b)           the distribution period will be over a life (or lives) or over a period certain not longer than the period described in Subsection 4 or 5;

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(c)           once payments have begun over a period certain, the period certain will not be changed even if the period certain is shorter than the maximum permitted;

(d)           payments will either be nonincreasing or increase only as follows:

(1)           by an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that is based on prices of all items and issued by the Bureau of Labor Statistics;

(2)           to the extent of the reduction in the amount of the participant’s payments to provide for a survivor benefit upon death, but only if the beneficiary whose life was being used to determine the distribution period described in Subsection 4 dies or is no longer the participant’s beneficiary pursuant to a qualified domestic relations order within the meaning of Code subsection 414(p);

(3)           to provide cash refunds of employee contributions upon the participant’s death; or

(4)           to pay increased benefits that result from a plan amendment.

3.2           Amount Required to be Distributed by Required Beginning Date.  The amount that must be distributed on or before the participant’s required beginning date (or, if the participant dies before distributions begin, the date distributions are required to begin under Subsection 2.2(a) or (b)) is the payment that is required for one payment interval.  The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year.  Payment intervals are the periods for which payments are received, e.g., bi–monthly, monthly, semi-annually, or annually.  All of the participant’s benefit accruals as of the last day of the first distribution calendar year will be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the participant’s required beginning date.

3.3           Additional Accruals After First Distribution Calendar Year.  Any additional benefits accruing to the participant in a calendar year after the first distribution calendar year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues.

4.             Requirements For Annuity Distributions That Commence During Participant’s Lifetime.

4.1           Joint Life Annuities Where the Beneficiary Is Not the Participant’s Spouse.  If the participant’s interest is being distributed in the form of a joint and survivor annuity for the joint lives of the participant and a nonspouse beneficiary, annuity payments to be made on or after the participant’s required beginning date to the designated beneficiary after the participant’s death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the participant using the table set forth in Q&A-2 of section 1.401(a)(9)-6T of the Treasury regulations.  If the form of distribution combines a joint and survivor annuity for the joint lives of the participant and a nonspouse beneficiary and a period certain annuity, the requirement in the preceding sentence will apply to annuity payments to be made to the designated beneficiary after the expiration of the period certain.

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4.2           Period Certain Annuities.  Unless the participant’s spouse is the sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain for an annuity distribution commencing during the participant’s lifetime may not exceed the applicable distribution period for the participant under the Uniform Lifetime Table set forth in section 1.401(a)(9)–9 of the Treasury regulations for the calendar year that contains the annuity starting date.  If the annuity starting date precedes the year in which the participant reaches age 70, the applicable distribution period for the participant is the distribution period for age 70 under the Uniform Lifetime Table set forth in section 1.401(a)(9)–9 of the Treasury regulations plus the excess of 70 over the age of the participant as of the participant’s birthday in the year that contains the annuity starting date.  If the participant’s spouse is the participant’s sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain may not exceed the longer of the participant’s applicable distribution period, as determined under this section 4.2, or the joint life and last survivor expectancy of the participant and the participant’s spouse as determined under the Joint and Last Survivor Table set forth in section 1.401(a)(9)–9 of the Treasury regulations, using the participant’s and spouse’s attained ages as of the participant’s and spouse’s birthdays in the calendar year that contains the annuity starting date.

5.             Requirements For Minimum Distributions Where Participant Dies Before Date Distributions Begin.

5.1           Participant Survived by Designated Beneficiary.  If the participant dies before the date distribution of his or her interest begins and there is a designated beneficiary, the participant’s entire interest will be distributed, beginning no later than the time described in Subsection 2.2(a) or (b), over the life of the designated beneficiary or over a period certain not exceeding:

(a)           unless the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary using the beneficiary’s age as of the beneficiary’s birthday in the calendar year immediately following the calendar year of the participant’s death; or

(b)           if the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary using the beneficiary’s age as of the beneficiary’s birthday in the calendar year that contains the annuity starting date.

5.2           No Designated Beneficiary.  If the participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the participant’s death, distribution of the participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the participant’s death.

5.3           Death of Surviving Spouse Before Distributions to Surviving Spouse Begin.  If the participant dies before the date distribution of his or her interest begins, the participant’s surviving spouse is the participant’s sole designated beneficiary, and the surviving spouse dies before distributions to the surviving spouse begin, this section 5 will apply as if the surviving spouse were the participant, except that the time by which distributions must begin will be determined without regard to Subsection 2.2(a).

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6.             Definitions.

6.1           Designated beneficiary.  The individual who is designated as the beneficiary under Section 1.16 of the Plan and is the designated beneficiary under Code paragraph 401(a)(9) and section 1.401(a)(9)–1, Q&A–4, of the Treasury regulations.

6.2           Distribution calendar year.  A calendar year for which a minimum distribution is required.  For distributions beginning before the participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the participant’s required beginning date.  For distributions beginning after the participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to Subsection 2.2.

6.3           Life expectancy.  Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)–9 of the Treasury regulations.

6.4           Required beginning date.  The date specified in Section 8.6 (Required Payment of Benefits) of the Plan.

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ADDENDUM A

Cinergy Corp. Non-Union Employees’

Pension Plan

I.              PSI PENSION FORMULAS

The five remaining basic pension formulas used to determine benefits under the PSI Plan are as follows:

A.            PSI Normal Retirement Pension Formula 1

The Annual Pension computed under PSI Pension Formula 1 equals (1) 1.1 percent of the Participant’s PSI Highest Average Earnings, plus (2) 0.5 percent of the amount by which his PSI Highest Average Earnings exceed his applicable PSI Covered Compensation, multiplied by the number of his Years of Participation accrued as of December 31, 1997, up to a maximum of 35.

B.            PSI Normal Retirement Pension Formula 2

The Annual Pension computed under PSI Pension Formula 2 equals the excess of:

(1)1-2/3 percent of the Participant’s PSI Highest Average Earnings, multiplied by the number of his Years of Participation not in excess of 30; over

(2)1-2/3 percent of the Participant’s Annual Primary Social Security Amount that he is expected to be entitled to receive either at his Normal Retirement Date or at his Disability Date if his disability continues to his Normal Retirement Date, in any event multiplied by the number of his Years of Participation not in excess of 30.

C.            PSI Normal Retirement Pension Formula 3

The Annual Pension computed under PSI Pension Formula 3 equals the excess of:

(1)2 percent of the Participant’s PSI Highest Average Earnings, multiplied by the number of his Years of Participation not in excess of 25, over

1

(2)2 percent of the Participant’s Annual Primary Social Security Amount that he is expected to be entitled to receive either upon the attainment of age 62 on the assumption that he receives no “wages” or “remuneration,” as defined in the Social Security Act, between December 31, 1989 (December 31, 1988, for a Highly Compensated Participant), and his attainment of age 62, or if he is still employed by his Employer on or after his attainment of age 62, as of the earlier of December 31, 1989 (December 31, 1988, for a Highly Compensated Participant), or his Normal Retirement Date, or at his Disability Date if his disability continues up until the date otherwise determined under this Paragraph (2), in any event multiplied by the number of his Years of Participation not in excess of 25.

D.            PSI Terminated Vested Pension Formula 5

The Annual Pension computed under PSI Pension Formula 5 equals the excess of:

(1)2 percent of the Participant’s PSI Highest Average Earnings, multiplied by the number of his Years of Participation not in excess of 25, over

(2)a fraction, the numerator of which is his actual Years of Participation and the denominator of which is the Years of Participation he would have accumulated at his Normal Retirement Date if during each year after December 31, 1989 (December 31, 1988, for a Highly Compensated Participant), he had completed at least 2,000 Hours of Service, of 50 percent of the Participant’s Annual Primary Social Security Amount that he is entitled to receive upon the attainment of age 60 on the assumption that his rate of Earnings as of December 31, 1989 (December 31, 1988, for a Highly Compensated Participant), had continued unchanged until age 60.

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E.             PSI Terminated Vested Pension Formula 6

The Annual Pension computed under PSI Pension Formula 6 equals the excess of:

(1)1-2/3 percent of the Participant’s PSI Highest Average Earnings, multiplied by the number of his Years of Participation not in excess of 30; over

(2)a fraction, the numerator of which is his actual Years of Participation and the denominator of which is the Years of Participation he would have accumulated at his Normal Retirement Date if during each year after December 31, 1989 (December 31, 1988, for a Highly Compensated Participant), he had completed at least 2,000 Hours of Service, of 50 percent of the Participant’s Annual Primary Social Security Amount that he is entitled to receive upon the attainment of age 60 on the assumption that his rate of Earnings as of December 31, 1989 (December 31, 1988, for a Highly Compensated Participant), had continued unchanged until age 60.

II.            General Method of Computing Accrued Benefit Under the PSI Plan for Normal Retirement

(a)Subject to the following provisions of this Section, the amount of the accrued benefit under the PSI Plan as of December 31, 1997, of a Participant who was a participant in the PSI Plan as of December 31, 1997, will be computed under PSI Pension Formula 1.

(b)Notwithstanding any other provisions of this Section, the accrued benefit under the PSI Plan as of December 31, 1997, of a Participant who became a participant in the PSI Plan prior to May 1, 1970, will not be less than the amount computed under PSI Pension Formula 3 as of the following date:

(1)December 31, 1989, with respect to an Employee who is not a Highly Compensated Participant; or

(2)December 31, 1988, with respect to a Highly Compensated Participant.

3

(c)Notwithstanding any other provisions of this Section, the accrued benefit under the PSI Plan as of December 31, 1997, of a Participant who became a participant in the PSI Plan on or after May 1, 1970, will not be less than the amount computed under PSI Pension Formula 2 as of the following date:

(1)December 31, 1989, with respect to an Employee who is not a Highly Compensated Participant; or

(2)December 31, 1988, with respect to a Highly Compensated Participant.

III.           PSI Definitions

The capitalized terms will have the meanings set forth in the Plan.  In addition, the following words and phrases have the meanings set forth in this Addendum:

(a)“Annual Primary Social Security Amount” means, with respect to a Participant, the annual amount available under the provisions of Title II of the Social Security Act as in effect on December 31, 1989 (December 31, 1988, for a Highly Compensated Participant), determined without regard to any increases in benefit levels, wage base increases, or changes in the types of benefits that take effect after that date, but including any recomputation in benefits due solely to the Participant’s “wages” and “remuneration,” as defined in the Social Security Act, in calendar year 1989 or 1988, whichever is applicable.

(b)“Disability Date” means, with respect to a Participant who participated in the PSI Plan, the date the Participant is determined to be totally disabled by reason of a particular disability under PSI’s Long Term Disability Plan, as amended from time to time.

(c)“Nine Months of Elapsed Time Service” means, with respect to a Participant who participated in the PSI Plan, the nine consecutive month period commencing on his Employment Commencement Date, provided that the Employee does not in that period incur

4

a Severance from Service that is part of a Break in Service; or, the nine consecutive month period commencing on the Employee’s Reemployment Commencement Date (or successive Reemployment Commencement Dates), provided that the Employee does not in that period incur a Severance from Service that is part of a Break in Service.  If the Employee does not incur a Severance from Service during the applicable nine consecutive month period, then the Employee shall be deemed to have completed Nine Months of Elapsed Time Service as of the last day of the nine consecutive month period.

(d)“Normal Retirement Date” means, with respect to each Participant who participated in the PSI Plan, the first day of the calendar month coincident with or following (a) his 65th birthday, or (b) the fifth anniversary date of his employment, whichever is later.

(e)“Participation Commencement Date” means, with respect to an Employee who was a participant in the PSI Plan prior to January 1, 1989, the date the Employee became a participant under the PSI Plan’s terms as they existed prior to January 1, 1990, and with respect to an Employee who was not a participant in the PSI Plan prior to January 1, 1989, the later of (a) January 1, 1989, or (b) the first day of the calendar month coincident with or following the date the Employee first completes Nine Months of Elapsed Time Service and has attained his 21st birthday; provided that on the later date he is classified by his Employer as an Employee.  If an Employee has completed Nine Months of Elapsed Time Service and has attained his 21st birthday, but is not classified by his Employer as an Employee on the later date, his “Participation Commencement Date” shall be the first day of the calendar month coincident with or following the first day after the later date on which he is classified by his Employer as an Employee.

(f)“PSI Covered Compensation” means, with respect to a Participant who participated in the PSI Plan as of December 31, 1997, the average (without indexing) of the annual Social Security taxable wage bases under the Social Security Act for each year during the 35 calendar years ending with the last day of the calendar year in which the Participant attains his Social Security Retirement Age, but no later than December 31, 1997.

(g)“PSI Highest Average Earnings” means, with respect to a Participant who participated in the PSI Plan as of December 31, 1997, the Participant’s highest average annual Earnings for any three consecutive calendar years out of the Participant’s 10 or fewer years of participation under the PSI Plan ending on

5

December 31, 1997.  If Earnings for any Plan Year beginning before January 1, 1994 are taken into account in determining a Participant’s PSI Highest Average Earnings, the Earnings for that Plan Year will be subject to the limitation of Code paragraph 401(a)(17) that was in effect for that Plan Year and the Participant’s Nonforfeitable Annual Pension will not be less than the Participant’s accrued benefit under the PSI Plan as of December 31, 1993.

(h)“Years of Participation” means, with respect to each Participant who participated in the PSI Plan as of December 31, 1997, the sum of the following whole and fractional years:

(1)with respect to the period prior to January 1, 1976, the number of years (to the last completed 1/12th year) of his “participating service” (as defined in the PSI Plan as in effect on December 31, 1975, except that the last sentence of Section 1.6 of the PSI Plan will not apply) as of January 1, 1976; plus

(2)with respect to each Plan Year of his participation in the PSI Plan on or after January 1, 1976, and before January 1, 1998 (excluding the Plan Years in which his Participation Commencement Date and his Reemployment Commencement Date, if applicable, occur, to the extent one or both of those dates are on or after January 1, 1976), one Year of Participation if he completes at least 2,000 Hours of Service during that Plan Year; otherwise, a fraction of a Year of Participation, the numerator of which is the number of Hours of Service which he completes during a Plan Year and the denominator of which is 2,000; provided, however, that if he completes less than 1,000 Hours of Service during a Plan Year, no portion of a Year of Participation will be granted; plus

(3)with respect to the Plan Years during which his Participation Commencement Date and/or his Reemployment Commencement Date, if applicable, occur, to the extent one or both of the dates occur on or after January 1, 1976, and before January 1, 1998, either one Year of Participation, or, if the month and day of his

6

Participation Commencement Date or Reemployment Commencement Date within the Plan Year is after January 1, a fraction thereof, the numerator of which is the number of complete calendar months in that Plan Year during which he is a participant in the PSI Plan and the denominator of which is 12.  However, if the number of Hours of Service that he completes as a participant in the PSI Plan during the respective Plan Year is less than the product of 166-2/3 multiplied by the number of complete calendar months during which he is a participant in the PSI Plan in the Plan Year, then the Year of Participation, or fraction thereof, as otherwise determined pursuant to this Paragraph (c), will be multiplied by the ratio of the number of Hours of Service that he completes as a participant in the PSI Plan during the Plan Year to 166-2/3 multiplied by the number of complete calendar months during which he is a participant in the PSI Plan in the Plan Year.  If the number of Hours of Service that he completes as a PSI Plan participant during the Plan Year is less than the product of 83-1/3 multiplied by the number of complete calendar months during which he is a PSI Plan participant in the Plan Year, no portion of a Year of Participation shall be granted.

With respect to any Plan Year wholly or partially included in a calendar year used to calculate the Participant’s PSI Plan Highest Average Earnings, if the PSI Plan participant fails to complete at least 2,000 Hours of Service during that Plan Year, then, in lieu of any fraction of a Year of Participation as otherwise determined under either Paragraph (b) or Paragraph (c), the PSI Plan participant will be granted a fraction of a Year of Participation:  the numerator of which is equal to the sum of the number of Hours of Service which the PSI Plan participant completes as a PSI Plan participant during those calendar months of the Plan Year that are not included in that calendar year, and the greater of (A) the number of Hours of Service that the PSI Plan participant completes during those calendar months of the Plan Year that are included in such calendar year or (B) the product of 166-2/3 multiplied by the number of calendar months of the Plan Year that are included in the calendar year; and the denominator of which is 2,000.  A PSI Plan participant’s Years of Participation will be adjusted, if necessary, pursuant to Section 4.5

7

(Special Adjustments) or Section 4.8 (Benefits Adjustment for Participants Covered by Certain Programs) of the PSI Plan.

8

ADDENDUM B

Cinergy Corp. Non-Union Employees’ Pension Plan

I.              MRP Normal Retirement Formula

A Participant’s annual accrued benefit computed under the MRP Normal Retirement Formula as of December 31, 1997, equals 1.3 percent of the Participant’s MRP Final Average Compensation, plus .35 percent of MRP Final Average Compensation in excess of MRP Covered Compensation multiplied times the Participant’s Years of Accredited Service to and including 30 years; plus .1 percent of the Participant’s MRP Final Average Compensation times the Participant’s Years of Accredited Service in excess of 30 years.

II.            RIP Normal Retirement Formula

A Participant’s annual accrued benefit computed under the RIP Normal Retirement Formula as of December 31, 1997, equals 57 percent of the Participant’s RIP Final Average Compensation reduced by one-half of his or her Primary Social Security Benefit.  If the Participant has less than 30 Years of Accredited Service as of December 31, 1997, the amount will be further reduced by 1/30 for each full year less than 30 years.  If the Participant has more than 30 Years of Accredited Service as of December 31, 1997, the amount will be increased by $6.00 for each Year of Accredited Service over 30 years.

III.           MRP and RIP Definitions

For purposes of the MRP and RIP formulas, the capitalized terms will have the meanings set forth in the Plan.  In addition, the following words and phrases will have the meanings set forth in this Addendum:

(a)“CG&E Service” means, with respect to an Employee, the period of time during which the employment relationship exists between the Employee and CG&E on or before December 31, 1997, the length of which is determined as follows:

(1)An Employee will be credited with CG&E Service for the period of time beginning with his Employment Commencement Date and ending on December 31, 1997.

1

(2)An Employee will be credited with CG&E Service for each Period of Credited Severance occurring on or before December 31, 1997.

(3)An Employee will be credited with CG&E Service for any period of service with a related company (as determined under Code subsections 414(b), (c), and (m)), which will be determined as if he had been employed by CG&E during that period.

(4)In determining an Employee’s total CG&E Service for purposes of the MRP or RIP, all periods of CG&E Service that are credited to the Employee under Paragraphs (1) through (3) above will be aggregated.  In no event will an Employee receive credit more than once for the same period of CG&E Service.  For purposes of determining an Employee’s total CG&E Service, the Employee will be credited with one month of CG&E Service for each month during which he is credited with at least one Hour of Service.  Those total months of CG&E Service will then be rounded up to the next highest number of whole calendar years.

(b)“DCIP” means The Cincinnati Gas & Electric Company Deferred Compensation and Investment Plan.

(c)“MRP Covered Compensation” means, with respect to a Participant who was a participant in the MRP as of December 31, 1997, the average (without indexing) of the annual Social Security taxable wage bases under the Social Security Act for each year during the 35 calendar years ending with the last day of the calendar year in which the Participant attains his Social Security Retirement Age, but no later than December 31, 1997.

(d)“MRP Final Average Compensation” means, with respect to a Participant who was a participant in the MRP as of December 31, 1997, the average of the five consecutive calendar years of compensation as defined in (1) below, that produce the highest average within the 10 calendar years ending on December 31, 1997.

(1)For purposes of this definition, “compensation” means the annual rate of base pay determined on July 1 of each year prior to 1998.  For these purposes, base pay is the wage or salary assigned to each specific job title

2

or position.  Base pay does not include overtime, bonuses, severance, or any other special pay.  Base pay, however, shall include deferred compensation contributions (as that term is defined under the DCIP and SIP) and will also include any other elective contribution made by CG&E to a plan covered by Code section 125, which contribution is not included in the gross income of the MRP participant.  If compensation for any Plan Year beginning before January 1, 1994, is taken into account in determining an MRP participant’s MRP Final Average Compensation, the compensation for that Plan Year will be subject to the limitation of Code paragraph 401(a)(17) that was in effect for that year and the Participant’s Nonforfeitable Annual Pension will not be less than the Participant’s accrued benefit under the MRP as of December 31, 1993.

(2)For purposes of this definition, an MRP participant’s base pay will be converted to an annual rate of compensation using the formula appropriate to the MRP participant’s base pay, as follows:

(A)Semi-monthly rate.  The annual compensation for an MRP participant paid on a semi-monthly basis is 24 times the participant’s July 1 semi-monthly base pay.

(B)Monthly rate.  The annual compensation for an MRP participant paid on a monthly basis is 12 times the participant’s July 1 monthly base pay.

(C)Hourly rate.  The annual compensation for an MRP participant paid on an hourly basis is 2,080 times the participant’s July 1 hourly base pay.

(D)Weekly rate.  The annual compensation for an MRP participant paid on a weekly basis is 52 times the participant’s weekly base pay.

(3)The compensation of an MRP participant who has no salary or wage rate on July 1 of a calendar year because he is on an unpaid leave of absence or temporary suspension will be calculated using his latest rate of pay prior to

3

July 1 of that year, if the MRP participant returns to active employment before his Severance from Service Date.  If the MRP participant is on unpaid leave or suspension on July 1 of a year, and the participant does not return to active employment before his Severance from Service Date, his compensation for that calendar year will be zero.

(e)“Primary Social Security Benefit” means the primary federal old age insurance benefit estimated by the Committee that is, or would be, payable to an RIP participant at age 65 based on the federal Social Security Act in effect on December 31, 1997.

The Primary Social Security Benefit of an RIP participant who had not attained age 65 by December 31, 1997, will be determined by assuming that he continued to receive compensation after December 31, 1997, at the rate of compensation in effect immediately prior to that, to age 55, and zero compensation from age 55 thereafter until age 65.

If an RIP participant was hired after 1950, he will be provided with written notice of his right to supply actual pre-employment earnings history, or the financial consequences of failing to supply such history, and that the RIP participant can obtain his actual earnings history on a year-by-year basis from the Social Security administration.

If an RIP participant whose pre-CG&E employment earnings history was estimated supplies documentation from the Social Security administration of his actual year-by-year earnings history, the RIP participant’s Primary Social Security Benefit that previously was estimated will be recalculated using actual pre-CG&E employment earnings.  Such documentation must be supplied no later than 6 months following the later of:

(1)the date of the RIP participant’s termination of employment (by retirement or otherwise), or

(2)the date that the RIP participant is notified of the benefit to which he is entitled.

4

(f)“RIP Final Average Compensation” means, with respect to a Participant who was a participant in the RIP as of December 31, 1997, the average of the four consecutive calendar years of compensation, as defined in (1) below, that produce the highest average within the 10 calendar years ending on December 31, 1997.

(1)For purposes of this definition, “compensation” means the annual rate of base pay determined on July 1 of each year prior to 1998.  For these purposes, base pay is the wage or salary assigned to each specific job title or position.  Base pay does not include overtime, bonuses, severance, or any other special pay.  Base pay, however, will include deferred compensation contributions (as that term is defined under the DCIP and SIP) and will also include any other elective contribution made by CG&E to a plan covered by Code section 125, which contribution is not included in the gross income of the RIP participant.  If compensation for any Plan Year beginning before January 1, 1994, is taken into account in determining an RIP Participant’s RIP Final Average Compensation, the compensation for that Plan Year will be subject to the limitation of Code paragraph 401(a)(17) that was in effect for that year and the Participant’s Nonforfeitable Annual Pension will not be less than the Participant’s accrued benefit under the RIP as of December 31, 1993.

(2)For purposes of this definition, an RIP participant’s base pay will be converted to an annual rate of compensation using the formula appropriate to the participant’s base pay, as follows:

(A)Semi-monthly rate.  The annual compensation for an RIP participant paid on a semi-monthly basis is 24 times the participant’s July 1 semi-monthly base pay.

(B)Monthly rate.  The annual compensation for an RIP participant paid on a monthly basis is 12 times the participant’s July 1 monthly base pay.

5

(C)Hourly rate.  The annual compensation for an RIP participant paid on an hourly basis is 2,080 times the participant’s July 1 hourly base pay.

(D)Weekly rate.  The annual compensation for an RIP participant paid on a weekly basis is 52 times the participant’s weekly base pay.

(3)The compensation of an RIP participant who has no salary or wage rate on July 1 of a calendar year because he is on an unpaid leave of absence or temporary suspension will be calculated using his latest rate of pay prior to July 1 of that year, if the RIP participant returns to active employment before his Severance from Service Date.  If the RIP participant is on unpaid leave or suspension on July 1 of a year, and the participant does not return to active employment before his Severance from Service Date, his compensation for that calendar year will be zero.

(g)“SIP” means The Cincinnati Gas & Electric Company Savings Incentive Plan.

(h)“Years of Accredited Service” means the number of years equal to the length of the Employee’s CG&E Service on or before December 31, 1997, during which the Employee is treated as a participant in the MRP or RIP.  The calculation of an Employee’s Years of Accredited Service will begin on the first day of the month during which the Employee became eligible to participate in the MRP or the RIP.

6

ADDENDUM C

MRP/RIP 100% Spousal and Contingent Annuitant Benefit

Number Of Full Years The Spouse Or Contingent Annuitant as Born After The Participant	Factor	Number Of Full Years The Spouse Or Contingent Annuitant Was Born After The Participant	Factor
0	.911	20	.861
1	.908	21	.859
2	.905	22	.858
3	.902	23	.856
4	.899	24	.855
5	.896	25	.853
6	.893	26	.852
7	.890	27	.851
8	.887	28	.850
9	.885	29	.849
10	.882	30	.848
11	.880	31	.847
12	.877	32	.846
13	.875	33	.845
14	.872	34	.844
15	.870	35	.844
16	.868	36	.843
17	.866	37	.842
18	.864	28	.842
19	863	39	.841
		40	.841

1

Number Of Full Years The Spouse Or Contingent Annuitant Was Born Before The Primary Annuitant	Factor	Number Of Full Years The Spouse Or Contingent Annuitant Was Born Before The Primary Annuitant	Factor
0	.911	20	.973
1	.915	21	.975
2	.918	22	.977
3	.922	23	.979
4	.925	24	.981
5	.928	25	.982
6	.932	26	.984
7	.935	27	.985
8	.939	28	.986
9	.942	29	.987
10	.945	30	.988
11	.949
12	.952
13	.955
14	.958
15	.961
16	.963
17	.966
18	.968
19	.971

Morality:	1971 TPF&C Forecast Mortality Table (Employee rate based on 85% male; Contingent Annuitant rate based on 85% female)
Interest:	7.5%
Subsidy:	Factors include a 50% subsidy provided by the Company
Effective:	January 1, 1984

2

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
20	.985	.984	.982	.981	.979	.978	.976	.974	.972	.970	.967	.965	.962	.959	.956	.952	20
21	.985	.984	.983	.981	.980	.978	.976	.974	.972	.970	.968	.965	.962	.959	.956	.952	21
22	.985	.984	.983	.982	.980	.979	.977	.975	.973	.971	.968	.966	.963	.960	.957	.953	22
23	.986	.985	.983	.982	.981	.979	.977	.975	.973	.971	.969	.966	.964	.961	.958	.954	23
24	.986	.985	.984	.982	.981	.979	.978	.976	.974	.972	.969	.967	.964	.961	.958	.954	24
25	.987	.985	.984	.983	.981	.980	.978	.976	.974	.972	.970	.968	.965	.962	.959	.955	25
26	.987	.986	.985	.983	.982	.980	.979	.977	.975	.973	.971	.968	.966	.963	.960	.955	26
27	.987	.986	.985	.984	.982	.981	.979	.977	.976	.974	.971	.969	.966	.963	.960	.956	27
28	.988	.987	.985	.984	.983	.981	.980	.978	.976	.974	.972	.970	.967	.964	.961	.957	28
29	.988	.987	.986	.985	.983	.982	.980	.979	.977	.975	.973	.970	.968	.965	.962	.957	29
30	.988	.987	.986	.985	.984	.982	.981	.979	.977	.975	.973	.971	.968	.966	.963	.958	30
31	.989	.988	.987	.986	.984	.983	.981	.980	.978	.976	.974	.972	.969	.967	.964	.959	31
32	.989	.988	.987	.986	.985	.983	.982	.980	.979	.977	.975	.972	.970	.967	.965	.960	32
33	.989	.989	.988	.986	.985	.984	.983	.981	.979	.977	.975	.973	.971	.968	.965	.960	33
34	.990	.989	.988	.987	.986	.984	.983	.982	.980	.978	.976	.974	.972	.969	.966	.961	34
35	.990	.989	.988	.987	.986	.985	.984	.982	.981	.979	.977	.975	.972	.970	.967	.962	35
36	.991	.990	.989	.988	.987	.985	.984	.983	.981	.979	.978	.976	.973	.971	.968	.963	36
37	.991	.990	.989	.988	.987	.986	.985	.983	.982	.980	.978	.976	.974	.972	.969	.964	37
38	.991	.990	.990	.989	.988	.987	.985	.984	.982	.981	.979	.977	.975	.973	.970	.965	38
39	.992	.991	.990	.989	.988	.987	.986	.985	.983	.982	.980	.978	.976	.974	.971	.966	39

1

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
40	.992	.991	.990	.990	.989	.988	.986	.985	.984	.982	.981	.979	.977	.974	.972	.967	40
41	.992	.992	.991	.990	.989	.988	.987	.986	.984	.983	.981	.979	.978	.975	.973	.968	41
42	.993	.992	.991	.990	.990	.989	.987	.986	.985	.984	.982	.980	.978	.976	.974	.968	42
43	.993	.992	.992	.991	.990	.989	.988	.987	.986	.984	.983	.981	.979	.977	.975	.969	43
44	.993	.993	.992	.991	.990	.990	.989	.987	.986	.985	.983	.982	.980	.978	.976	.970	44
45	.994	.993	.992	.992	.991	.990	.989	.988	.987	.986	.984	.983	.981	.979	.977	.971	45
46	.994	.993	.993	.992	.991	.990	.990	.989	.987	.986	.985	.983	.982	.980	.978	.972	46
47	.994	.994	.993	.992	.992	.991	.990	.989	.988	.987	.986	.984	.983	.981	.979	.973	47
48	.994	.994	.993	.993	.992	.991	.991	.990	.989	.987	.986	.985	.983	.982	.980	.974	48
49	.995	.994	.994	.993	.992	.992	.991	.990	.989	.988	.987	.986	.984	.983	.981	.975	49
50	.995	.994	.994	.993	.993	.992	.991	.991	.990	.989	.988	.986	.985	.983	.982	.976	50
51	.995	.995	.994	.994	.993	.993	.992	.991	.990	.989	.988	.987	.986	.984	.983	.977	51
52	.995	.995	.995	.994	.994	.993	.992	.992	.991	.990	.989	.988	.986	.985	.983	.978	52
53	.996	.995	.995	.994	.994	.993	.993	.992	.991	.990	.989	.988	.987	.986	.984	.979	53
54	.996	.996	.995	.995	.994	.994	.993	.992	.992	.991	.990	.989	.988	.986	.985	.980	54
	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40

PENSIONER WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

2

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
55	.996	.996	.995	.995	.995	.994	.994	.993	.992	.991	.991	.990	.988	.987	.986	.981	55
56	.996	.996	.996	.995	.995	.994	.994	.993	.993	.992	.991	.990	.989	.988	.987	.982	56
57	.997	.996	.996	.996	.995	.995	.994	.994	.993	.992	.992	.991	.990	.989	.987	.983	57
58	.997	.996	.996	.996	.995	.995	.995	.994	.994	.993	.992	.991	.990	.989	.988	.984	58
59	.997	.997	.996	.996	.996	.995	.995	.994	.994	.993	.993	.992	.991	.990	.989	.985	59
60	.997	.997	.997	.996	.996	.996	.995	.995	.994	.994	.993	.992	.992	.991	.990	.985	60
61	.997	.997	.997	.997	.996	.996	.996	.995	.995	.994	.994	.993	.992	.991	.990	.986	61
62	.997	.997	.997	.997	.997	.996	.996	.995	.995	.995	.994	.993	.993	.992	.991	.987	62
63	.998	.997	.997	.997	.997	.997	.996	.996	.995	.995	.994	.994	.993	.992	.992	.988	63
64	.998	.998	.997	.997	.997	.997	.996	.996	.996	.995	.995	.994	.994	.993	.992	989	64
65	.998	.998	.998	.997	.997	.997	.997	.996	.996	.996	.995	.995	.994	.993	.993	.989	65
66	.998	.998	.998	.998	.997	.997	.997	.997	.996	.996	.996	.995	.995	.994	.993	.990	66
67	.998	.998	.998	.998	.998	.997	.997	.997	.997	.996	.996	.995	.995	.994	.994	.991	67
68	.998	.998	.998	.998	.998	.998	.997	.997	.997	.997	.996	.996	.995	.995	.994	.991	68
69	.998	.998	.998	.998	.998	.998	.998	.997	.997	.997	.997	.996	.996	.995	.995	.992	69
70	.999	.998	.998	.998	.998	.998	.998	.998	.997	.997	.997	.996	.996	.996	.995	.992	70
71	.999	.999	.999	.998	.998	.998	.998	.998	.998	.997	.997	.997	.996	.996	.996	.993	71
72	.999	.999	.999	.999	.998	.998	.998	.998	.998	.998	.997	.997	.997	.996	.996	.994	72
73	.999	.999	.999	.999	.999	.998	.998	.998	.998	.998	.998	.997	.997	.997	.996	.994	73
74	.999	.999	.999	.999	.999	.999	.998	.998	.998	.998	.998	.997	.997	.997	.997	.995	74

3

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
75	.999	.999	.999	.999	.999	.999	.999	.998	.998	.998	.998	.998	.997	.997	.997	.995	75
76	.999	.999	.999	.999	.999	.999	.999	.999	.998	.998	.998	.998	.998	.997	.997	.995	76
77	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	.998	.998	.998	.998	.997	.996	77
78	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	.998	.998	.998	.998	.996	78
79	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	.998	.998	.998	.996	79
80	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	.998	.998	.997	80
81	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	.998	.997	81
82	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	.997	82
83	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	83
84	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	84
85	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	85
86	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	86
87	1.000	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	87
88	1.000	1.000	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.998	88
89	1.000	1.000	1.000	1.000	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	.999	89
	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40

PENSIONER WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

4

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	40	41	42	43	44	45	46	47	48	49	50	51	52	53	54	55	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
20	.952	.948	.945	.941	.936	.932	.927	.922	.917	.911	.905	.899	.893	.886	.879	.872	20
21	.952	.949	.945	.941	.937	.932	.928	.923	.917	.912	.906	.900	.894	.887	.880	.873	21
22	.953	.949	.946	.942	.937	.933	.928	.923	.918	.912	.907	.901	.894	.888	.881	.873	22
23	.954	.950	.946	.942	.938	.933	.929	.924	.919	.913	.907	.901	.895	.888	.881	.874	23
24	.954	.951	.947	.943	.939	.934	.929	.924	.919	.914	.908	.902	.896	.889	.882	.875	24
25	.955	.951	.947	.943	.939	.935	.930	.925	.920	.914	.909	.903	.896	.890	.883	.876	25
26	.955	.952	.948	.944	.940	.936	.931	.926	.921	.915	.910	.904	.897	.891	.884	.877	26
27	.956	.953	.949	.945	.941	.936	.932	.927	.922	.916	.910	.904	.898	.892	.885	.878	27
28	.957	.953	.950	.946	.941	.937	.932	.928	.922	.917	.911	.905	.899	.893	.886	.878	28
29	.957	.954	.950	.946	.942	.938	.933	.928	.923	.918	.912	.906	.900	.894	.887	.879	29
30	.958	.955	.951	.947	.943	.939	.934	.929	.924	.919	.913	.907	.901	.895	.888	.881	30
31	.959	.955	.952	.948	.944	.940	.935	.930	.925	.920	.914	.908	.902	.896	.889	.882	31
32	.960	.956	.953	.949	.945	.941	.936	.931	.926	.921	.915	.909	.903	.897	.890	.883	32
33	.960	.957	.954	.950	.946	.942	.937	.932	.927	.922	.916	.911	.904	.898	.891	.884	33
34	.961	.958	.954	.951	.947	.943	.938	.933	.928	.923	.918	.912	.906	.899	.893	.885	34
35	.962	.959	.955	.952	.948	.944	.939	.934	.929	.924	.919	.913	.907	.901	.894	.887	35
36	.963	.960	.956	.953	.949	.945	.940	.936	.931	.926	.920	.914	.908	.902	.895	.888	36
37	.964	.961	.957	.954	.950	.946	.941	.937	.932	.927	.921	.916	.910	.903	.897	.890	37
38	.965	.962	.958	.955	.951	.947	.943	.938	.933	.928	.923	.917	.911	.905	.898	.891	38
39	.966	.963	.959	.956	.952	.948	.944	.939	.935	.929	.924	.919	.913	.906	.900	.893	39

5

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
40	.967	.964	.960	.957	.953	.949	.945	.941	.936	.931	.926	.920	.914	.908	.902	.895	40
41	.968	.965	.961	.958	.954	.950	.946	.942	.937	.932	.927	.922	.916	.910	.903	.897	41
42	.968	.966	.963	.959	.956	.952	.948	.943	.939	.934	.929	.923	.918	.912	.905	.898	42
43	.969	.967	.964	.960	.957	.953	.949	.945	.940	.935	.930	.925	.919	.913	.907	.900	43
44	.970	.968	.965	.961	.958	.954	.950	.946	.942	.937	.932	.927	.921	.915	.909	.902	44
45	.971	.969	.966	.963	.959	.956	.952	.948	.943	.939	.934	.929	.923	.917	.911	.904	45
46	.972	.970	.967	.964	.961	.957	.953	.949	.945	.940	.935	.930	.925	.919	.913	.907	46
47	.973	.971	.968	.965	.962	.958	.955	.951	.946	.942	.937	.932	.927	.921	.915	.909	47
48	.974	.972	.969	.966	.963	.960	.956	.952	.948	.944	.939	.934	.929	.923	.917	.911	48
49	.975	.973	.970	.968	.964	.961	.958	.954	.950	.945	.941	.936	.931	.925	.920	.913	49
50	.976	.974	.972	.969	.966	.963	.959	.955	.951	.947	.943	.938	.933	.928	.922	.916	50
51	.977	.975	.973	.970	.967	.964	.961	.957	.953	.949	.945	.940	.935	.930	.924	.918	51
52	.978	.976	.974	.971	.968	.965	.962	.959	.955	.951	.947	.942	.937	.932	.926	.921	52
53	.979	.977	.975	.972	.970	.967	.964	.960	.957	.953	.948	.944	.939	.934	.929	.923	53
54	.980	.978	.976	.974	.971	.968	.965	.962	.958	.954	.950	.946	.941	.937	.931	.926	54
	40	41	42	43	44	45	46	47	48	49	50	51	52	53	54	55

PENSIONER WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

6

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	40	41	42	43	44	45	46	47	48	49	50	51	52	53	54	55	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
55	.981	.979	.977	.975	.972	.969	.966	.963	.960	.956	.952	.948	.944	.939	.934	.928	55
56	.982	.980	.978	.976	.973	.971	.968	.965	.962	.958	.954	.950	.946	.941	.936	.931	56
57	.983	.981	.979	.977	.975	.972	.969	.966	.963	.960	.956	.952	.948	.943	.939	.933	57
58	.984	.982	.980	.978	.976	.973	.971	.968	.965	.962	.958	.954	.950	.946	.941	.936	58
59	.985	.983	.981	.979	.977	.975	.972	.969	.966	.963	.960	.956	.952	.948	.943	.939	59
60	.985	.984	.982	.980	.978	.976	.974	.971	.968	.965	.962	.958	.954	.950	.946	.941	60
61	.986	.985	.983	.981	.979	.977	.975	.972	.970	.967	.964	.960	.957	.953	.948	.944	61
62	.987	.986	.984	.982	.981	.978	.976	.974	.971	.968	.965	.962	.959	.955	.951	.946	62
63	.988	.987	.985	.983	.982	.980	.978	.975	.973	.970	.967	.964	.961	.957	.953	.949	63
64	.989	.987	.986	.984	.983	.981	.979	.977	.974	.972	.969	.966	.963	.959	.956	.952	64
65	.989	.988	.987	.985	.984	.982	.980	.978	.976	.973	.971	.968	.965	.961	.958	.954	65
66	.990	.989	.988	.986	.985	.983	.981	.979	.977	.975	.972	.970	.967	.964	.960	.957	66
67	.991	.990	.988	.987	.986	.984	.982	.981	.979	.976	.974	.971	.969	.966	.962	.959	67
68	.991	.990	.989	.988	.987	.985	.984	.982	.980	.978	.976	.973	.971	.968	.965	.961	68
69	.992	.991	.990	.989	.988	.986	.985	.983	.981	.979	.977	.975	.972	.970	.967	.964	69
70	.992	.992	.991	.990	.988	.987	.986	.984	.982	.981	.979	.976	.974	.972	.969	.966	70
71	.993	.992	.991	.990	.989	.988	.987	.985	.984	.982	.980	.978	.976	.974	.971	.968	71
72	.994	.993	.992	.991	.990	.989	.988	.986	.985	.983	.981	.980	.978	.975	.973	.970	72
73	.994	.993	.993	.992	.991	.990	.988	.987	.986	.984	.983	.981	.979	.977	.975	.972	73
74	.995	.994	.993	.992	.991	.990	.989	.988	.987	.985	.984	.982	.981	.979	.977	.974	74

7

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	40	41	42	43	44	45	46	47	48	49	50	51	52	53	54	55	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
75	.995	.994	.994	.993	.992	.991	.990	.989	.988	.987	.985	.984	.982	.980	.978	.976	75
76	.995	.995	.994	.993	.993	.992	.991	.990	.989	.988	.986	.985	.983	.982	.980	.978	76
77	.996	.995	.995	.994	.993	.992	.992	.991	.990	.988	.987	.986	.985	.983	.981	.979	77
78	.996	.996	.995	.994	.994	.993	.992	.991	.990	.989	.988	.987	.986	.984	.983	.981	78
79	.996	.996	.995	.995	.994	.994	.993	.992	.991	.990	.989	.988	.987	.985	.984	.982	79
80	.997	.996	.996	.995	.995	.994	.993	.993	.992	.991	.990	.989	.988	.987	.985	.984	80
81	.997	.997	.996	.996	.995	.995	.994	.993	.993	.992	.991	.990	.989	.988	.986	.985	81
82	.997	.997	.997	.996	.996	.995	.995	.994	.993	.992	.992	.991	.990	.989	.988	.986	82
83	.998	.997	.997	.996	.996	.996	.995	.994	.994	.993	.992	.992	.991	.990	.989	.987	83
84	.998	.997	.997	.997	.996	.996	.995	.995	.994	.994	.993	.992	.991	.991	.990	.989	84
85	.998	.998	.997	.997	.997	.996	.996	.995	.995	.994	.994	.993	.992	.991	.990	.990	85
86	.998	.998	.998	.997	.997	.997	.996	.996	.995	.995	.994	.994	.993	.992	.991	.990	86
87	.998	.998	.998	.998	.997	.997	.997	.996	.996	.995	.995	.994	.993	.993	.992	.991	87
88	.998	.998	.998	.998	.998	.997	.997	.997	.996	.996	.995	.995	.994	.993	.993	.992	88
89	.999	.998	.998	.998	.998	.997	.997	.997	.996	.996	.996	.995	.995	.994	.993	.993	89
	40	41	42	43	44	45	46	47	48	49	50	51	52	53	54	55

PENSIONER WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

8

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	55	56	57	58	59	60	61	52	63	64	65	66	67	68	69	70	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
20	.872	.864	.856	.848	.839	.829	.819	.809	.798	.786	.774	.762	.749	.735	.722	.708	20
21	.873	.865	.857	.849	.839	.830	.820	.810	.799	.787	.775	.762	.749	.736	.722	.708	21
22	.873	.866	.858	.849	.840	.831	.821	.810	.799	.788	.776	.763	.750	.737	.723	.709	22
23	.874	.867	.858	.850	.841	.831	.821	.811	.800	.788	.776	.764	.751	.737	.724	.710	23
24	.875	.867	.859	.851	.842	.832	.822	.812	.801	.789	.777	.765	.752	.738	.725	.711	24
25	.876	.868	.860	.852	.843	.833	.823	.813	.802	.790	.778	.765	.752	.739	.725	.712	25
26	.877	.869	.861	.852	.843	.834	.824	.814	.803	.791	.779	.766	.753	.740	.726	.712	26
27	.878	.870	.862	.853	.844	.835	.825	.815	.804	.792	.780	.767	.754	.741	.727	.713	27
28	.878	.871	.863	.854	.845	.836	.826	.816	.805	.793	.781	.768	.755	.742	.728	.715	28
29	.879	.872	.864	.855	.847	.837	.827	.817	.806	.794	.782	.770	.757	.743	.730	.716	29
30	.881	.873	.865	.857	.848	.838	.828	.818	.807	.795	.783	.771	.758	.744	.731	.717	30
31	.882	.874	.866	.858	.849	.839	.830	.819	.808	.797	.785	.772	.759	.746	.732	.718	31
32	.883	.875	.867	.859	.850	.841	.831	.820	.810	.798	.786	.773	.760	.747	.733	.719	32
33	.884	.877	.869	.860	.851	.842	.832	.822	.811	.799	.787	.775	.762	.748	.735	.721	33
34	.885	.878	.870	.862	.853	.844	.834	.823	.812	.801	.789	.776	.763	.750	.736	.722	34
35	.887	.879	.872	.863	.854	.845	.835	.825	.814	.802	.790	.778	.765	.752	.738	.724	35
36	.888	.881	.873	.865	.856	.847	.837	.826	.816	.804	.792	.780	.767	.753	.740	.726	36
37	.890	.882	.875	.866	.858	.848	.839	.828	.817	.806	.794	.781	.768	.755	.742	.728	37
38	.891	.884	.876	.868	.859	.850	.840	.830	.819	.808	.796	.783	.770	.757	.743	.730	38
39	.893	.886	.878	.870	.861	.852	.842	.832	.821	.810	.798	.785	.772	.759	.746	.732	39

9

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	55	56	57	58	59	60	61	52	63	64	65	66	67	68	69	70	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
40	.895	.888	.880	.872	.863	.854	.844	.834	.823	.812	.800	.787	.775	.761	.748	.734	40
41	.897	.889	.882	.874	.865	.856	.846	.836	.825	.814	.802	.790	.777	.764	.750	.736	41
42	.898	.891	.884	.876	.867	.858	.848	.838	.828	.816	.804	.792	.779	.766	.752	.739	42
43	.900	.893	.886	.878	.869	.860	.851	.841	.830	.819	.807	.794	.782	.769	.755	.741	43
44	.902	.895	.888	.880	.872	.863	.853	.843	.832	.821	.809	.797	.784	.771	.758	.744	44
45	.904	.897	.890	.882	.874	.865	.856	.846	.835	.824	.812	.800	.787	.774	.761	.747	45
46	.907	.900	.892	.885	.876	.867	.858	.848	.838	.827	.815	.803	.790	.777	.763	.750	46
47	.909	.902	.895	.887	.879	.870	.861	.851	.841	.829	.818	.806	.793	.780	.767	.753	47
48	.911	.904	.897	.890	.881	.873	.864	.854	.843	.832	.821	.809	.796	.783	.770	.756	48
49	.913	.907	.900	.892	.884	.876	.866	.857	.847	.836	.824	.812	.800	.787	.773	.760	49
50	.916	.909	.902	.895	.887	.878	.869	.860	.850	.839	.827	.815	.803	.790	.777	.763	50
51	.918	.912	.905	.898	.890	.881	.872	.863	.853	.842	.831	.819	.807	.794	.781	.767	51
52	.921	.914	.908	.900	.893	.884	.876	.866	.856	.846	.834	.823	.810	.798	.784	.771	52
53	.923	.917	.910	.903	.896	.888	.879	.870	.860	.849	.838	.826	.814	.801	.788	.775	53
54	.926	.920	.913	.906	.899	.891	.882	.873	.863	.853	.842	.830	.818	.806	.793	.779	54
	55	56	57	58	59	60	61	52	63	64	65	66	67	68	69	70

PENSIONER WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

10

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	55	56	57	58	59	60	61	52	63	64	65	66	67	68	69	70	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
55	.928	.922	.916	.909	.902	.894	.885	.876	.867	.857	.846	.834	.822	.810	.797	.784	55
56	.931	.925	.919	.912	.905	.897	.889	.880	.871	.860	.850	.838	.826	.814	.801	.788	56
57	.933	.928	.922	.915	.908	.901	.892	.884	.874	.864	.854	.842	.831	.819	.806	.793	57
58	.936	.931	.925	.918	.911	.904	.896	.887	.878	.868	.858	.847	.835	.823	.811	.798	58
59	.939	.933	.928	.921	.915	.907	.900	.891	.882	.873	.862	.851	.840	.828	.816	.803	59
60	.941	.936	.931	.924	.918	.911	.903	.895	.886	.877	.867	.856	.845	.833	.821	.808	60
61	.944	.939	.933	.928	.921	.914	.907	.899	.890	.881	.871	.860	.849	.838	.826	.813	61
62	.946	.942	.936	.931	.925	.918	.911	.903	.894	.885	.876	.865	.854	.843	.831	.819	62
63	.949	.944	.939	.934	.928	.921	.914	.907	.899	.890	.880	.870	.859	.848	.836	.824	63
64	.952	.947	.942	.937	.931	.925	.918	.911	.903	.894	.885	.875	.864	.854	.842	.830	64
65	.954	.950	.945	.940	.935	.929	.922	.915	.907	.899	.890	.880	.870	.859	.848	.836	65
66	.957	.953	.948	.943	.938	.932	.926	.919	.911	.903	.894	.885	.875	.865	.854	.842	66
67	.959	.955	.951	.946	.941	.936	.930	.923	.916	.908	.899	.890	.880	.870	.859	.848	67
68	.961	.958	.954	.949	.944	.939	.933	.927	.920	.912	.904	.895	.886	.876	.865	.854	68
69	.964	.960	.956	.952	.948	.943	.937	.931	.924	.917	.909	.900	.891	.881	.871	.861	69
70	.966	.963	.959	.955	.951	.946	.941	.935	.928	.921	.914	.905	.896	.887	.877	.867	70
71	.968	.965	.962	.958	.954	.949	.944	.939	.932	.926	.918	.910	.902	.893	.883	.873	71
72	.970	.967	.964	.961	.957	.952	.948	.942	.936	.930	.923	.915	.907	.898	.889	.879	72
73	.972	.970	.967	.963	.959	.955	.951	.946	.940	.934	.927	.920	.912	.904	.895	.886	73
74	.974	.972	.969	.966	.962	.958	.954	.949	.944	.938	.932	.925	.917	.909	.901	.892	74

11

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	55	56	57	58	59	60	61	52	63	64	65	66	67	68	69	70	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
75	.976	.974	.971	.968	.965	.961	.957	.953	.948	.942	.936	.929	.922	.915	.906	.898	75
76	.978	.976	.973	.970	.967	.964	.960	.956	.951	.946	.940	.934	.927	.920	.912	.904	76
77	.979	.977	.975	.973	.970	.966	.963	.959	.954	.950	.944	.938	.932	.925	.917	.909	77
78	.981	.979	.977	.975	.972	.969	.966	.962	.958	.953	.948	.942	.936	.929	.922	.915	78
79	.982	.981	.979	.976	.974	.971	.968	.965	.961	.956	.951	.946	.940	.934	.927	.920	79
80	.984	.982	.980	.978	.976	.973	.971	.967	.964	.960	.955	.950	.944	.938	.932	.925	80
81	.985	.984	.982	.980	.978	.975	.973	.970	.966	.963	.958	.954	.948	.943	.937	.930	81
82	.986	.985	.983	.982	.980	.977	.975	.972	.969	.965	.961	.957	.952	.947	.941	.935	82
83	.987	.986	.985	.983	.981	.979	.977	.974	.972	.968	.965	.960	.956	.951	.946	.940	83
84	.989	.987	.986	.985	.983	.981	.979	.977	.974	.971	.967	.963	.959	.955	.950	.944	84
85	.990	.988	.987	.986	.984	.983	.981	.979	.976	.973	.970	.966	.962	.958	.954	.949	85
86	.990	.989	.988	.987	.986	.984	.982	.980	.978	.975	.972	.969	.965	.961	.957	.952	86
87	.991	.990	.989	.988	.987	.986	.984	.982	.980	.977	.975	.972	.968	.965	.960	.956	87
88	.992	.991	.990	.989	.988	.987	.985	.984	.982	.979	.977	.974	.971	.967	.964	.960	88
89	.993	.992	.991	.990	.989	.988	.987	.985	.983	.981	.979	.976	.973	.970	.967	.963	89
	55	56	57	58	59	60	61	62	63	64	65	66	67	68	69	70

PENSION WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

12

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	70	71	72	73	74	75	76	77	78	79	80	81	82	83	84	85	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
20	.708	.694	.679	.665	.650	.634	.619	.602	.586	.569	.553	.537	.521	.505	.490	.475	20
21	.708	.694	.680	.666	.651	.635	.619	.603	.586	.570	.554	.537	.522	.506	.490	.475	21
22	.709	.695	.681	.666	.651	.636	.620	.603	.587	.571	.554	.538	.522	.506	.491	.476	22
23	.710	.696	.681	.667	.652	.637	.621	.604	.588	.571	.555	.539	.523	.507	.492	.477	23
24	.711	.697	.682	.668	.653	.637	.621	.605	.588	.572	.556	.540	.524	.508	.492	.477	24
25	.712	.697	.683	.669	.654	.638	.622	.606	.589	.573	.556	.540	.524	.509	.493	.478	25
26	.712	.698	.684	.670	.655	.639	.623	.607	.590	.574	.557	.541	.525	.509	.494	.479	26
27	.713	.699	.685	.671	.656	.640	.624	.608	.591	.575	.558	.542	.526	.510	.495	.480	27
28	.715	.700	.686	.672	.657	.641	.625	.609	.592	.576	.559	.543	.527	.511	.496	.480	28
29	.716	.702	.687	.673	.658	.642	.626	.610	.593	.577	.560	.544	.528	.512	.497	.481	29
30	.717	.703	.688	.674	.659	.643	.627	.611	.594	.578	.561	.545	.529	.513	.498	.482	30
31	.718	.704	.690	.675	.660	.645	.628	.612	.595	.579	.562	.546	.530	.514	.499	.483	31
32	.719	.705	.691	.676	.661	.646	.630	.613	.597	.580	.564	.547	.531	.515	.500	.485	32
33	.721	.707	.692	.678	.663	.647	.631	.615	.598	.582	.565	.549	.533	.517	.501	.486	33
34	.722	.708	.694	.679	.664	.649	.633	.616	.600	.583	.566	.550	.534	.518	.502	.487	34
35	.724	.710	.696	.681	.666	.650	.634	.618	.601	.585	.568	.552	.535	.520	.504	.488	35
36	.726	.712	.697	.683	.668	.652	.636	.619	.603	.586	.570	.553	.537	.521	.505	.490	36
37	.728	.713	.699	.685	.669	.654	.638	.621	.605	.588	.571	.555	.539	.523	.507	.492	37
38	.730	.715	.701	.686	.671	.656	.640	.623	.606	.590	.573	.557	.541	.525	.509	.493	38
39	.732	.717	.703	.689	.673	.658	.642	.625	.608	.592	.575	.559	.542	.526	.511	.495	39

13

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	70	71	72	73	74	75	76	77	78	79	80	81	82	83	84	85	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
40	.734	.720	.705	.691	.676	.660	.644	.627	.611	.594	.577	.561	.544	.528	.513	.497	40
41	.736	.722	.708	.693	.678	.662	.646	.630	.613	.596	.579	.563	.547	.531	.515	.499	41
42	.739	.724	.710	.696	.680	.665	.649	.632	.615	.599	.582	.565	.549	.533	.517	.501	42
43	.741	.727	.713	.698	.683	.667	.651	.635	.618	.601	.584	.568	.551	.535	.519	.504	43
44	.744	.730	.715	.701	.686	.670	.654	.637	.621	.604	.587	.570	.554	.538	.522	.506	44
45	.747	.733	.718	.704	.689	.673	.657	.640	.623	.607	.590	.573	.557	.541	.525	.509	45
46	.750	.736	.721	.707	.692	.676	.660	.643	.626	.610	.593	.576	.560	.543	.527	.512	46
47	.753	.739	.725	.710	.695	.679	.663	.647	.630	.613	.596	.579	.563	.547	.530	.515	47
48	.756	.742	.728	.713	.698	.683	.667	.650	.633	.616	.599	.583	.566	.550	.534	.518	48
49	.760	.746	.732	.717	.702	.686	.670	.654	.637	.620	.603	.586	.570	.553	.537	.521	49
50	.763	.749	.735	.721	.706	.690	.674	.657	.640	.624	.607	.590	.573	.557	.541	.525	50
51	.767	.753	.739	.725	.710	.694	.678	.661	.644	.628	.611	.594	.577	.561	.544	.528	51
52	.771	.757	.743	.729	.714	.698	.682	.665	.649	.632	.615	.598	.581	.565	.548	.532	52
53	.775	.761	.747	.733	.718	.703	.686	.670	.653	.636	.619	.602	.585	.569	.553	.537	53
54	.779	.766	.752	.737	.722	.707	.691	.674	.657	.640	.623	.607	.590	.573	.557	.541	54
	70	71	72	73	74	75	76	77	78	79	80	81	82	83	84	85

PENSIONER WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

14

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	70	71	72	73	74	75	76	77	78	79	80	81	82	83	84	85	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
55	.784	.770	.756	.742	.727	.712	.696	.679	.662	.645	.628	.611	.595	.578	.562	.545	55
56	.788	.775	.761	.747	.732	.717	.700	.684	.667	.650	.633	.616	.599	.583	.566	.550	56
57	.793	.779	.766	.752	.737	.722	.706	.689	.672	.655	.638	.621	.605	.588	.571	.555	57
58	.798	.784	.771	.757	.742	.727	.711	.694	.678	.661	.644	.627	.610	.593	.577	.560	58
59	.803	.789	.776	.762	.748	.732	.716	.700	.683	.666	.649	.632	.616	.599	.582	.566	59
60	.808	.795	.781	.768	.753	.738	.722	.706	.689	.672	.655	.638	.621	.605	.588	.572	60
61	.813	.800	.787	.773	.759	.744	.728	.712	.695	.678	.661	.644	.628	.611	.594	.578	61
62	.819	.806	.793	.779	.765	.750	.734	.718	.702	.685	.668	.651	.634	.617	.601	.584	62
63	.824	.812	.799	.785	.771	.756	.741	.725	.708	.691	.675	.658	.641	.624	.607	.591	63
64	.830	.818	.805	.792	.778	.763	.748	.732	.715	.699	.682	.665	.648	.631	.615	.598	64
65	.836	.824	.811	.798	.784	.770	.755	.739	.722	.706	.689	.672	.656	.639	.622	.606	65
66	.842	.830	.818	.805	.791	.777	.762	.746	.730	.713	.697	.680	.663	.647	.630	.614	66
67	.848	.836	.824	.812	.798	.784	.769	.754	.738	.721	.705	.688	.672	.655	.638	.622	67
68	.854	.843	.831	.819	.806	.792	.777	.762	.746	.730	.713	.697	.680	.663	.647	.630	68
69	.861	.849	.838	.826	.813	.799	.785	.770	.754	.738	.722	.705	.689	.672	.656	.639	69
70	.867	.856	.845	.833	.820	.807	.793	.778	.762	.747	.730	.714	.698	.682	.665	.649	70
71	.873	.863	.852	.840	.828	.815	.801	.786	.771	.755	.739	.723	.707	.691	.675	.658	71
72	.879	.869	.859	.847	.835	.823	.809	.795	.780	.764	.749	.733	.717	.701	.684	.668	72
73	.886	.876	.865	.855	.843	.831	.817	.803	.788	.773	.758	.742	.727	.711	.694	.678	73
74	.892	.882	.872	.862	.850	.838	.825	.812	.797	.782	.767	.752	.736	.721	.705	.689	74

15

Addendum D

MRP/RIP 50% Contingent Annuitant Factors

PENSIONER WHOSE RETIREMENT AGE IS:

BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT	70	71	72	73	74	75	76	77	78	79	80	81	82	83	84	85	BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT
75	.898	.889	.879	.869	.858	.846	.834	.820	.806	.792	.777	.762	.746	.731	.715	.699	75
76	.904	.895	.886	.876	.865	.854	.842	.829	.815	.801	.786	.771	.756	.741	.725	.710	76
77	.909	.901	.892	.883	.872	.862	.850	.837	.824	.810	.796	.781	.766	.751	.736	.721	77
78	.915	.907	.898	.889	.880	.869	.858	.845	.832	.819	.805	.791	.776	.762	.747	.731	78
79	.920	.912	.904	.896	.886	.876	.865	.853	.841	.828	.814	.801	.786	.772	.757	.742	79
80	.925	.918	.910	.902	.893	.884	.873	.861	.849	.837	.824	.810	.796	.782	.768	.753	80
81	.930	.923	.916	.908	.900	.891	.880	.869	.858	.846	.833	.820	.807	.793	.779	.764	81
82	.935	.929	.922	.914	.906	.898	.888	.877	.866	.854	.842	.830	.817	.803	.790	.776	82
83	.940	.934	.927	.920	.913	.904	.895	.885	.874	.863	.851	.839	.827	.814	.800	.787	83
84	.944	.939	.932	.926	.919	.911	.902	.892	.882	.871	.860	.849	.836	.824	.811	.798	84
85	.949	.943	.937	.931	.924	.917	.909	.900	.890	.880	.869	.858	.846	.834	.821	.809	85
86	.952	.947	.942	.936	.930	.923	.915	.906	.897	.887	.877	.866	.855	.843	.831	.819	86
87	.956	.951	.946	.941	.935	.928	.921	.913	.904	.895	.885	.875	.864	.853	.841	.829	87
88	.960	.955	.950	.945	.940	.934	.927	.919	.910	.902	.892	.882	.872	.862	.850	.839	88
89	.963	.959	.954	.949	.944	.938	.932	.925	.917	.908	.899	.890	.880	.870	.859	.848	89
	70	71	72	73	74	75	76	77	78	79	80	81	82	83	84	85

PENSIONER WHOSE RETIREMENT AGE IS:

Mortality:	1971 TPF&C Forecast Mortality Table (Pensioner rate based on 85% male; Beneficiary rate based on 85% female)
Interest Rate:	7.5%
Effective:	January 1, 1984
Prepared by:	Towers Perrin

16

ADDENDUM E

Level Income Option — Factors Using UP84 Mortality and 7.5% Interest

Age	0/12	1/12	2/12	3/12	4/12	5/12	6/12	7/12	8/12	9/12	10/12	11/12
50	0.30410	0.30651	0.30892	0.31133	0.31374	0.31615	0.31856	0.32097	0.32338	0.32579	0.32820	0.33061
51	0.33302	0.33570	0.33837	0.34105	0.34373	0.34641	0.34908	0.35176	0.35444	0.35712	0.35979	0.36247
52	0.36515	0.36813	0.37111	0.37408	0.37706	0.38004	0.38302	0.38600	0.38898	0.39195	0.39493	0.39791
53	0.40089	0.40421	0.40753	0.41085	0.41417	0.41749	0.42080	0.42412	0.42744	0.43076	0.43408	0.43740
54	0.44072	0.44443	0.44814	0.45185	0.45556	0.45927	0.46297	0.46668	0.47039	0.47410	0.47781	0.48152
55	0.48523	0.48938	0.49353	0.49768	0.50184	0.50599	0.51014	0.51429	0.51844	0.52259	0.52675	0.53090
56	0.53505	0.53971	0.54437	0.54903	0.55369	0.55835	0.56301	0.56767	0.57233	0.57699	0.58165	0.58631
57	0.59097	0.59621	0.60146	0.60670	0.61194	0.61719	0.62243	0.62767	0.63292	0.63816	0.64340	0.64865
58	0.65389	0.65980	0.66572	0.67163	0.67755	0.68346	0.68938	0.69529	0.70121	0.70712	0.71304	0.71895
59	0.72487	0.73156	0.73825	0.74494	0.75164	0.75833	0.76502	0.77171	0.77840	0.78509	0.79179	0.79848
60	0.80517	0.81276	0.82035	0.82795	0.83554	0.84313	0.85072	0.85832	0.86591	0.87350	0.88109	0.88869
61	0.89628	0.90492	0.91357	0.92221	0.93085	0.93950	0.94814	0.95678	0.96543	0.97407	0.98271	0.99136
62	1.00000

Mortality:	1971 TPF&C Forecast Mortality Table (85% male rate, 15% female rate)
Interest:	7.5%

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ADDENDUM F

MRP/RIP Level Income Option Factors

Age	0/12	1/12	2/12	3/12	4/12	5/12	6/12	7/12	8/12	9/12	10/12	11/12
50	0.30906	0.31148	0.31390	0.31632	0.31875	0.32117	0.32359	0.32601	0.32843	0.33085	0.33328	0.33570
51	0.33812	0.34080	0.34349	0.34617	0.34886	0.35154	0.35423	0.35691	0.35960	0.36228	0.36497	0.36765
52	0.37034	0.37332	0.37630	0.37929	0.38227	0.38525	0.38823	0.39122	0.39420	0.39718	0.40016	0.40315
53	0.40613	0.40945	0.41277	0.41608	0.41940	0.42272	0.42604	0.42936	0.43268	0.43599	0.43931	0.44263
54	0.44595	0.44965	0.45335	0.45705	0.46075	0.46445	0.46815	0.47186	0.47556	0.47926	0.48296	0.48666
55	0.49036	0.49450	0.49863	0.50277	0.50690	0.51104	0.51517	0.51931	0.52345	0.52758	0.53172	0.53585
56	0.53999	0.54462	0.54926	0.55389	0.55852	0.56316	0.56779	0.57242	0.57706	0.58169	0.58632	0.59096
57	0.59559	0.60079	0.60599	0.61120	0.61640	0.62160	0.62680	0.63201	0.63721	0.64241	0.64761	0.65282
58	0.65802	0.66388	0.66974	0.67560	0.68146	0.68732	0.69317	0.69903	0.70489	0.71075	0.71661	0.72247
59	0.72833	0.73495	0.74157	0.74818	0.75480	0.76142	0.76804	0.77466	0.78128	0.78789	0.79451	0.80113
60	0.80775	0.81525	0.82274	0.83024	0.83774	0.84524	0.85273	0.86023	0.86773	0.87523	0.88272	0.89022
61	0.89772	0.90624	0.91477	0.92329	0.93181	0.94034	0.94886	0.95738	0.96591	0.97443	0.98295	0.99148
62	1.00000

Mortality:	1971 TPF&C Forecast Mortality Table (85% male rate, 15% female rate)
Interest:	7.5%

1

EX-10.SS

Exhibit 10.ss

CINERGY CORP. NON-UNION
EMPLOYEES’ 401(K) PLAN

(Effective as of January 1, 2003)

TABLE OF CONTENTS

ARTICLE 1. The Plan
1.1	Establishment of Plan
1.2	Applicability of Plan
1.3	Purpose of the Plan
1.4	Type of Plan
ARTICLE 2. Definitions
2.1	Definitions
2.2	Gender and Number
ARTICLE 3. Participation
3.1	Participation
3.2	Duration of Participation
3.3	Leased Employees
3.4	Reclassification
ARTICLE 4. Contributions
4.1	Deferred Compensation Contributions
4.2	Employee After-Tax Contributions
4.3	Matching Contributions
4.4	Limitations on Contributions
4.5	Contributions Not Contingent on Profits
4.6	Limitations on Annual Account Additions
4.7	Rollover Contributions
4.8	Contributions During Period of Military Leave
4.9	ADP/ACP Safe Harbor
4.10	Profit Sharing Contributions
ARTICLE 5. Vesting in Accounts
5.1	All Accounts Except Profit Sharing Contributions Account
5.2	Profit Sharing Contributions Account
5.3	Forfeitures
ARTICLE 6. Distributions and Withdrawals
6.1	Distribution Upon Retirement, Death, Disability, or Other Termination of Employment
6.2	Commencement of Distributions
6.3	Method of Distribution
6.4	Hardship Withdrawals
6.5	Loans
6.6	Other Withdrawals Prior to Termination of Employment
6.7	Withholding Taxes

i

ARTICLE 7. Investment Elections
7.1	After-Tax, Deferred Compensation, Employer Match, ESOP Transfer, and Rollover Contribution Accounts
7.2	Matching Contributions Account and Profit Sharing Contributions Account
7.3	Voting and Other Rights with Respect to Cinergy Stock
ARTICLE 8. Accounts and Records of the Plan
8.1	Accounts and Records
8.2	Trust Fund
8.3	Valuation and Allocation of Expenses
8.4	Allocation of Earnings and Losses
ARTICLE 9. Financing
9.1	Financing
9.2	Contributions
9.3	Nonreversion
9.4	Rights in the Trust Fund
ARTICLE 10. Administration
10.1	Plan Administrator and Fiduciary
10.2	Removal and Replacement of Benefits Committee Members
10.3	Compensation and Expenses
10.4	Delegation of Duties and Employment of Specialists
10.5	Administration
10.6	No Enlargement of Employee Rights
10.7	Appeals from Denial of Claims
10.8	Notice of Address and Missing Persons
10.9	Data and Information for Benefits
10.10	Indemnity for Liability
10.11	Effect of a Mistake
ARTICLE 11. Amendment and Termination
11.1	Amendment and Termination
11.2	Limitations on Amendments
11.3	Effect of Bankruptcy and Other Contingencies Affecting an Employer
11.4	Amendment of Vesting Schedule
ARTICLE 12. Top-Heavy Provisions
12.1	Application of Top-Heavy Provisions
12.2	Definitions
12.3	Minimum Contribution
12.4	Limit on Annual Additions: Combined Plan Limit
12.5	Collective Bargaining Agreements
ARTICLE 13. Participation In and Withdrawal From the Plan by an Employer
13.1	Adoption of the Plan
13.2	Withdrawal from Participation

ii

13.3	Company as Agent for Employers
ARTICLE 14. Miscellaneous
14.1	Beneficiary Designation
14.2	Facility of Payment
14.3	Nonalienation
14.4	Applicable Law
14.5	Severability
14.6	No Guarantee
14.7	Merger, Consolidation, or Transfer
14.8	Internal Revenue Service Approval
14.9	Special ESOP Provisions
14.10	Electronic Media
Addendum

iii

ARTICLE 1.

THE PLAN

1.1Establishment of Plan.

Effective as of January 1, 1998, Cinergy Corp. (the “Company”) established the Cinergy Corp. Non-Union Employees’ 401(k) Plan (the “Plan”) for the benefit of its eligible non-union employees.  The Plan is the result of the January 1, 1998 merger of the PSI Energy, Inc. Employees’ 401(k) Savings Plan and The Cincinnati Gas & Electric Company Deferred Compensation and Investment Plan.

The PSI Energy, Inc. Employees’ 401(k) Savings Plan was originally adopted effective October 1, 1988 by Public Service Company of Indiana, Inc., as a successor plan to an Employee’s 401(k) Plan adopted as of January 1, 1987.

The Cincinnati Gas & Electric Company instituted the Employee Incentive Thrift Plan in 1967.   Effective as of October 1, 1983, the plan was amended and renamed The Cincinnati Gas & Electric Company Deferred Compensation and Investment Plan.

1.2                          
60;    Applicability of Plan.

The provisions of this Plan as set forth in this document are applicable only to the Employees in current employment on or after January 1, 2003, except as otherwise specifically provided.  Except as so provided, any person who was entitled to benefits under the Plan or a predecessor plan as in effect on December 31, 2002, shall continue to be entitled to the same benefits under this Plan.  The provisions of this amendment and restatement of the Plan are effective as of January 1, 2003 except where an interim effective date for various law changes is otherwise provided.

1.3                          
60;    Purpose of the Plan.

The purpose of the Plan is to provide a convenient way for Participants to save on a regular and long-term basis for retirement and to enable Participants to share in the profitable operations of the Company.

1.4Type of Plan.

The Plan is intended to be an “ERISA Section 404(c) plan” as defined in Department of Labor Regulations Section 2550.404c-1(b) and an “eligible individual account plan” within the meaning of ERISA Section 407(d)(3).  Effective as of January 1, 2002, (i) the portion of the Plan that is held at any one time in the Cinergy Stock Fund is designated as an “employee stock ownership plan” within the meaning of Section 4975(e)(7) of the Code designed to invest primarily in Cinergy Stock and is intended to qualify under Section 401(a) of the Code as a stock bonus plan and (ii) the portion of the Plan that at any one time is not held in the Cinergy Stock Fund is a profit sharing plan for purposes of Section 401(a)(27)(B) of the Code that is intended to qualify under Section 401(a) of the

1

Code and that includes a cash or deferred arrangement intended to qualify under Section 401(k) of the Code.

ARTICLE 2.

DEFINITIONS

2.1                          
60;    Definitions.

Whenever used in the Plan, the following terms, when capitalized, will have the respective meanings set forth below, unless otherwise expressly provided in this document.

(a)“Account” means the separate account maintained for each Member, which represents the Member’s total proportionate interest in the Trust Fund as of any Valuation Date and which consists of the sum of the following subaccounts:

(1)“After-Tax Contributions Account” means that portion of a Member’s Account that evidences the value of the Member’s Employee After-Tax Contributions made pursuant to Section 4.2, including any gains and losses of the Trust Fund attributable thereto;

(2)“Deferred Compensation Contributions Account” means that portion of a Member’s Account that evidences the value of the Deferred Compensation Contributions made on the Member’s behalf by an Employer pursuant to Section 4.1, including any gains and losses of the Trust Fund attributable thereto;

(3)“Employer Match Account” means that portion of a Member’s Account that evidences the value of the matching contributions made to the PSI Energy, Inc. Employees’ 401(k) Savings Plan before January 1, 1992, including any gains and losses of the Trust Fund attributable thereto;

(4)“ESOP Transfer Account” means that portion of a Member’s Account that evidences the value of the Member’s account balance attributable to amounts that the Member elected to have transferred from the Public Service Company of Indiana, Inc. Employee Stock Ownership Plan to the PSI Energy, Inc. Employees’ 401(k) Savings Plan, including any gains or losses of the Trust attributable thereto;

(5)“Matching Contributions Account” means that portion of a Member’s Account that evidences the value of the Employer Matching Contributions made on the Member’s behalf by an Employer pursuant to Section 4.3, including any gains and losses of the Trust Fund attributable thereto;

(6)“Rollover Contributions Account” means that portion of a Member’s Account that evidences the value of any Rollover Contributions made by

2

the Member pursuant to Section 4.7, including any gains and losses of the Trust Fund attributable thereto; and

(7)“Profit Sharing Contributions Account” means that portion of a Member’s Account that evidences the value of any Profit Sharing Contributions made on the Member’s behalf by an Employer pursuant to Section 4.10, including any gains and losses of the Trust Fund attributable thereto.

(b)“Affiliate” means any employer that together with the Employer is under common control or a member of an affiliated service group as determined under Sections 414(b), (c), (m), and (o) of the Code.  In determining whether an employer is a member of a controlled group for purposes of Section 4.6, the rules of Sections 414(b) and (c) of the Code shall be applied as modified by Section 415(h) of the Code.

(c)“Beneficiary” means the person or persons who are to receive benefits under the Plan after a Member’s death.

(d)“Benefits Committee” means the Committee established pursuant to Article 10 to serve as Plan Administrator.

(e)“Board” means the Board of Directors of the Company.

(f)“Change in Control” means any of the following events in paragraphs (1), (2), (3), or (4) below has occurred:

(1)Any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing more than twenty percent (20%) of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a beneficial owner in connection with a transaction described in clause (A) of paragraph (2) below; or

(2)There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, partnership or other entity, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to that merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the combined voting power of the securities of the Company or the surviving entity or its parent outstanding immediately after the merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or  indirectly, of

3

securities of the Company (not including in the securities beneficially owned by such a Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities; or

(3)During any period of two (2) consecutive years, individuals who at the beginning of that period constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election, or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board; or

(4)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to the sale.

(5)For purposes of this subsection 2.1(f), “Person” has the meaning set forth in paragraph 3(a)(9) of the Securities Exchange Act, as modified and used in subsections 13(d) and 14(d) of the Securities Exchange Act; however, a Person will not include the following: (1) the Company or any of its subsidiaries or affiliates; (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates; (3) an underwriter temporarily holding securities pursuant to an offering of those securities; or (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(g)“Cinergy Stock” means Cinergy Corp. common stock.

(h)“Cinergy Stock Fund” means the Investment Fund invested primarily in Cinergy Stock.

(i)“Code” means the Internal Revenue Code of 1986, as amended from time to time, and interpretive rulings and regulations.

4

(j)“Company” means Cinergy Corp., a Delaware corporation, and any corporation that succeeds to its business and adopts the Plan.

(k)“Compensation” means—

(1)for purposes of Sections 4.1, 4.2 and 4.3, the Employee’s “base compensation”.

(2)for purposes of Section 4.4, “compensation” as defined in Section 414(s) of the Code; and

(3)for purposes of Sections 2.1(w) and 4.6, “compensation” as defined in Section 415(c)(3) of the Code.

For purposes of this section, “base compensation” means the Employee’s base rate of pay, exclusive of any allowances, premiums, bonuses, overtime pay, or other forms or types of compensation, for the applicable period.  For Employees paid on an hourly basis, the “base rate of pay” means the Employee’s hourly base rate of pay multiplied by the Employee’s hours worked during the applicable period.  “Base compensation” shall be determined prior to any reductions for Deferred Compensation Contributions and other elective contributions made by the Employer on the Employee’s behalf during or for the Plan Year that are not includable in gross income under Section 125 of the Code, Section 402(e)(3) of the Code, Section 402(h) of the Code, Section 403(b) of the Code or, for Plan Years beginning on or after January 1, 2001, Section 132(f) of the Code.

The Compensation of each Employee that may be taken into account under the Plan for a Plan Year will not exceed $200,000 (as adjusted by the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code).  For purposes of this Subsection 2.1(k), Compensation shall include any elective amounts that are not includible in the gross income of the employee by reason of Section 132(f)(4) of the Code.

(l)“Deferred Compensation Contributions” means the contributions made by an Employer on behalf of a Participant pursuant to the Participant’s election to reduce Compensation as described in Section 4.1.

(m)“Disability” means a physical or mental condition, resulting from injury or disease, that constitutes total disability under the Company’s long-term disability plan.

(n)“Effective Date” means January 1, 2003.

(o)“Eligible Employee” means an Employee on the payroll of an Employer who has attained age 18, who is not a “leased employee” (as defined in Section 3.3), who is not classified by the Employer as a summer laborer or a summer employee, and whose terms and conditions of employment are not governed by a collective bargaining agreement that provides for participation in this Plan.

5

(p)“Employee” means any person who is employed by the Company or an Affiliate, who is classified as an employee by the Company or Affiliate and who receives compensation from the Company or an Affiliate that is initially reported by the Company or the Affiliate on a federal wage and tax statement (Form W–2).

(q)“Employee After-Tax Contributions” means the contributions made by an Employee pursuant to an election as described in Section 4.2.

(r)“Employer” means the Company and any Affiliate that elects to become a party to the Plan, with the approval of the Company, by adopting the Plan for the benefit of its Eligible Employees in the manner described in Article 13.

(s)“Employer Matching Contributions” means the contributions made by an Employer on behalf of a Participant, conditioned on the making of Deferred Compensation Contributions, as described in Section 4.3, and shall consist of—

(1)Employer Base Matching Contributions, as described in Subsection 4.3(a); and

(2)Employer Incentive Matching Contributions, as described in Subsection 4.3(b).

(t)“Employment Commencement Date” means the first day on which an Employee first performs an hour of service as an Eligible Employee or, if applicable, the first day following a severance from service on which an Employee performs an hour of service as an Eligible Employee.  For purposes of this Subsection 2.1(t), the term “hour of service” shall mean, with respect to any Employee, each hour for which the Employee is paid, or entitled to payment, by an Employer for the performance of duties for that Employer.

(u)“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and interpretive rulings and regulations.

(v)“ESOP Feature” means the portion of the Plan that, as described in Section 1.4, has been designated as an “employee stock ownership plan” within the meaning of Section 4975(e)(7) of the Code.

(w)“Highly Compensated Employee” means, with respect to any Plan Year, any Employee who is a 5-percent owner (as defined in Section 416(i)(1) of the Code) during the Plan Year, or during the preceding Plan Year (or such other period as the Company may elect pursuant to Treasury regulations)—

(1)received Compensation from the Employer and all Affiliates in excess of $80,000 (as adjusted pursuant to Section 415(d) of the Code); or

(2)was a 5-percent owner (as defined in Section 416(i)(1) of the Code).

6

(x)“Investment Fund” means any investment fund established by the Plan Administrator as an investment medium for Members’ Accounts in the Trust Fund.  The Investment Funds will include the Cinergy Stock Fund.  The Plan Administrator has the discretion to establish and terminate such Funds as it shall deem appropriate.

(y)“Member” means a Participant, or a former Participant or alternate payee who still has an Account balance in the Plan.

(z)“Participant” means any Employee of an Employer who has met and continues to meet the eligibility requirements of the Plan as set forth in Section 3.1.

(aa)“Plan” means the Cinergy Corp. Non-Union Employees’ 401(k) Plan, as set forth in this document and as subsequently amended from time to time.

(bb)“Plan Administrator” means the entity that has been designated as the “plan administrator” pursuant to Section 10.1.

(cc)“Plan Year” means the 12-consecutive-month period ending each December 31.

(dd)“Profit Sharing Contributions” means those contributions made by an Employer on behalf of a Participant as described in Section 4.10, and shall consist of —

(1)Balanced Profit Sharing Contributions, as described in Subsection 4.10(a); and

(2)Investor Profit Sharing Contributions, as described in Subsection 4.10(b)

(ee)“Retire” means to terminate employment with the Employer and all Affiliates—

(1)after reaching age 65; or

(2)after reaching age 50 and completing five Years of Service.

(ff)“Rollover Contribution” means those contributions made by a Participant as described in Section 4.7.

(gg)“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and interpretive rulings and regulations.

(hh)“Trust Agreement” means any agreement establishing a trust, which forms part of the Plan, to receive, hold, invest, and dispose of the Trust Fund.

(ii)“Trust Fund” means the assets of every kind and description held under the Trust Agreement.

7

(jj)“Trustee” means the corporation, or individual or individuals, or combination thereof, acting as trustee under the Trust Agreement at any time of reference.

(kk)“Valuation Date” means each business day.

(ll)“Years of Service” means, with respect to an Employee, the period of time during which the employment relationship exists between the Employee and the Employer, the length of which is determined as follows:  An Employee will be credited with Years of Service for the period of time beginning with the later of (i) his attainment of age 18 or (b) his Service Commencement Date and ending on his Severance from Service Date and for each Period of Credited Severance.  For purposes of this Subsection 2.1(ll):

(1)“Service Commencement Date” means, with respect to each Employee, the date as of which the Employee is first entitled to be credited with an Hour of Service.

(2)“Hour of Service” means, with respect to any Employee, any of the following:  (A) each hour for which he is paid, or entitled to payment, by an Employer for the performance of duties for that Employer; (B) each other hour for which back pay, irrespective of mitigation of damages, has been either awarded to him or agreed to be paid to him by an Employer; (C) each other hour for which he is absent from his normal period of employment with his Employer due to an approved military leave, maternity leave, paternity leave, adoption leave, worker’s compensation leave, personal leave of six consecutive months or less, sick leave of six consecutive months or less, or total disability qualifying him for benefits under the Company’s Long-Term Disability Plan for a period of no more than twelve months; and (D) each other hour for which he is paid, or entitled to payment, by an Employer for a period of time during which he does not perform any duties for that Employer (irrespective of whether or not his employment relationship with that Employer has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, witness duty, military duty, or leave of absence.  In computing an Hour of Service, the Plan may use the equivalencies set forth in paragraph (e) of 29 C.F.R. §2530.200b–3.  However, if different equivalencies are used for different classifications of Employees, then those classifications must be reasonable and consistently applied.  Each Hour of Service will be credited to the Employee for the appropriate computation period in accordance with the provisions of paragraphs (b) and (c) of 29 C.F.R. §2530.200b–2, and each Hour of Service, when aggregated for a particular computation period, will constitute the Hours of Service credited to the Employee for that computation period.  However, no Employee will be credited under (D) of this Paragraph 2.1(ll)(2) either with more than 501 Hours of Service on account of any single continuous period during which the Employee performs no duties for an Employer irrespective of whether or not that period occurs in a

8

single computation period, or with an hour for which the Employee is paid, or entitled to payment, by an Employer if that payment is made solely for the purposes of either reimbursing the Employee for medical or medically related expenses incurred by the Employee or complying with applicable worker’s compensation, unemployment compensation, or disability insurance laws.  However, the crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in (D) of this Paragraph 2.1(ll)(2) will be subject to the same limitations set forth in the immediately preceding sentence with respect to (D) of this Paragraph 2.1(ll)(2).

(3)“Severance from Service Date” means, with respect to each Employee, the date of his Severance from Service.

(4)“Severance from Service” means, with respect to an Employee:

(A)the date of termination of his employment relationship with his Employer by reason of a quit, resignation, discharge, retirement, death, or layoff of the Employee for an indefinite period of time made without any expectation on the part of the Employer at the time of layoff to recall the Employee, for employment with the Employer as an Employee within 12 months from the date of the commencement of the layoff; or

(B)the first anniversary of the first date of the Employee’s Absence from Service.  Notwithstanding the preceding sentence, if an Employee has an Absence from Service of more than one year by reason of a maternity or paternity absence, the Employee’s Severance from Service occurs on the second anniversary of that absence; provided that the period between the first and second anniversaries of the first day of such Absence from Service is neither a period of service nor a period of severance.  For purposes of this Subparagraph (B), an Absence from Service for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of that individual, (3) by reason of the placement of a child with the individual in connection with the adoption of the child by that individual, or (4) for purposes of caring for the child for a period beginning immediately following its birth or placement.

(5)“Absence from Service” means, with respect to each Employee, his absence from service (with or without pay) with his Employer for any reason other than a quit, resignation, discharge, retirement, or death, including, but without limitation because of enumeration, vacation, holiday, sickness, disability, leave of absence (unless otherwise required by applicable law), or other layoff.

9

(6)“Period of Credited Severance” means, with respect to each Employee who has incurred a Severance from Service, and who, within 12 months of his Severance from Service Date, performs an Hour of Service, the Period of Severance commencing on the Employee’s Severance from Service Date and ending on the date thereafter upon which he first performs an Hour of Service.  In the case of an Employee who has incurred a Severance from Service that occurs during an Absence from Service by reason of a maternity or paternity absence as defined in Subparagraph 2.1(ll)(4)(B), the period between the first and second anniversaries of the first day of absence will not be a Period of Credited Severance.

(7)“Period of Severance” means, with respect to each Employee, the period of time commencing on his Severance from Service Date and ending on the date thereafter upon which he first performs an Hour of Service.

In determining an Employee’s total Years of Service for purposes of the Plan, all periods of employment that are credited to the Employee will be aggregated; subject to the following provisions:  If an Employee who first became an Employee after December 31, 2002 incurs a Severance from Service and is later reemployed by an Employer (or Affiliate), his period of employment prior to his Severance from Service will, subject to all of the provisions of the Plan, be aggregated for the purpose of determining his Years of Service only if the Employee either had been vested in accordance with Section 5.2 at his Severance from Service or if his Period of Severance is less than 60 consecutive months.  If an Employee’s period of employment prior to his Severance from Service is not aggregated pursuant to the immediately preceding sentence, the Years of Service earned for the Employee’s period of employment prior to his Severance from Service shall be disregarded for purposes of determining his Years of Service after his reemployment.

In no event will an Employee receive credit more than once for the same period of employment.

2.2                          
60;    Gender and Number.

Unless the context clearly requires otherwise, the masculine pronoun whenever used will be construed to include the feminine and neuter pronoun, and the singular will be construed to include the plural.

ARTICLE 3.

PARTICIPATION

3.1                          
60;    Participation.

Each Eligible Employee who was a participant in the Plan immediately prior to the Effective Date will remain a Participant on the Effective Date.  Each other Eligible

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Employee shall commence participation in the Plan as of the Eligible Employee’s Employment Commencement Date.

The Eligible Employee shall automatically commence participation in the Plan as of the Eligible Employee’s Employment Commencement Date as to Employee Deferred Compensation Contributions unless the Eligible Employee affirmatively notifies the Plan Administrator, in accordance with procedures established from time to time by the Plan Administrator, that the Eligible Employee does not desire to commence participation in the Plan as to Employee Deferred Compensation Contributions.  Any Eligible Employee who affirmatively elects not to participate in the Plan as of his Employment Commence Date as to Employee Deferred Compensation Contributions may subsequently commence participation in the Plan as to Employee Deferred Compensation Contributions by electing to make Employee Deferred Compensation Contributions.  Any Eligible Employee may elect to make Employee After-Tax Contributions or a Rollover Contribution, pursuant to Article 4.

3.2                          
60;    Duration of Participation.

A Participant shall continue to be a Participant until the Participant terminates employment with all Employers and Affiliates; thereafter, the Participant will be a Member for as long as the Participant has an Account balance in the Plan.

3.3                          
60;    Leased Employees.

A person who is not an Employee of an Employer or nonparticipating Affiliate and who performs services for an Employer or a nonparticipating Affiliate pursuant to an agreement between the Employer or nonparticipating Affiliate and a leasing organization will be considered a “leased employee” if the person performed the services on a substantially full-time basis for a year and the services are performed under the primary direction and control of the Employer or nonparticipating Affiliate.  A person who is considered a “leased employee” of an Employer or nonparticipating Affiliate will not be considered an Employee for purposes of participating in this Plan or receiving any contribution or benefit under this Plan.  A leased employee will be excluded from this Plan regardless of whether the leased employee participates in any plan maintained by the leasing organization.  However, if a leased employee participates in the Plan as a result of subsequent employment with an Employer, the leased employee will receive credit for service for his employment as a leased employee.  Notwithstanding the preceding provisions of this section, a leased employee will be treated as an Employee for purposes of applying the requirements described in Section 414(n)(3) of the Code and for purposes of determining the number and identity of Highly Compensated Employees.

3.4Reclassification.

In the event that any governmental agency or court requires the Company or an Affiliate to reclassify the common law employee or employment status of any independent contractor or otherwise excluded employee under the Plan, the reclassified individual nevertheless shall not be considered an Eligible Employee following such reclassification

11

and, therefore, shall not be entitled to participate in the Plan as a result of the reclassification.  Similarly, in the event that any governmental agency or court otherwise requires the Company or an Affiliate to reclassify the employment status of any individual eligible for participation under the Plan (such as a summer laborer or a summer employee), the reclassified individual nevertheless shall retain his original status for purposes of the Plan following such reclassification and, therefore, shall not be entitled to participate in the Plan in a different manner as a result of the reclassification.

ARTICLE 4.

CONTRIBUTIONS

4.1                          
60;    Deferred Compensation Contributions.

Eligible employees hired on or after January 1, 2001 are automatically enrolled as Participants at a three percent before-tax salary contribution unless they affirmatively elect in accordance with rules established by the Plan Administrator not to enroll or participate.  Each Participant may elect, in accordance with rules established by the Plan Administrator, to reduce the Participant’s Compensation by any percentage up to 50 percent (or such other percentage as prescribed by the Plan Administrator), in increments of one-half percent, and to have the amount by which the Participant’s Compensation is reduced contributed on the Participant’s behalf by the Employer as a Deferred Compensation Contribution to the Plan.  The election will be effective as soon as administratively possible after the date the Employee becomes eligible to participate and notifies the Plan Administrator of the deferral percentage.

A Participant may elect, in accordance with rules established by the Plan Administrator, to increase, decrease, or discontinue the Participant’s Compensation reductions.  Such an election will be effective as soon as administratively possible after receipt of the election by the Plan Administrator and will be effective only with respect to Compensation not yet earned as of the effective date of the election.

The Plan Administrator may adopt rules concerning the administration of this section.  The Deferred Compensation Contributions made on behalf of each Participant shall be paid by each Employer to the Trustee and allocated to the Participant’s Deferred Compensation Contributions Account as soon as practical after the end of the pay period to which the Deferred Compensation Contributions relate, but in no case later than the fifteenth business day of the month following the month in which those amounts would otherwise have been payable to the Participant.  Deferred Compensation Contributions made to the Plan shall initially be allocated to the portion of the Plan that is not comprised of the ESOP Feature.  Thereafter, to the extent that a Member directs the investment of Deferred Compensation Contributions in the Cinergy Stock Fund pursuant to Article 7 of the Plan, such Deferred Compensation Contributions shall be transferred to the ESOP Feature unless and until the Member directs otherwise pursuant to Article 7 of the Plan.

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4.2                          
60;    Employee After-Tax Contributions.

Each Participant may elect, in accordance with rules established by the Plan Administrator, to have Employee After-Tax Contributions made to the Plan in an amount equal to any percentage of the Participant’s Compensation up to 15 percent (or such other percentage as prescribed by the Plan Administrator) in increments of one-half percent.  The election will be effective as soon as administratively possible after the Eligible Employee becomes eligible to participate and notifies the Plan Administrator of the contribution percentage.

A Participant may elect, in accordance with rules established by the Plan Administrator, to increase, decrease, or discontinue the Participant’s Employee After-Tax Contributions. The election will be effective as soon as administratively possible after receipt of the election by the Plan Administrator and will be effective only with respect to Compensation not yet earned as of the effective date of the election.

Once during each Plan Year, a Participant may elect to make an Employee After-Tax Contribution in the form of a lump sum payment by check or money order payable to the Trustee and delivered to the Plan Administrator.

The sum of the Deferred Compensation Contributions and Employee After-Tax Contributions made by or on behalf of an Employee for a Plan Year may be subject to certain limitations determined by the Plan Administrator from time to time.

The Plan Administrator may adopt rules concerning the administration of this section. The Employee After-Tax Contributions made by each Participant shall be paid by each Employer to the Trustee and allocated to the Participant’s After-Tax Contributions Account as soon as practical after the end of the pay period, but in no case later than the fifteenth business day of the month following the month in which those amounts would otherwise have been payable to the Participant.  Employee After-Tax Contributions made to the Plan shall initially be allocated to the portion of the Plan that is not comprised of the ESOP Feature.  Thereafter, to the extent that a Member directs the investment of Employee After-Tax Contributions in the Cinergy Stock Fund pursuant to Article 7 of the Plan, such Employee After-Tax Contributions shall be transferred to the ESOP Feature unless and until the Member directs otherwise pursuant to Article 7 of the Plan.

4.3                          
60;    Matching Contributions.

(a)Base Matching Contributions.  For each pay period, each Employer shall make an Employer Base Matching Contribution on behalf of each Participant equal to (i) 100 percent of the Participant’s Deferred Compensation Contributions with respect to the first 3 percent of the Participant’s Compensation made on the Participant’s behalf for the pay period, plus (ii) 50 percent of the Participant’s Deferred Compensation Contributions with respect to the next 2 percent of the Participant’s Compensation made on the Participant’s behalf for the pay period.

The Employer Base Matching Contributions made on behalf of each Participant shall be paid by each Employer to the Trustee and allocated to the Participant’s

13

Matching Contributions Account as soon as practical after the end of the pay period for which it is made.  The Employer Base Matching Contributions made on behalf of each Participant pursuant to this Subsection 4.3(a) shall be subject to the withdrawal restrictions of Section 401(k)(2)(B) of the Code and Treasury Regulation Section 1.401(k)-1(d).

(b)Incentive Matching Contributions.  In addition to the Employer Base Matching Contribution under (a), for each Plan Year each Employer may make an Employer Incentive Matching Contribution on behalf of each Participant employed on the last day of the Plan Year equal to a percentage (to be specified by the Plan Administrator) of the Deferred Compensation Contributions made on the Participant’s behalf for the Plan Year.  Such percentage shall be determined based on attainment of corporate goals established by the Plan Administrator in its discretion.

The Employer Incentive Matching Contributions made on behalf of each Participant will be paid by each Employer to the Trustee and allocated to the Participant’s Matching Contributions Account as soon as administratively practicable after determining if the corporate goals were achieved and what percentage will be contributed.  Notwithstanding the foregoing provisions of this Subsection 4.3(b), in no event shall the amount of Employer Incentive Matching Contributions made on behalf of each Participant pursuant to this Subsection 4.3(b) exceed 4 percent of the Participant’s Compensation.

(c)Contributions of Cinergy Stock.  Employer Matching Contributions may be made in cash or in shares of Cinergy Stock.  Contributions in shares of Cinergy Stock will be determined by dividing the amount of the Employer Matching Contribution determined under (a) or (b) by the closing price of Cinergy Stock on the New York Stock Exchange for the date the Employer Matching Contributions are made to the Trust.  The Company may use either authorized and unissued shares of Common Stock, treasury shares or shares of Common Stock acquired on the open market, in private transactions or otherwise, or a combination of the foregoing, for purposes of making Employer Matching Contributions.

4.4                          
60;    Limitations on Contributions.

(a)In no event shall any Employer make Deferred Compensation Contributions for any calendar year, with respect to any Participant, in excess of $12,000 (as adjusted by the Secretary of the Treasury to reflect increases in the cost of living). This limit will be applied by aggregating all plans and arrangements maintained by the Company and all Affiliates that provide for elective deferrals (as defined in Section 402(g) of the Code).

If this limit would be exceeded by contributions to this Plan, the Plan Administrator shall distribute the amount of the excess (plus earnings thereon) to the Member.  If this limit would be exceeded by the contribution of excess elective deferrals to this Plan and to the plan of another employer, the Plan

14

Administrator will distribute the amount of the excess (plus earnings thereon) to the Member if the Member provides the Plan Administrator with a written claim requesting a refund of the excess on or before March 1 of the following calendar year.  Excess elective deferrals means elective deferrals (under Section 402(e)(3) of the Code) in excess of the annual limit on elective deferrals in Section 402(g) of the Code.  The Plan Administrator may require additional proof regarding the existence of excess elective deferrals.

A distribution of excess elective deferrals, adjusted for earnings and losses, will be made no later than the April 15 of the calendar year following the calendar year in which the excess elective deferrals were made.

(b)Subject to Section 4.9, in no event will any Employer make Deferred Compensation Contributions for any Plan Year that would cause the actual deferral percentage of the group of Highly Compensated Employees eligible to participate in the Plan to exceed the greater of—

(1)one and one-quarter times the actual deferral percentage of the group of all other eligible Employees for the Plan Year; or

(2)the lesser of—

(A)two times the actual deferral percentage of the group of all other eligible Employees for the Plan Year; or

(B)the actual deferral percentage of the group of all other eligible Employees for the Plan Year plus two percentage points.

The actual deferral percentage of each group of eligible Employees for any Plan Year will be the average of the ratios (calculated separately for each eligible Employee in each group) of—

(i)the Deferred Compensation Contributions made on behalf of each eligible Employee for the Plan Year to

(ii)the eligible Employee’s Compensation (earned while the Employee was eligible to participate in the Plan) for the Plan Year.

To the extent necessary to conform to this limitation, the Plan Administrator shall reduce Deferred Compensation Contributions made on behalf of the Highly Compensated Employees.  The total amount of the reduction will be determined by reducing the deferral ratio of the Highly Compensated Employee with the highest deferral ratio to the higher of the deferral ratio necessary to satisfy the limitation or the deferral ratio of the Highly Compensated Employee with the next highest deferral ratio.  This process will be repeated until the limitation is satisfied.  The reduction so calculated will be allocated to some or all Highly Compensated Employees by reducing the Deferred Compensation Contributions of the Highly Compensated Employee with the highest dollar amount of Deferred

15

Compensation Contributions by the lesser of the total amount of the required reduction or the amount required to cause that Participant’s Deferred Compensation Contributions to equal those of the Highly Compensated Employee with the next highest dollar amount of Deferred Compensation Contributions. This process will be repeated until the entire amount of the reduction has been allocated.

Any reduction in the Deferred Compensation Contributions allocated to any Participant will be refunded to the Participant as soon as administratively possible, as provided in rules adopted by the Plan Administrator (amounts refunded within 2 1/2 months after the Plan Year in which the Deferred Compensation Contributions were made are not subject to excise tax under Section 4979 of the Code).  In no event, however, will the excess contributions be left undistributed any later than the last day of the Plan Year following the Plan Year in which the excess contributions were made.

Deferred Compensation Contributions made under this Plan and all before-tax contributions made under any other plan that is aggregated with this Plan for purposes of Section 401(a)(4) of the Code and Section 410(b) of the Code will be treated as made under a single plan.  The deferral ratio of any Highly Compensated Employee will be determined by treating all plans subject to Section 401(k) of the Code under which the Highly Compensated Employee is eligible as a single plan.

(c)Subject to Section 4.9, in no event will Employee After-Tax Contributions and Employer Matching Contributions for any Plan Year be made that would cause the contribution percentage of the group of Highly Compensated Employees eligible to participate in the Plan to exceed the greater of  —

(1)one and one-quarter times the contribution percentage of the group of all other eligible Employees for the Plan Year; or

(2)the lesser of —

(A)two times the contribution percentage of the group of all other eligible Employees for the Plan Year; or

(B)the contribution percentage of the group of all other eligible Employees for the Plan Year plus two percentage points.

The contribution percentage of each group of eligible Employees for any Plan Year will be the average of the ratios (calculated separately for each eligible Employee in each group) of —

(i)the sum of the Employee After-Tax Contributions and the Employer Matching Contributions made on behalf of each eligible Employee for the Plan Year to

16

(ii)the eligible Employee’s Compensation (earned while the Employee was eligible to participate in the Plan) for the Plan Year.

To the extent necessary to conform to this limitation, the Plan Administrator will reduce and allocate Employee After-Tax Contributions and Employer Matching Contributions made on behalf of the Highly Compensated Employees.  The total amount of the reduction will be determined by reducing the contribution ratio of the Highly Compensated Employee with the highest contribution ratio to the higher of the contribution ratio necessary to satisfy the limitation or the contribution ratio of the Highly Compensated Employee with the next highest contribution ratio.  This process will be repeated until the limitation is satisfied.  The reduction so calculated will be allocated to some or all Highly Compensated Employees by reducing the Employee After-Tax Contributions of the Highly Compensated Employee with the highest dollar amount of Employee After-Tax Contributions and Employer Matching Contributions by the lesser of the total amount of the required reduction or the amount required to cause that Participant’s Employee After-Tax Contributions and Employer Matching Contributions to equal those of the Highly Compensated Employee with the next highest dollar amount of Employee After-Tax Contributions and Employer Matching Contributions.  This process will be repeated until the entire amount of reduction has been allocated.

Any reduction in the Employee After-Tax Contributions and Employer Matching Contributions allocated to any Participant will be refunded to the Participant as soon as administratively possible, as provided in rules adopted by the Plan Administrator (amounts refunded within 2 ½ months after the Plan Year in which the Employee After-Tax Contributions and Employer Matching Contributions were made are not subject to excise tax under Section 4979 of the Code).  In no event, however, will the excess contributions be left undistributed any later than the last day of the Plan Year following the Plan Year in which the excess contributions were made.

All Employee After-Tax and Employer Matching Contributions made under this Plan and all after-tax contributions made under any other plan that is aggregated with this Plan for purposes of Section 401(a)(4) of the Code and Section 410(b) of the Code will be treated as made under a single plan.  If any plan is permissively aggregated with this Plan for purposes of Section 401(m) of the Code, the aggregated plans must also satisfy Section 401(a)(4) of the Code and Section 410(b) of the Code as though they were a single plan.  The contribution percentage ratio of any Highly Compensated Employee will be determined by treating all plans subject to Section 401(m) of the Code under which the Highly Compensated Employee is eligible as a single plan.

(d)For purposes of satisfying the limits on contributions described in this Section 4.4 and Section 4.6, Compensation means an Employee’s compensation as defined in Section 414(s) of the Code.  The Compensation of each Employee that may be taken into account under the Plan will not exceed the first $200,000 of an

17

Employee’s Compensation (as adjusted by the Secretary of the Treasury under Section 401(a)(17) of the Code).

(e)The Plan Administrator may comply with the requirements of this Section by combining contributions under any other defined contribution plan maintained by the Company or any Affiliate.  Any such combination will be done in compliance with the guidelines, if any, established by the Secretary of the Treasury.  To the extent permitted by applicable regulations, the Plan Administrator may elect to take Deferred Compensation Contributions into account in applying the contribution percentage test of Subsection (c).

(f)The Plan Administrator may take such additional action as it considers appropriate to ensure compliance with the requirements of this section.  Such action may include, but is not limited to, reducing the maximum amount of Deferred Compensation Contributions and/or Employee After-Tax Contributions that can be contributed on behalf of or by any group of Highly Compensated Employees.

(g)The Plan will not be treated as complying with the limits in this Section 4.4 if—

(1)the actual deferral percentage of the group of participants who are Highly Compensated Employees only complies with the limits in paragraph 4.4(b)(2);

(2)the contribution percentage of the group of participants who are Highly Compensated Employees only complies with the limit in Subsection (c)(2) above; and

(3)the sum of the actual deferral percentage and contribution percentage of the group of Participants who are Highly Compensated Employees exceed the “Aggregate Limit.”

(h)For purposes of Subsection (g) above, the “Aggregate Limit” means the sum of—

(1)one and one-quarter times the greater of the actual deferral percentage or contribution percentage of the group of all other Participants for the preceding Plan Year; and

(2)the lesser of—

(A)two times the lesser of the actual deferral percentage or contribution percentage of the group of all other Participants for the preceding Plan Year; or

(B)the sum of two percentage points and the lesser of the actual deferral percentage or contribution percentage of the group of all other Participants for the preceding Plan Year.

18

(i)If multiple use of the alternative limitation occurs with respect to two or more plans or arrangements maintained by an Employer, it will be corrected by first reducing the actual deferral percentage, then the actual contribution percentage, and then a combination of these two methods.

4.5                          
60;    Contributions Not Contingent on Profits.

As described in Section 1.4, a portion of this Plan is designated as a profit sharing plan under Section 401(a) of the Code.  However, payment by an Employer of contributions to the Plan will not be contingent upon the existence of current or accumulated profits of the Employer.

4.6                          
60;    Limitations on Annual Account Additions.

(a)Annual Account Addition.  “Annual Account Addition” means for any Participant for any Plan Year, which will also be the limitation year, the sum of—

(1)Employer contributions made for the Participant under any qualified defined contribution plan for the Plan Year (including any amounts refunded to the Participant or forfeited pursuant to Section 4.4);

(2)the Participant’s contributions to any qualified defined contribution plan for the Plan Year;

(3)forfeitures allocated to the Participant under any defined contribution plan for the Plan Year; and

(4)contributions allocated on the Participant’s behalf to any individual medical account within the meaning of Section 415(l)(2) of the Code or attributable to medical benefits allocated to an account established under Section 419A(d) of the Code.

“Any defined contribution plan” means all defined contribution plans of the Company and Affiliates considered as one plan.

A Rollover Contribution pursuant to Section 4.7 will not be included as part of any Participant’s Annual Account Addition.

(b)Limitation.  A Participant’s Annual Account Addition for any Plan Year will not exceed the lesser of—

(1)$30,000 (as adjusted by the Secretary of the Treasury under Section 415(d) of the Code) and, for limitation years beginning on or after January 1, 2002, $40,000 (as adjusted by the Secretary of the Treasury under Section 415(d) of the Code); or

(2)25 percent of the Participant’s Compensation for the Plan Year.

19

(c)Additional Limitation.  If in any Plan Year beginning prior to January 1, 2000, a Participant is covered both under any defined contribution plan and under any defined benefit plan, the sum of the defined benefit plan fraction (as defined in Section 415(e)(2) of the Code) and the defined contribution plan fraction (as defined in Section 415(e)(3) of the Code) for the Plan Year shall not exceed one.  It is intended that the contributions under any defined contribution plan will be reduced to the extent necessary to prevent the sum of those fractions for any Plan Year from exceeding one before reducing benefits payable under any defined benefit plan.  “Any defined benefit plan” means all defined benefit plans of the Company and Affiliates considered as one plan.

(d)Reduction in Annual Account Additions.  If in any Plan Year a Participant’s Annual Account Addition exceeds the limitation determined under Subsection (b) above, the excess will not be allocated to the Participant’s accounts in any defined contribution plan but shall be handled in the following manner and order until the excess is eliminated:

(1)the Participant’s portion of the allocation of Employee After-Tax Contributions or any part thereof will be refunded to the Participant;

(2)the Participant’s portion of the allocation of Profit Sharing Contributions or any part thereof will be placed in a suspense account;

(3)the Participant’s portion of the allocation of Deferred Compensation Contributions or any part thereof will be refunded to the Participant; and

(4)the Participant’s portion of the allocation of Employer Matching Contributions or any part thereof will be placed in a suspense account.

The amount held in a suspense account that is attributable to contributions of an Employer will be used to reduce contributions by that Employer for the next following Plan Year.

A suspense account shall share in the gains and losses of the Trust Fund on the same basis as other Accounts.

The above reductions shall be applied to this Plan first, and thereafter to any other defined contribution plan.

4.7                          
60;    Rollover Contributions.

An Eligible Employee of an Employer may, in accordance with procedures approved by the Plan Administrator, contribute the following amounts to the Plan:

(a)part or all of a distribution or proceeds from a sale of distributed property that qualifies as an “eligible rollover distribution” from a trust described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code, less any amounts considered to be employee after-tax contributions; or

20

(b)a distribution from an individual retirement account or annuity, the entire amount of which is from a source described in (a) above.

Such a contribution must be paid over to the Trustee (or transferred directly from a prior plan) on or before the sixtieth day after receipt by the Eligible Employee of the distribution and shall be held in the trust under this Plan as a completely separate account in the name of the Eligible Employee whose interest is being held.  That account shall be fully vested and nonforfeitable.

4.8                          
60;    Contributions During Period of Military Leave.

Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

4.9ADP/ACP Safe Harbor.

(a)The Plan is intended to satisfy the actual deferral percentage test contained in Section 4.4(b) of the Plan and, with respect to Employer Matching Contributions, the actual contribution percentage test contained in Section 4.4(c) of the Plan, respectively, by meeting the requirements of the design-based safe harbors contained in Section 401(k)(12) and 401(m)(11) of the Code.

(b)If the Plan’s definition of “Compensation” fails to satisfy the nondiscrimination requirements of Treasury Regulation § 1.414(s)-1(d)(3) for a Plan Year, for purposes of this Section 4.9 the amount of the Compensation of each of the Participants described below for the Plan Year shall be increased in incremental and successive amounts under the following leveling method:

(1)The Compensation of the Safe Harbor NHCE with the highest Excluded Bonus Percentage shall be increased by the lesser of the amount necessary for either (A) the Plan’s definition of “Compensation” to pass the nondiscrimination test described in this Section 4.9(b) for the Plan Year or (B) his Excluded Bonus Percentage to equal the Excluded Bonus Percentage of the Safe Harbor NHCE with the next highest Excluded Bonus Percentage; and

(2)The process described in Subsection 4.9(b)(1) shall be repeated until the Plan’s definition of “Compensation” passes the nondiscrimination test described in this Section 4.9(b) for the Plan Year.

(c)Each Safe Harbor NHCE whose Compensation is increased pursuant to Subsection 4.9(b) for a Plan Year will be entitled to an additional Employer Matching Contribution for the Plan Year equal to the excess of:

(1)The Employer Matching Contribution that he would be entitled to receive under Subsection 4.3(a) if the amount of his Deferred Compensation Contributions was deemed to be equal to the product of (A) the percentage

21

determined by dividing the amount of his Deferred Compensation Contributions by his Compensation (as determined without regard to this Section 4.9) multiplied by (B) his Compensation (as recalculated under this Section 4.9), over

(2)The actual amount of Employer Matching Contributions made for him pursuant to Subsection 4.3(a).

(d)For purposes of this Section 4.9, the following terms shall be defined as follows:

(1)The term “Safe Harbor NHCE” shall mean, for any Plan Year, a Participant who received an Employer Matching Contribution pursuant to Subsection 4.3(a) and who is not a Highly Compensated Employee.

(2)The term “Excluded Bonus Percentage” shall mean the percentage equal to (A) the amount of the Participant’s bonus for the Plan Year, to the extent not included in his Compensation, divided by (B) his Compensation for the Plan Year, determined without regard to any compensation exclusions.

(e)For each Plan Year that the Plan satisfies the actual contribution percentage test pursuant to the safe harbor contained in Section 401(m)(11) of the Code, Section 4.4(c) shall apply only with respect to Employee After-Tax Contributions and shall be interpreted accordingly.

4.10Profit Sharing Contributions.

(a)Balanced Profit Sharing Contributions.  Each Employer may, in its discretion, make a Balanced Profit Sharing Contribution to the Plan for a Plan Year in an amount determined by the Company.  Any Balanced Profit Sharing Contribution made by an Employer for a Plan Year shall be allocated among Balanced Program Employees (as defined in Subsection 4.10(c) below) who are employed with the Employer as Balanced Program Employees on the last day of the Plan Year.  The allocable share of each such Balanced Program Employee shall be in the ratio which his Profit Sharing Earnings (as defined in Subsection 4.10(c) below) bears to the aggregate of such Profit Sharing Earnings for all such Balanced Program Employees.

(b)Investor Profit Sharing Contributions.  Each Employer may, in its discretion, make an Investor Profit Sharing Contribution to the Plan for a Plan Year in an amount determined by the Company.  Any Investor Profit Sharing Contribution made by an Employer for a Plan Year shall be allocated among Investor Program Employees (as defined in Subsection 4.10(c) below) who are employed with the Employer as Investor Program Employees on the last day of the Plan Year.  The allocable share of each such Investor Program Employee shall be in the ratio which his Profit Sharing Earnings (as defined in Subsection 4.10(c) below) bears to the aggregate of such Profit Sharing Earnings for all such Investor Program Employees.

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(c)Definitions.

(1)“Balanced Program Employee” means an Eligible Employee who for the Plan Year participates in a defined benefit plan maintained by the Employer and is covered under such defined benefit plan by a cash balance formula described as the “balanced formula” under such defined benefit plan.

(2)“Investor Program Employee” means an Eligible Employee who for the Plan Year participates in a defined benefit plan maintained by the Employer and is covered under such defined benefit plan by a cash balance formula described as the “investor formula” under such defined benefit plan.

(3)“Profit Sharing Earnings” means, with respect to any Employee for any period of reference, the sum of the Employee’s:  (a) Base Salary or Base Wage, (b) Overtime Pay, (c) Shift Premiums, (d) Work Schedule Recognition Pay, (e) Holiday Premiums, (f) Accrued Vacation Pay, (g) Performance Lump Sum Pay, and (h) Annual Performance Cash Awards.  “Earnings” does not include (a) reimbursements or other expense allowances, (b) fringe benefits (cash and noncash) other than those named in the preceding sentence, (c) moving and relocation expenses, (d) deferred compensation, (e) welfare benefits, (f) Long-Term Performance Awards, (g) Executive Individual Incentive Awards, (h) other forms of compensation or remuneration that are not specifically named in the preceding sentence, or (i) any payments received by an Employee from any Affiliate that is not an Employer.  Notwithstanding any other provision of the Plan to the contrary, Profit Sharing Earnings with respect to any period ending prior to the date on which an Employee first became eligible to participate in the allocation of Profit Sharing Contributions shall be disregarded in determining the amount of the Employee’s allocable share.  For purposes of this paragraph (3):

(A)“Base Salary” means, with respect to an Employee whose pay is customarily computed on a salaried basis, and whose employment is not subject to the Fair Labor Standards Act of 1938, as amended from time to time, and interpretive rulings and regulations thereunder (“FLSA”) overtime and recordkeeping provisions (“Exempt Employee”), the monthly base salary received as remuneration for services performed for the relevant period, exclusive of any allowances, premiums, bonuses, overtime, or other forms or types of compensation.

(B)“Base Wage” means, with respect to an Employee whose pay is customarily computed on an hourly, weekly, or bi-weekly basis, and whose employment is subject to FLSA overtime and recordkeeping provisions (“Non-Exempt Employee”), the hourly

23

base rate of pay received as remuneration for services performed for the relevant period, exclusive of any allowances, premiums, bonuses, overtime, or other forms or types of compensation, multiplied by his hours worked during the applicable period.

(C)“Overtime Pay” means, with respect to an Employee, the compensation received as remuneration consistent with the requirements of the FLSA, or for services performed for the relevant period for hours worked beyond the Employee’s regularly scheduled work hours pursuant to the Employer’s applicable policy.

(D)“Shift Premiums” means, with respect to a Non-Exempt Employee, the compensation received as a premium for services performed for the relevant period for working a shift other than the Employer’s regular day shift pursuant to the Employer’s applicable policy.

(E)“Work Schedule Recognition Pay” means, with respect to an Exempt Employee, the compensation received as remuneration for services performed for the relevant period for working a shift other than the Employer’s regular day shift pursuant to the Employer’s applicable policy.

(F)“Holiday Premiums” means, with respect to a Non-Exempt Employee, the compensation received as a premium for services performed for the relevant period for working on a holiday recognized by the Employer pursuant to its applicable policy.

(G)“Accrued Vacation Pay” means, with respect to an Exempt Employee or a Non-Exempt Employee, the compensation received at his severance from service for unused accrued vacation pursuant to the Employer’s applicable policy.

(H)“Performance Lump Sum Pay” means, with respect to an Exempt Employee or a Non-Exempt Employee, the compensation received as remuneration based upon the Employee’s performance when the Employer’s applicable merit pay policy would otherwise preclude a performance based increase.

(I)“Annual Performance Cash Award” means, with respect to an Employee, the cash award received by the Employee under the provisions of an Employer’s annual bonus or incentive pay plan or program, including, but without limitation because of enumeration, the Cinergy Annual Incentive Plan, the Cinergy Non-Union Employees’ Incentive Plan, or any successor plan.

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(J)“Long-Term Performance Awards” means, with respect to an Employee, the cash or stock-based award received by the Employee pursuant to the provisions of an Employer’s long-term bonus or incentive pay plan or program, including, but without limitation because of enumeration, the Cinergy Performance Shares Plan or the Cinergy 1996 Long-Term Incentive Compensation Plan.

(K)“Executive Individual Incentive Awards” means, with respect to an Employee, any cash or stock-based award (other than Annual Performance Cash Awards) received by a Highly Compensated Employee pursuant to the terms of any individualized bonus or incentive pay plan or program, including, but without any limitation because of enumeration, any retention or signing bonus.

(d)Contributions of Cinergy Stock.  Profit Sharing Contributions may be made in cash or in shares of Cinergy Stock.  Contributions in shares of Cinergy Stock will be determined by dividing the amount of the Profit Sharing Contribution determined under (a) or (b) by the closing price of Cinergy Stock on the New York Stock Exchange for the date the Profit Sharing Contributions are made to the Trust.  The Company may use either authorized and unissued shares of Common Stock, treasury shares or shares of Common Stock acquired on the open market, in private transactions or otherwise, or a combination of the foregoing, for purposes of making Profit Sharing Contributions.

ARTICLE 5.

VESTING IN ACCOUNTS

5.1                          
60;    All Accounts Except Profit Sharing Contributions Account.

A Member shall at all times be fully vested and have a nonforfeitable interest in his After-Tax Contributions Account, Deferred Compensation Contributions Account, Employer Match Account, ESOP Transfer Account, Matching Contributions Account and Rollover Contributions Account.

5.2Profit Sharing Contributions Account.

A Member shall be fully vested and have a nonforfeitable interest in his Profit Sharing Contributions Account upon the earlier of (i) completion of three Years of Service or (ii) after reaching age 65 while an Employee.

5.3Forfeitures.

Upon a Member’s termination of employment for any reason, including retirement, death, Disability or other termination of employment, the Member’s Profit Sharing Account shall be distributable as provided in Article 6.  If the value of the vested portion of the Member’s Account is zero, the Member shall be deemed to have received a distribution of

25

his Account as of the Member’s termination of employment.  If the Member receives a distribution of the entire vested portion of his Account or is deemed to have received a distribution, the non-vested portion of the Member’s Profit Sharing Contributions Account shall be forfeited and treated as a forfeiture upon such distribution or deemed distribution.  If the Member does not receive (or is not deemed to have received) a distribution of the entire vested portion of his Account prior to a Period of Severance of five years, the non-vested portion of the Member’s Profit Sharing Account shall be forfeited and treated as a forfeiture upon the Member having a Period of Severance of five years.  Any forfeitures (as adjusted for interim gains or losses) shall be used to reduce the amount of contributions required to be made by the Employer under the Plan (and any such forfeitures shall be allocated in the manner that the contributions that would have been made by the Employer but for this provision would have been allocated) or if the Company elects not to use the forfeitures to reduce the amount of contributions required by the Employer, then to pay expenses incurred in the administration of the Plan.  A Member or former Member who forfeited his Profit Sharing Contributions Account in accordance with this Section 5.3 prior to a Period of Severance of five years and who again becomes an Employee shall have his forfeited amounts (without adjustment for interim gains or losses) recredited to a new Profit Sharing Contributions Account in his name if and only if his Years of Service for the period prior to his termination of employment is aggregated with his Years of Service following reemployment in accordance with Subsection 2.1(ll).

ARTICLE 6.

DISTRIBUTIONS AND WITHDRAWALS

6.1                          
60;    Distribution Upon Retirement, Death, Disability, or Other Termination of Employment.

Upon a Member’s termination of employment for any reason, including retirement, death, Disability or other termination of employment, the vested amount of the Member’s Account will be distributable to the Member, or to the Member’s Beneficiary in case of the Member’s death.  For purposes of the Plan, the Member’s Beneficiary is the surviving spouse and will receive the vested amount of the Member’s Account unless the spouse consents to the designation of another Beneficiary or Beneficiaries as described in Section 14.1.

The Account will be determined as of the Valuation Date coincident with the date of distribution and will be distributed as provided in Sections 6.3 and 6.4 (and, if applicable, Section 5.3).

6.2                          
60;    Commencement of Distributions.

(a)Except as provided in Subsection (f), if a Member did not reach age 70 1/2 before January 1, 1999, the vested portion of the Member’s Account balance will be distributed commencing not later than April 1 of the year following the later of—

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(1)the calendar year in which the Member reaches age 70 1/2; or

(2)the calendar year in which the Member retires.

If a Member reaches age 70 1/2 on or after January 1, 1997, but before January 1, 1999, distribution of the vested portion of the Member’s Account balance must commence by April 1 of the calendar year following the calendar year in which he reaches age 70 1/2 unless he elects to defer commencement of the distribution until a date no later than April 1 of the calendar year following the calendar year in which the Member retires.

(b)If the vested portion of the Member’s Account to be distributed pursuant to Section 6.1 does not exceed $5,000 (or such higher amount as may be permitted under applicable law or regulation), then the distribution will be made as soon as practicable following termination of employment.  If the value of the vested portion of the Member’s Account exceeds $5,000 (or such higher permitted amount), then the distribution will be made as of any Valuation Date elected by the Member, subject to (a) through (g).

(c)A Member who has terminated employment may elect to commence distribution of his Accounts in accordance with rules prescribed by the Plan Administrator. Unless the Member elects otherwise, distribution of the vested portion of a Member’s Account will begin not later than the sixtieth day after the close of the Plan Year in which occurs the latest of—

(1)the Member’s sixty-fifth birthday;

(2)the tenth anniversary of the Plan Year in which the Member began participation in the Plan; or

(3)the Member’s termination of employment with the Employer and all Affiliates.

(d)Except as otherwise provided in Section 6.3, if a Member dies after the Member’s termination of employment but prior to receiving the full distribution of the vested portion of the Member’s Account to which the Member is entitled under this Article 6, any unpaid balance of the vested portion of the Member’s Account at the time of the Member’s death will be distributed to the Member’s Beneficiary in a lump sum, as soon as practicable after the Member’s death.

(e)All distributions under this Plan will be made in accordance with Section 401(a)(9) of the Code.  Provisions of the Plan regarding payment of distributions will be interpreted and applied in accordance with Section 401(a)(9) of the Code and interpretive regulations, including proposed regulation 1.401(a)(9)-2, which will supersede any contrary provisions of the Plan.  With respect to distributions under the Plan made in calendar years beginning on or after January 1, 2002, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) of the Code that

27

were proposed in January 2001, notwithstanding any provision of the Plan to the contrary.  This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Section 401(a)(9) of the Code or such other date specified in guidance published by the Internal Revenue Service.

(f)In the case of a Member who is a “5-percent owner” (as defined in Section 401(a)(9)), in no event may the distribution of the Member’s benefits commence later than April 1 of the calendar year following the year in which the Member attains age 70 1/2, regardless of whether the Member has terminated employment.

(g)Amounts payable under the Plan shall continue to be maintained and adjusted under Sections 8.3 and 8.4 pending payment.

(h)Each Participant shall have the right to elect to receive a distribution of the Participant’s Account commencing not later than one year after the end of the Plan Year (i) during which the Participant terminates employment or he incurs a Disability, or (ii) which is the fifth Plan Year following the Plan Year during which the Participant terminates employment for any other reason unless the Participant is reemployed by an Employer before such time.

6.3                          
60;    Method of Distribution.

(a)General.  Except as otherwise provided in (b), all distributions will be in a lump sum.  Distributions of amounts invested in the Cinergy Stock Fund may be in shares of Cinergy Stock (with fractional shares in cash), if requested by the Member or Beneficiary.  Distributions of all other amounts will be in cash.  Amounts payable under the Plan will continue to be maintained and adjusted under Sections 8.3 and 8.4 pending payment.  Notwithstanding the foregoing, if the charter or bylaws of the Company or an Affiliate restrict the ownership of substantially all outstanding shares of Cinergy Stock to current Employees and the Trust, the distribution of the portion of a Participant’s Account invested in the Cinergy Stock Fund may be made entirely in cash without granting him the right to demand distribution in Cinergy Stock.

(b)Installment Payments.  Each Participant may elect to receive a distribution in substantially equal annual installments over a period not exceeding 10 years.  The period also will not exceed the greater of the Member’s life expectancy or the joint and survivor life expectancy of the Member and the Member’s Beneficiary, as of the date payments commence.  The amount of each payment will be determined by dividing the value of the vested portion of the Member’s Account as of the Valuation Date of the payment by the remaining number of annual installments.

(c)Distributions to Beneficiaries.  If a Member dies after commencement of installment payments, remaining installments will be paid to the Member’s

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Beneficiary.  In lieu of continuing installment payments, the Beneficiary may elect to have the remaining Account balance paid in a lump sum.

If a Member dies prior to commencement of distribution of his Account, and the value of the vested portion of his Account balance exceeds $5,000, the Member’s Beneficiary may elect to receive distribution of the vested portion of the Member’s Account in a lump sum or in annual installments over a period not exceeding the greater of ten years or the Beneficiary’s life expectancy as of the date payments commence.  Benefits will either:

(1)be completely distributed by December 31 of the calendar year containing the fifth anniversary of the Member’s death; or

(2)be paid in annual installments, as described above, commencing on a date elected by the Beneficiary, but not later than—

(A)December 31 of the calendar year in which the Member would have attained age 70 1/2, if the Beneficiary is the Member’s spouse; or

(B)December 31 of the calendar year containing the fifth anniversary of the Member’s death.

The amount of each payment will be determined by dividing the value of the vested portion of the Member’s Account as of the Valuation Date of the payment by the remaining number of installments.

(d)Direct Rollovers.  A Member or a Member’s spouse entitled to a distribution under the Plan, or a Member entitled to a withdrawal distribution under Section 6.6 (and for Plan Years commencing prior to January 1, 2000, Section 6.4), may elect to have all or part of the otherwise taxable portion of the distribution transferred directly from the Trust Fund to an “eligible retirement plan.”

For purposes of this provision, an “eligible retirement plan” means an individual retirement account, an individual retirement annuity other than an endowment contract, or in the case of a Member (but not a Member’s spouse), a defined contribution plan qualified under Section 401(a) of the Code (and funded under a trust that is qualified under Section 501(a) of the Code) that accepts rollover contributions.

This provision shall not apply to any distribution the taxable amount of which is less than $200 or to any other distribution that is not an “eligible rollover distribution” within the meaning of Section 401(a)(31)(C) of the Code.

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6.4                          
60;    Hardship Withdrawals.

A Participant may apply for a hardship withdrawal from the Participant’s Deferred Compensation and Rollover Accounts.  A hardship withdrawal shall only be made if the Plan Administrator determines under nondiscriminatory and objective standards established for that purpose, that the withdrawal is necessary to satisfy one of the following financial needs:

(a)payment of medical expenses described in Section 213(d) of the Code incurred by the Participant, the Participant’s spouse, or any dependents of the Participant and not covered by insurance;

(b)purchase (excluding mortgage payments) of a principal residence of the Participant;

(c)payment of tuition and room and board for the next year of post-secondary education (i.e., education requiring a high school diploma as a prerequisite) for the Participant, or the Participant’s spouse, children, or other dependents;

(d)the need to prevent the eviction of the Participant from the principal residence or foreclosure on the mortgage of the Participant’s principal residence;

(e)funeral expenses of a member of the Participant’s immediate family; and

(f)any other circumstances which the Commissioner to the Internal Revenue Service, through the publication of revenue rulings, notices and other guidance of general applicability, may from time to time designate as a deemed immediate and heavy financial need as provided in Treasury Regulation Section 1.401-1(d)(2)(iv)(C).

The amount necessary to satisfy such a financial need includes an amount necessary to pay income taxes and penalties reasonably anticipated to result from the withdrawal.

A hardship withdrawal will be deemed necessary to satisfy such a financial need if the Plan Administrator determines under nondiscriminatory and objective standards established for that purpose, that the following requirements are met:

(1)the distribution does not exceed the amount of the financial need;

(2)the Participant has previously obtained all other distributions (including dividend distributions, if available, pursuant to Section 14.9(e) of the Plan) and nontaxable loans currently available from the Employer’s plans;

(3)the financial need cannot be satisfied from other sources reasonably available to the Participant, including resources of the Participant’s spouse and minor children;

(4)all plans maintained by the Employer suspend all elective contributions and employee contributions by or on behalf of the Participant for the 12-month period

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(6-month period for distributions following December 31, 2001) following receipt of the hardship distribution; and

(5)For calendar years beginning before January 1, 2002, Deferred Compensation Contributions (if any) made by the Participant for the Plan Year during which the suspension in (4) above ends shall not, when aggregated with Deferred Compensation Contributions in the Plan Year the suspension begins, exceed the limitation imposed under Section 402(g) of the Code.

That portion of a hardship distribution made from the Participant’s Deferred Compensation Contributions Account may be made only from Deferred Compensation Contributions.  Such a distribution may not include any earnings credited to the Deferred Compensation Contributions Account.

No withdrawal may be made from a Participant’s Account in an amount that would cause any outstanding loan to the Participant to violate Subsection 6.5(c).

6.5                          
60;    Loans.

Each Participant, and to the extent required under applicable regulations, each former Participant who is a ‘party-in-interest’ as defined under Section 3(14) of ERISA, may, with the approval of the Plan Administrator, borrow amounts from the Participant’s Deferred Compensation Contributions Account, ESOP Transfer Account, or Rollover Contribution Account.  Approval of loans will be made in accordance with the provisions of this Section and uniform and nondiscriminatory standards and policies adopted and interpreted by the Plan Administrator.

No more than two loans will be outstanding to a Participant at any time.

Each request for a loan will be submitted in a manner prescribed by the Plan Administrator.  Each loan will be made as soon as administratively possible following loan approval.  The Plan Administrator may require that a request for a loan be submitted within a certain period of time prior to a proposed loan date.

Each loan will be secured by a pledge of not more than 50 percent of the vested and nonforfeitable portion of the Participant’s Account.

The terms of the loan will be determined under uniform and nondiscriminatory standards and policies adopted by and interpreted by the Plan Administrator, subject to the following conditions:

(a)The term of a loan will not extend beyond 54 months.

(b)A loan will bear a commercially reasonable rate of interest, which will not be less than the rates being charged at the time a loan is made by entities in the business of making loans of similar type and kind.

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(c)The amount of the loan (when added to the outstanding balance of all other loans to the Participant from the Participant’s Account) will not exceed the lesser of —

(1)$50,000, reduced by the excess (if any) of —

(A)the highest outstanding balance of loans from the Plan during the one-year period ending on the day before the loan was made, over

(B)the outstanding balance of loans from the Plan on the date the loan is made; or

(2)50 percent of the vested and nonforfeitable portion of the Participant’s Account at the relevant time.

(d)A loan will be evidenced by a promissory note, in such form and containing such terms and conditions as the Plan Administrator from time to time directs.

(e)Payments of principal and interest will be made by approximately equal payments on a basis that would permit the loan to be levelly amortized over its term.  Payments by former Participants who are ‘parties-in-interest’ will be made at least quarterly.

(f)Appropriate disclosure will be made pursuant to the Truth in Lending Act to the extent applicable.

(g)Amounts of principal and interest received on a loan will be credited to the Participant’s Account using the Participant’s current investment election, and the outstanding loan balance will be considered an investment of the assets of the Account.

(h)Loans will be made on a pro rata basis from the available funds of each of the Investment Funds in which the Participant’s Account is invested at the time the loan is made.  Repayments will be credited to the Participant’s Account in accordance with the Participant’s investment elections in effect at the time of repayment.

(i)In the event that a distribution under this Article 6 (other than a withdrawal under Section 6.6) becomes payable before the loan is repaid in full, the unpaid principal and interest will become due and payable, and the Plan will first satisfy the indebtedness from the amount in the Participant’s Account before making any payments to the Participant or to a Beneficiary.

(j)Reasonable loan set-up and/or maintenance fees may be charged to the Member’s Account with respect to each loan made to the Member by the Plan, as established by the Plan Administrator.

(k)Payroll deductions used to repay a Participant’s loan may not be discontinued by the Participant except upon order of a federal Bankruptcy Court having

32

jurisdiction over the Participant.  Any defaulted loan will be considered outstanding to the Participant for all purposes until the loan is repaid in full.

The Plan Administrator may establish other nondiscriminatory rules relating to loans made under this section.

In the exercise of the discretion conferred upon the Plan Administrator in this section, all Participants under similar circumstances will be treated alike, and the provisions of this Section will not be utilized in any manner to discriminate in favor of Highly Compensated Employees.

6.6                          
60;    Other Withdrawals Prior to Termination of Employment.

(a)Withdrawals At or After Age 59 1/2.  A Participant who has attained age 59 1/2 may withdraw any or all of the vested portion of the balance in his Account in accordance with procedures established by the Plan Administrator.  Such withdrawals shall be made in a lump sum and will be elected in accordance with rules established for that purpose by the Plan Administrator.

No withdrawal will be made under this Section in an amount that would cause any outstanding loan to the Participant to violate Section 6.5.

(b)Withdrawals of After-Tax Contributions.  A Participant may elect to withdraw any or all of the balance in the Participant’s Employee After-Tax Contributions Account in accordance with procedures established by the Plan Administrator.  Withdrawals shall be made in a lump sum and shall be elected in accordance with rules established for such purpose by the Plan Administrator.

6.7                          
60;    Withholding Taxes.

An Employer may withhold from a Member’s compensation and the Trustee may withhold from any payment under this Plan any taxes required to be withheld with respect to contributions or benefits under this Plan and such sum as the Employer or Trustee may reasonably estimate as necessary to cover any taxes for which they may be liable and that may be assessed with respect to contributions or benefits under this Plan.

ARTICLE 7.

INVESTMENT ELECTIONS

7.1                          
60;    After-Tax, Deferred Compensation, Employer Match, ESOP Transfer, and Rollover Contribution Accounts.

(a)Investment of Contributions.  Each Participant may elect to have the After-Tax, Deferred Compensation, and Rollover Contributions made on the Participant’s behalf invested in any one or more of the Investment Funds in accordance with procedures established by the Plan Administrator.

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(b)Investment Transfers.  Each Member may elect as of any date to have the assets in the Member’s ESOP Transfer, Employer Match, After-Tax, Deferred Compensation, and Rollover Contributions Accounts reallocated among the Investment Funds in accordance with procedures established by the Plan Administrator.

(c)Investment Elections.  Each Participant may make the elections described in Subsection (a) by making an election with the Plan Administrator upon becoming a Participant; provided, however, that each Participant who commences participation as of his Employment Commencement Date will have his Deferred Compensation Contributions automatically deposited in one or more Investment Funds selected by the Plan Administrator and in accordance with procedures established by the Plan Administrator.

(d)Transfer of Assets.  The Plan Administrator shall cause the transfer of moneys or other property from the appropriate Investment Fund to the other Investment Fund as may be necessary to carry out the aggregate transfer transactions elected by the Members, in accordance with uniform rules therefor established by the Plan Administrator.

(e)Investments in the Cinergy Stock Fund.  The Company may use either authorized and unissued shares of Cinergy Stock, treasury shares or shares of Cinergy Stock acquired on the open market, in private transactions or otherwise, or a combination of the foregoing, for purposes of effecting a Member’s election to invest the Member’s ESOP Transfer, Employer Match, After-Tax, Deferred Compensation, and Rollover Contributions.

(f)Initial Allocation of Deferred Compensation Contributions and Employee After-Tax Contributions.  Deferred Compensation Contributions and Employee After-Tax Contributions shall initially be allocated to the portion of the Plan that is not comprised of the ESOP Feature.  Thereafter, to the extent that a Member directs the investment of such contributions into the Cinergy Stock Fund pursuant to Article 7 of the Plan, such contributions shall be transferred to the ESOP Feature unless and until the Member directs otherwise pursuant to Article 7 of the Plan.

7.2Matching Contributions Account and Profit Sharing Contributions Account.

(a)Investment of Contributions.  Employer Matching Contributions and Profit Sharing Contributions made to the Participant’s Accounts shall be invested in the Cinergy Stock Fund.

(b)Investment Transfers.  Except as otherwise provided in this section, assets in the Member’s Matching Contributions Account and Profit Sharing Contributions Account will remain invested in the Cinergy Stock Fund until distributed under Article 6, and may not be reallocated among the Investment Funds.  A Member who has attained age 50 may reallocate assets in the Matching Contributions

34

Account and Profit Sharing Contributions Account among the Investment Funds, in accordance with the provisions of Subsection 7.1(b).  Without limitation with respect to the immediately preceding sentence, a Member may reallocate the assets in the Profit Sharing Account attributable to Profit Sharing Contributions (as adjusted for earnings and losses) that have been invested in the Cinergy Stock Fund for a period of at least three years among the Investment Funds, in accordance with the provisions of Subsection 7.1(b).

7.3                          
60;    Voting and Other Rights with Respect to Cinergy Stock.

(a)General.  Each Member having an interest in the Cinergy Stock Fund shall have the right to direct the manner in which shares of Cinergy Stock held in such Fund shall be voted, and direct the manner in which all other rights appurtenant to such shares shall be exercised, as if the Member was the shareholder of record.

(b)Provision of Information.  Prior to each annual or special shareholders’ meeting at which Cinergy Stock has voting rights, the Trustee shall cause to be furnished to each Member with an interest in the Cinergy Stock Fund a copy of the proxy solicitation materials with respect to the meeting.  The Trustee shall use its best efforts to timely distribute to each Member all information to be distributed to shareholders in connection with any tender or exchange offer with respect to Cinergy Stock.  The materials and/or information shall include any forms and instructions as may be necessary for the Member to direct the manner of voting on each matter to be brought before a meeting or to direct a response to a tender or exchange offer.

(c)Voting or Tender of Shares.  Subject to the requirements of ERISA, the Trustee shall vote or tender Cinergy Stock corresponding to the interest of the Member in the Cinergy Stock Fund in accordance with the Member’s directions issued in accordance with the instructions provided under (b).  The Trustee shall vote or tender any Cinergy Stock with respect to which directions are not issued under this Section in the manner determined by the Trustee in the Trustee’s discretion.

ARTICLE 8.

ACCOUNTS AND RECORDS OF THE PLAN

8.1                          
60;    Accounts and Records.

The Accounts and records of the Plan shall be maintained by the Plan Administrator and shall accurately disclose the status of the Accounts of each Member or each Member’s Beneficiary in the Plan.

Each Member shall be advised from time to time, at least once quarterly during each Plan Year, as to the status of the Member’s Account.

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8.2                          
60;    Trust Fund.

Each Member shall have an undivided proportionate interest in the Trust Fund, which shall be measured by the proportion that the market value of the Member’s Account bears to the total market value of all Accounts as of the date that the interest is being determined.

8.3                          
60;    Valuation and Allocation of Expenses.

As of each Valuation Date, the Trustee shall determine the fair market value of the Trust Fund after first deducting any expenses that have not been paid by the Employers.  Unless paid by the Employers and subject to such limitations as may be imposed by applicable law, all costs and expenses incurred in connection with the general administration of the Plan and the Trust shall be chargeable to the Trust Fund.

8.4                          
60;    Allocation of Earnings and Losses.

As of each Valuation Date, the Plan Administrator, with the assistance of the Trustee, shall allocate the net earnings and gains or losses of each Investment Fund of the Trust Fund since the preceding Valuation Date to each Member’s Account in the same proportion that the market value of the Member’s Account in the Investment Fund bears to the total market value of all Members’ Accounts in the Investment Fund; and, for this purpose, the Plan Administrator shall adopt uniform rules that conform to applicable law and generally accepted accounting practices.  The foregoing shall not apply to the loan fund, which shall be accounted for separately so that interest on a Participant’s loan is credited solely to the Participant’s Account.

ARTICLE 9.

FINANCING

9.1                          
60;    Financing.

The Company shall enter into a Trust Agreement to implement and carry out the provisions of the Plan and to finance the benefits under the Plan.  All rights that may accrue to any person under the Plan shall be subject to all the terms and provisions of the Trust Agreement.  The Company may modify the Trust Agreement in accordance with the terms of that Agreement from time to time to accomplish the purposes of the Plan.

9.2                          
60;    Contributions.

The Employers shall make such contributions to the Trust Fund as are required by the provisions of the Plan, subject to the right of the Company to amend, modify, or terminate the Plan.

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9.3                          
60;    Nonreversion.

No Employer shall have any right, title, or interest in the contributions made to the Trust Fund, and no part of the Trust Fund shall revert to any Employer, except that if a contribution is made to the Trust Fund by an Employer by a mistake of fact, then the contribution may be returned to the Employer within one year after the payment of the contribution; and if any part or all of a contribution is disallowed as a deduction under Section 404 of the Code, then to the extent the contribution is disallowed as a deduction it may be returned to the Employer within one year after the disallowance.

9.4                          
60;    Rights in the Trust Fund.

Persons eligible for benefits under the Plan are entitled to look only to the Trust Fund for the payment of those benefits and have no claim against any Employer, the Plan Administrator, or any other person.  No person has any right or interest in the Trust Fund except as expressly provided in the Plan.

ARTICLE 10.

ADMINISTRATION

10.1Plan Administrator and Fiduciary.

The Benefits Committee will be the Plan Administrator of the Plan within the meaning of Section 3(16)(A) of ERISA, a fiduciary with respect to the Plan within the meaning of Sections 3(21)(A)(i) and (iii) of ERISA, and the named fiduciary under Section 402 of ERISA.  The Benefits Committee will consist of the number of members, not fewer than three, that is specified from time to time by the Board.  All members of the Benefits Committee will be Employees or officers of an Employer.

10.2Removal and Replacement of Benefits Committee Members.

The members of the Benefits Committee will serve at the pleasure of the Board and may be removed by the Board with or without cause.  Any vacancy among the members will be filled by the Board.  A Benefits Committee member will be deemed to be removed as of the date on which the Benefits Committee member becomes disqualified from membership on the Benefits Committee.  A member of the Benefits Committee may resign by delivering his written resignation to any other member of the Benefits Committee.  A resignation will become effective on the date specified in the instrument of resignation.

10.3Compensation and Expenses.

All reasonable expenses incurred in the administration of the Plan will be paid from the Trust Fund to the extent not elected to be paid by the Employers.  Such expenses will include any expenses incident to the administration of the Plan, including, but not limited to, fees of accountants, counsel, and other specialists.

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10.4Delegation of Duties and Employment of Specialists.

The Benefits Committee may designate any person, subcommittee, or other entity to carry out any of its responsibilities under the Plan, in which case every reference herein made to the Benefits Committee will be deemed to mean or include the designee(s) as to matters within the designee’s jurisdiction.  Any such designation will be in writing and will be kept with the records of the Plan.  The Benefits Committee or its designee may authorize one or more of its members or any agent to execute or deliver any instrument or instruments on its behalf, and may employ such counsel, auditors, and other specialists, and such clerical, medical, actuarial, and other services as may be required to carry out the provisions of the Plan.  Those expenses shall be paid by the Trust to the extent not paid by the Employers.

10.5Administration.

The Benefits Committee shall be responsible for the administration of the Plan.  The Benefits Committee will have all powers necessary to carry out the provisions of the Plan and may, from time to time, establish rules for the administration of the Plan and the transaction of the Plan’s business.  In making any such determination or rule, the Benefits Committee will pursue uniform policies as from time to time established by the Benefits Committee and will not discriminate in favor of or against any Member.  The Benefits Committee will have the exclusive right to make any finding of fact necessary or appropriate for any purpose under the Plan including, but not limited to, the determination of the eligibility for and the amount of any benefit payable under the Plan. The Benefits Committee will have discretionary authority to interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan or in connection with Plan administration, including, without limitation, the right to remedy or resolve possible ambiguities, inconsistencies, or omissions, by general rule or particular decision.  In exercising its rights under this Section to make findings of fact under the Plan, interpret the terms and provisions of the Plan, and determine all questions arising under the Plan or in connection with Plan administration, the Benefits Committee will be granted the fullest discretion permitted by law.  The Benefits Committee will make, or cause to be made, all reports or other filings necessary to meet both the reporting and disclosure requirements and other filing requirements of ERISA that are the responsibility of “plan administrators” under ERISA.  To the extent permitted by law, all findings of fact, determinations, interpretations, and decisions of the Benefits Committee will be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan.  Notwithstanding any provision of the Plan to the contrary, during any conversion period, in accordance with procedures established by the Plan Administrator, the Plan Administrator may temporarily suspend, in whole or in part, certain provisions of the Plan, which may include, but are not limited to, a Participant’s right to change his contribution election, a Member’s right to change his investment election and a Member’s right to borrow or withdraw from his Account or obtain a distribution for his Account.

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10.6No Enlargement of Employee Rights.

Nothing contained in the Plan will be deemed to give any Employee the right to be retained in the service of an Employer or to interfere with the right of an Employer to discipline or discharge any Employee at any time.

10.7Appeals from Denial of Claims.

Claims for benefits under the Plan will be made in writing to the Plan Administrator or its designee.  If any claim for benefits under the Plan, or request for loan or hardship distribution under the Plan, is wholly or partially denied, the claimant will be given notice of the denial in writing within a reasonable period of time not to exceed 90 days after receipt of the claim, unless special circumstances require an extension of time for processing, in which case notification will be rendered as soon as possible, but not later than 180 days after the claim’s receipt.  If an extension of time for processing is required, written notice of the extension will be furnished to the claimant prior to the termination of the initial period.  The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render final notification.  Notice of the denial will be written in a manner calculated to be understood by the claimant and will include the following information:

(a)the specific reasons for the denial;

(b)specific reference to pertinent Plan provisions on which the denial is based;

(c)a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why that material or information is necessary; and

(d)an explanation of the Plan’s claim review procedure.

Within 60 days after the claimant’s receipt of written notice of the claim’s denial, the claimant, or his duly authorized representative, may file a written request with the Benefits Committee requesting a full and fair review of the denial of the claimant’s claim for benefits.  In connection with the claimant’s appeal of the denial of his claim for benefits, the claimant may review pertinent documents in the Benefit Committee’s possession and may submit issues and comments in writing.  The Benefits Committee will make a decision on review promptly, but not later than the date of the meeting of the Benefits Committee that immediately follows the receipt of the claimant’s request for review, unless the request for review is filed within 30 days before the date of that meeting.  In that case, a decision will be made as soon as possible but not later than the date of the second Benefits Committee meeting following receipt of the request for review.  If special circumstances require a further extension of time for processing, a decision will be rendered not later than the third Benefits Committee meeting following receipt of the claimant’s request for review.  If an extension of time for review is required because of special circumstances, written notice of the extension will be sent to the claimant before the extension commences.  The extension notice will indicate the special circumstances requiring an extension of time and the date by which the Benefits

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Committee expects to render the final decision.  The decision on review will be in writing and written in a manner calculated to be understood by the claimant, and will set forth the specific reason or reasons for the decision and will contain specific references to the pertinent Plan provisions on which the decision is based.  If the decision on review is not furnished to the claimant within 60 days of receipt of the request for review, or within 120 days after its receipt if special circumstances required an extension of time, the claim will be deemed denied on review.

10.8Notice of Address and Missing Persons.

Each person entitled to benefits under the Plan must file with the Plan Administrator, in writing, the person’s post office address and each change of post office address.  Any communication, statement, or notice addressed to such a person at the latest reported post office address will be binding upon the person for all purposes of the Plan, and neither the Plan Administrator nor the Employers or Trustee shall be obliged to search for or ascertain the person’s whereabouts.  In the event that the person cannot be located, the Plan Administrator may direct that the benefit and all further benefits with respect to that person shall be discontinued, all liability for the payment thereof shall terminate and the balance in such Member’s Account shall be deemed a forfeiture; provided, however, that in the event of the subsequent reappearance of the Member or Beneficiary prior to termination of the Plan, the benefits that were due and payable and that the person missed shall be paid in a single sum and the future benefits due the person shall be reinstated in full.

10.9Data and Information for Benefits.

All persons claiming benefits under the Plan must furnish to the Plan Administrator or its designated agent such documents, evidence, or information as the Plan Administrator or its designated agent considers necessary or desirable for the purpose of administering the Plan; and a person must furnish such information promptly and sign such documents as the Plan Administrator or its designated agent may require before any benefits become payable under the Plan.

10.10Indemnity for Liability.

The Company shall indemnify each member of the Benefits Committee and each other individual who is directed by the Company to carry out responsibilities and duties imposed by the Plan against any and all claims, losses, damages, and expenses, including counsel fees, incurred by the individual and any liability, including any amounts paid in settlement with the Company’s approval, arising from the individual’s action or failure to act, except when the same is judicially determined to be attributable to the gross negligence or willful misconduct of that individual.  The Company shall pay the premiums on any bond secured under this Section and shall be entitled to reimbursement by the other Employers for their proportionate share.

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10.11Effect of a Mistake.

In the event of a mistake or misstatement as to the eligibility, participation, or service of any Member, or the amount of payments made or to be made to a Member or Beneficiary, the Plan Administrator shall, if possible, cause to be withheld or accelerated or otherwise make adjustment of such amounts of payments as will in its sole judgment result in the Member or Beneficiary receiving the proper amount of payments under this Plan.

ARTICLE 11.

AMENDMENT AND TERMINATION

11.1Amendment and Termination.

(a)The Company reserves the right to alter, amend, revoke, or terminate the Plan at any time.  The Board shall generally have the authority to adopt amendments; however, the Benefits Committee or the compensation committee of the Board may adopt any amendment to ensure the continued qualification of the Plan and Trust Fund under Sections 401(a) and 501(a) of the Code, to comply with the provisions of any federal statute or regulation impacting pension plans, to enhance the delivery of benefits to Members and Beneficiaries, to ease Plan administration, or to respond to the withdrawal of any Employer from the Plan. Notwithstanding the preceding sentence, no amendment by the Benefits Committee or the compensation committee of the Board shall substantially increase the cost of the Plan without the Board’s consent.  The Board, or any person or persons duly authorized by the Board, shall also have the right, authority, and power to terminate the Plan and to discontinue or suspend contributions to the Plan.

(b)While each Employer contemplates carrying out the provisions of the Plan indefinitely with respect to its Employees, no Employer shall be under any obligation or liability whatsoever to maintain the Plan for any minimum or other period of time.

(c)Upon any termination of the Plan in its entirety, or with respect to any Employer, the Company shall give written notice thereof to the Trustee and any Employer involved.

(d)Except as provided by law, upon any termination of the Plan, no Employer with respect to whom the Plan is terminated (including the Company) shall thereafter be under any obligation, liability, or responsibility whatsoever to make any contribution or payment to the Trust Fund, the Plan, any Member, any Beneficiary, or any other person, trust, or fund whatsoever, for any purpose whatsoever under or in connection with the Plan.

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11.2Limitations on Amendments.

The provisions of this Article are subject to and limited by the following restrictions:

(a)No amendment will operate either directly or indirectly to give any Employer any interest whatsoever in any funds or property held by the Trustee under the terms of this Plan or the Trust Agreement, or to permit the corpus or income of the Trust to be used for or diverted to purposes other than the exclusive benefit of Members or their Beneficiaries.

(b)No such amendment will operate either directly or indirectly to deprive any Member of any portion of the Member’s vested and nonforfeitable interest or right to any “Section 411(d)(6) protected benefit” (as defined in Treasury regulation Section 1.411(d)–4) as of the time of such amendment.

(c)No amendment will modify the vesting provisions of Article 5 unless the conditions of Section 411(a)(10) of the Code and Section 11.4 are met.

11.3Effect of Bankruptcy and Other Contingencies Affecting an Employer.

In the event an Employer terminates its connection with the Plan, or in the event an Employer is dissolved, liquidated, or is by appropriate legal proceedings adjudged a bankrupt, or in the event judicial proceedings of any kind result in the involuntary dissolution of an Employer, the Plan shall be terminated with respect to that Employer. The merger, consolidation, or reorganization of an Employer, or the sale by it of all or substantially all of its assets, shall not terminate the Plan if there is delivery to that Employer by the Employer’s successor or by the purchaser of all or substantially all of the Employer’s assets, of a written instrument requesting that the successor or purchaser be substituted for the Employer and agreeing to perform all the provisions of this Plan that the Employer is required to perform.  Upon the receipt of that instrument, with the approval of the Company, the successor, or the purchaser will be substituted for that Employer under this Plan, and that Employer shall be relieved and released from any obligations of any kind, character, or description imposed upon it under the Plan or the Trust Agreement.

11.4Amendment of Vesting Schedule.

If the Plan is amended to provide a different vesting schedule, each person adversely affected—

(a)who is a Participant during the election period below; and

(b)who has completed at least three years of service

may elect to have the amendment disregarded in determining the vested percentage of the Participant’s Account.  That election must be in writing and delivered to the Plan Administrator within the election period.  Upon delivery, the Participant’s election will be

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irrevocable.  The election period begins on the date the amendment is adopted and ends 60 days after the latest of the date—

(a)the amendment is adopted;

(b)the amendment becomes effective; or

(c)the Plan Administrator delivers a written notice of the amendment to the Participant.

No amendment to the Plan’s vesting schedule may decrease the vesting that any Member has earned as of the date of the amendment.

ARTICLE 12.

TOP-HEAVY PROVISIONS

12.1Application of Top-Heavy Provisions.

(a)Single Plan Determination.  Except as provided in Subsection (b)(2), if as of a Determination Date, the sum of the amount of the Section 416 Accounts of Key Employees and the Beneficiaries of deceased Key Employees exceeds 60 percent of the amount of the Section 416 Accounts of all Employees and Beneficiaries (excluding former Key Employees), the Plan is top-heavy, and the provisions of this Article will become applicable.

(b)Aggregation Group Determination.

(1)If as of a Determination Date this Plan is part of an Aggregation Group that is top-heavy, the provisions of this Article will become applicable. Top-heaviness for the purpose of this Subsection shall be determined with respect to the Aggregation Group in the same manner as described in Subsection (a) above.

(2)If this Plan is top-heavy under Subsection (a), but the Aggregation Group is not top-heavy, the Plan will not be top-heavy, and this Article will not apply.

(c)Calculations.  The Plan Administrator will have responsibility to make all calculations to determine whether this Plan is top-heavy.

12.2Definitions.

(a)“Aggregation Group” means this Plan and all other plans maintained by the Employers and nonparticipating Affiliates that cover a Key Employee and any other plan that enables a plan covering a Key Employee to meet the requirements of Section 401(a)(4) of the Code or Section 410 of the Code.  In addition, at the election of the Plan Administrator, the Aggregation Group may be expanded to

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include any other qualified plan maintained by an Employer or nonparticipating Affiliate if the expanded Aggregation Group meets the requirements of Section 401(a)(4) of the Code and Section 410 of the Code.

(b)“Compensation” means the Member’s compensation, salaries, and other amounts received for personal services rendered in the course of employment with Employers and nonparticipating Affiliates, including those items described in Treasury regulation 1.415–2(d)(1) and, for Plan Years commencing on or after January 1, 2001, amounts not includable in gross income under Section 132(f) of the Code.  The annual Compensation of each Member that may be taken into account under the Plan shall not exceed the first $160,000 (as adjusted by the Secretary of the Treasury under Section 401(a)(17)).

(c)“Determination Date” means the last day of the Plan Year immediately preceding the Plan Year for which top-heaviness is to be determined or, in the case of the first Plan Year of a new plan, the last day of that Plan Year.

(d)“Key Employee” means a Member who is a “key employee,” as defined in Section 416(i) of the Code.  Any Employee who is not a Key Employee shall be a “non-Key employee” for purposes of applying this Article 12.

(e)“Section 416 Account” means—

(1)the amount credited as of a Determination Date to a Member’s or Beneficiary’s account, under the Plan and under any other qualified defined contribution plan that is part of an Aggregation Group (including amounts to be credited as of the Determination Date but that have not yet been contributed);

(2)the present value of the accrued benefit credited to a Member or Beneficiary under a qualified defined benefit plan that is part of an Aggregation Group; and

(3)the amount of distributions to the Member or Beneficiary during the five-year period ending on the Determination Date other than a distribution that is a tax-free Rollover Contribution (or similar transfer) that is not initiated by the Member or that is contributed to a plan that is maintained by an Employer or nonparticipating Affiliate;

reduced by—

(4)the amount of Rollover Contributions (or similar transfers) and earnings thereon credited as of a Determination Date under the Plan or a plan forming part of an Aggregation Group that is attributable to a Rollover Contribution (or similar transfer) accepted after December 31, 1983, initiated by the Member and derived from a plan not maintained by an Employer or nonparticipating Affiliate.

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The Account of a Member who was a Key Employee and who subsequently meets none of the conditions of Subsection (c) for the Plan Year containing the Determination Date is not a Section 416 Account and will be excluded from all computations under this Article. If a Member has not performed any services for an Employer or nonparticipating Affiliate during the five-year period ending on the Determination Date, any account of that Member (and any accrued benefit for that Member) will not be taken into account in computing top-heaviness under this Article.

12.3Minimum Contribution.

(a)General.  If this Plan is determined to be top-heavy under the provisions of Section 12.1 with respect to a Plan Year, the sum of Employer contributions (excluding Employer Matching Contributions and Tax-Deferred Contributions) and forfeitures under all qualified defined contribution plans allocated to the accounts of each Member in the Aggregation Group who is not a Key Employee and is an Employee on the last day of the Plan Year will not be less than 3 percent of the Member’s Compensation.

(b)Exception.  The contribution rate specified in Subsection (a) will not exceed the percentage at which Employer contributions and forfeitures are allocated under the plans of the Aggregation Group to the account of the Key Employee for whom that percentage is the highest for the Plan Year.  For the purpose of this Subsection (b), the percentage for each Key Employee shall be determined by dividing the Employer contributions (excluding Employer Matching Contributions and Tax-Deferred Contributions) and forfeitures for the Key Employee by the amount of the Key Employee’s Compensation for the year.

(c)Multiple Plans.  If this Plan is determined to be top-heavy under the provisions of Section 12.1 with respect to a Plan Year, any Member who is a non-Key Employee covered under this Plan and under a defined benefit plan maintained by the Employers and nonparticipating Affiliates will receive a minimum contribution determined by substituting 5 percent for 3 percent in applying the provisions of Subsection (a).  However, no minimum contribution under this Section will be allocable to any non-Key Employee who participates in a defined benefit plan maintained by an Employer or nonparticipating Affiliate and who receives the minimum benefit described in Section 416(c)(1) of the Code under the defined benefit plan.

12.4Limit on Annual Additions: Combined Plan Limit.

(a)General.  If this Plan is determined to be top-heavy under Section 12.1, Section 4.6 of this Plan will be applied by substituting 1.0 for 1.25 in applying the provisions of Section 415(e)(2) and (e)(3) of the Code.

The transitional rule of Section 415(e)(6)(B)(i) of the Code will be applied by substituting “$41,500” for “$51,875.”

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(b)Exception.  Subsection (a) will not apply if this Plan would not be top-heavy if “90 percent” is substituted for “60 percent” in Section 12.1, but in that case—

(1)Subsection 12.3(a) will be applied by substituting “4 percent” for “3 percent”; and

(2)Subsection 12.3(c) will be applied by substituting “7.5 percent” for “5 percent.”

(c)Transitional Rule.  If, but for this Subsection (c), Subsection (a) would begin to apply with respect to the Plan, the application of Subsection (a) shall be suspended with respect to a Member so long as there are—

(1)no Employer contributions, forfeitures, or voluntary nondeductible contributions allocated to the Member, and

(2)no accruals under a qualified defined benefit plan for the Member.

(d)Applicability.  Notwithstanding any provision of the Plan to the contrary, this Subsection 12.4 shall apply only in a Plan Year beginning prior to January 1, 2000.

12.5Collective Bargaining Agreements.

The requirements of Sections 12.3 and 12.4 will not apply with respect to any Employee included in a unit of Employees covered by a collective bargaining agreement between Employee representatives and an Employer or nonparticipating Affiliate if retirement benefits were the subject of good faith bargaining between the Employee representatives and the Employer or nonparticipating Affiliate.

ARTICLE 13.

PARTICIPATION IN AND WITHDRAWAL FROM THE PLAN BY AN EMPLOYER

13.1Adoption of the Plan.

With the Company’s consent, any Affiliate may become an Employer under the Plan and may elect by—

(a)taking appropriate action to adopt the Plan;

(b)filing with the Company a duly certified copy of the Plan as adopted by the Affiliate;

(c)becoming a party to the trust agreement establishing the Trust Fund; and

(d)executing and delivering documents and taking any other action as may be necessary or desirable to put the Plan into effect with respect to it.

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13.2Withdrawal from Participation.

Any Employer may, with the Company’s consent, withdraw from participation in the Plan at any time by filing with the Company a duly certified copy of a resolution of its board of directors to that effect and giving notice of its intended withdrawal to the Company and the Trustee prior to the effective date of withdrawal.  Distribution may be implemented through continuation of the Trust Fund, or transfer to another trust fund exempt from tax under Section 501 of the Code, or to a group annuity contract qualified under Section 401 of the Code, or distribution may be made as an immediate cash payment in accordance with the directions of the Plan Administrator; provided, however, that no such action shall divert any part of the fund to any purpose other than the exclusive benefit of the Employees of that Employer.

13.3Company as Agent for Employers.

Each Affiliate that becomes a participating Employer pursuant to Section 13.1 by doing so will be deemed to have appointed the Company its agent to exercise on its behalf all of the powers and authorities conferred upon the Company by the terms of the Plan, including, but not limited to, the power to amend and terminate the Plan.  The Company’s authority to act as agent will continue unless and until that portion of the Trust Fund held for the benefit of Employees of the particular Employer and their beneficiaries are transferred or distributed pursuant to Section 13.2.  Each Employer will, from time to time, upon the Company’s request, furnish to the Company any data and information as the Company requires in the performance of its duties.

ARTICLE 14.

MISCELLANEOUS

14.1Beneficiary Designation.

(a)Each Member may designate, on a form provided for that purpose by the Plan Administrator, a Beneficiary (which may be an entity other than a natural person) or Beneficiaries to receive the Member’s vested interest in the Plan in the event of the Member’s death, but the designation will not be effective for any purpose until it has been filed by the Member during the Member’s lifetime with the Plan Administrator.  The Member may, from time to time during the Member’s lifetime, on a form approved by and filed with the Plan Administrator, change the Member’s Beneficiary or Beneficiaries.

(b)The Beneficiary of each Member who is married will be the Member’s surviving spouse, unless that spouse consents in writing to the designation of another Beneficiary or Beneficiaries.  The consent must specifically acknowledge the identity of the nonspousal Beneficiary, or must specifically acknowledge and waive the right to limit the consent to a specific Beneficiary.  Each married Member may, from time to time, change the Member’s designation of Beneficiaries; provided, however, that the Member may not change the Member’s

47

Beneficiary without the written consent of the Member’s spouse, unless the spouse’s prior consent expressly permits designations by the Member without any requirement of further consent by the spouse.  The consent of a Member’s spouse will be irrevocable unless and until the Member changes the Member’s designation of Beneficiaries.  Upon the divorce of a Member and the Member’s spouse, any designation of the spouse as the Member’s Beneficiary will be deemed to be revoked.

(c)In the event that a Member fails to designate a Beneficiary, or if for any reason his designation is legally ineffective, or if all designated Beneficiaries predecease the Member or die simultaneously with the Member, distribution will be made to the Member’s spouse; or if none, to the Member’s children in equal shares; or if none, to the Member’s parents in equal shares; or if none, to the Member’s estate. If any such Beneficiary dies before receiving the distribution that would have been made to the Beneficiary had the Beneficiary not died, then, for the purposes of the Plan, the distribution that would have been received by the Beneficiary will be made to the Beneficiary’s estate.

(d)The written consent described in Subsection (b) must acknowledge the effect of the election and must be witnessed by a notary public.

14.2Facility of Payment.

If any benefit under the Plan is payable to a person whom the Plan Administrator knows is a minor or otherwise under legal incapacity, the Plan Administrator or its designee may have the payment made to the legal guardian of that person or to such person or organization as a court of competent jurisdiction may direct.  To the extent permitted by law, any payment made under this Section shall be a complete discharge of any liability under the Plan to that person.

14.3Nonalienation.

Except as provided in Section 401(a)(13) of the Code, neither benefits payable at any time under the Plan nor the corpus or income of the Trust Fund will be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, attachment, garnishment, levy, execution, or other legal or equitable process or encumbrance of any kind.  No payee may assign any payment due him under the Plan.  Any attempt to alienate, sell, transfer, assign, pledge, or otherwise encumber any such benefit, whether presently or thereafter payable, will be void.  The Trust Fund will not in any manner be liable for, or subject to, the debts or liabilities of any Member, Beneficiary, or any other person entitled to any benefit.  However, the payment of benefits will be made in accordance with the applicable requirements of any qualified domestic relation order, as defined in Section 414(p) of the Code.  The Plan Administrator will establish procedures to determine whether domestic relations orders are “qualified domestic relations orders” and to administer distributions under qualified domestic relations orders.

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In the event that a qualified domestic relations order provides for the payment of all or a portion of a Member’s Accounts to an alternate payee, distribution to the alternate payee may be made at any time specified in the order, irrespective of whether the Member has reached the earliest retirement age, as defined in Section 414(p) of the Code.  In the event that a qualified domestic relations order provides for the immediate payment of all or a portion of a Member’s Accounts to an alternate payee, distribution will be made pursuant to the order as soon as administratively feasible following the Plan Administrator’s determination that the order is a qualified domestic relations order.

14.4Applicable Law.

The Plan and all rights hereunder shall be governed by and construed in accordance with the laws of the State of Ohio to the extent those laws have not been preempted by applicable federal law.

14.5Sev erability.

If a provision of this Plan will be held illegal or invalid, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included in this Plan.

14.6No Guarantee.

Neither the Plan Administrator, the Company, the Employers, nor the Trustee in any way guarantees the Trust Fund from loss or depreciation nor the payment of any money that may be or become due to any person from the Trust Fund.  Nothing contained in this Plan will be deemed to give any Participant, Member, or Beneficiary an interest in any specific part of the Trust Fund or any other interest except the right to receive benefits out of the Trust Fund in accordance with the provisions of the Plan and the Trust Agreement.

14.7Merger, Consolidation, or Transfer.

In the case of any merger or consolidation with, or transfer of assets and liabilities to any other plan, provisions will be made so that each Member will receive a benefit immediately after the merger, consolidation, or transfer (if the Plan had then terminated) that is equal to or greater than the benefit the Member would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated).

14.8Internal Revenue Service Approval.

The Company intends to obtain a ruling or rulings by the District Director of Internal Revenue that—

(a)the Plan, as in effect from time to time, with respect to all Employers, meets the requirements of Section 401(a) of the Code; and

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(b)any and all contributions made by the Employers under the Plan are deductible for income tax purposes under Section 404(a) of the Code or any other applicable provisions of the Code.

14.9Special ESOP Provisions.

(a)Right of First Refusal.

At any time at which Cinergy Stock ceases to be publicly traded within the meaning of Treasury Regulation Section 54.4975-7(b)(1)(iv), all shares held under the ESOP Feature distributed by the Trustee may, as determined by the Plan Administrator, be subject to a “right of first refusal.”  Such a “right” shall provide that prior to any subsequent transfer, the shares must first be offered in writing to the Trust, and then, if refused by the Trust, to the Company.  In the event that the proposed transfer constitutes a gift or other such transfer at less than fair market value, the price per share shall be the fair market value determined as of the Valuation Date coinciding with or immediately preceding the date offered to the Trust, or in the event of a proposed purchase by a prospective bona fide purchaser other than an Affiliate, the offer to the Trustee and the Company shall be at the greater of fair market value determined as of the Valuation Date coinciding with or immediately preceding the date offered to the Trust or at the price offered to be paid by the prospective bona fide purchaser; provided, however, that in the case of a purchase by the Trust from a disqualified person (as defined in Section 4975 of the Code) the price per share shall be determined as of the date of the purchase; and, provided, further, that the Trust shall not purchase any shares when the purchase price of such shares is in excess of fair market value.  The Trust or the Company, as the case may be, may accept the offer at any time during a period not exceeding fourteen days after receipt of such offer.  The right of first refusal shall lapse fourteen days after the security holder gives written notice to the Trust of its right of first refusal with respect to the shares.

(b)Put Option.

At any time at which Cinergy Stock held under the ESOP Feature has ceased to be readily tradeable on an established securities market, a Participant or Beneficiary shall be granted at any such time that such shares are distributed to him, an option to “put” such shares to the Company; provided, however, that the Trust shall have the option to assume the rights and obligations of the Company at the time the “put” option is exercised.  Such “put” option shall provide that, for a period of 60 days (excluding any period during which the Company is prohibited from honoring the “put” option by applicable federal or state law) after such shares are distributed by the Trustee to a Participant or Beneficiary, the Participant or Beneficiary shall have the right to have the Company purchase such shares at their fair market value, and if the “put” option is not exercised within such 60-day period, it may be exercised within an additional period of 60 days during the Plan Year next commencing after the date such shares were distributed by the Trustee.  For purposes of this Section, fair market value shall be based on

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the fair market value determined as of the Valuation Date coinciding with or immediately preceding the date of exercise.  Such “put” option shall be exercised by notifying the Company in writing.  The terms of payment for the purchase of such shares shall be reasonable.  In the case of deferral of payment, adequate security and a reasonable rate of interest shall be provided for any credit extended, and cumulative payments as of any given date shall be no less than the aggregate of reasonable periodic payments as of such date.  Periodic payments shall be considered reasonable if annual installments, commencing within 30 days after the “put” is exercised, are substantially equal and if the payment period extends for not more than five years after the date the “put” is exercised; provided, however, that such period may be extended to a date no later than the earlier of ten years from the date the “put” is exercised or the date the proceeds of any loan used to acquire the shares subject to the “put” are entirely repaid.

(c)Other Options.

Except as otherwise provided in this Section, no person may be required to sell shares held under the ESOP Feature to the Company, nor may the Trust enter into an agreement which obligates the Trust to purchase such shares at an indefinite time determined upon the happening of an event such as the death of a shareholder.

(d)Nonterminable Protections and Rights.

Except as provided in this Section or as otherwise required by applicable law, no share held under the ESOP Feature may be subject to a put, call, or other option, or buy-sell or similar arrangement while held by or when distributed from the Trust, whether or not the ESOP Feature ceases to be an employee stock ownership plan.  Moreover, if the Trustee holds or distributes any shares held under the ESOP Feature which are not readily tradeable on an established securities market when distributed or which cease to be so tradeable within the otherwise applicable “put” option periods, and the ESOP Feature ceases to be an employee stock ownership plan or the loan that financed the purchase of such shares is repaid, the “put” option described above shall be nonterminable with respect to such shares; provided, however, that in the case of such shares ceasing to be so tradeable within the otherwise applicable “put” option periods, the Company shall notify each distributee described above who is then holding any such shares in writing on or before the tenth day after the date the shares cease to be so tradeable that for the remainder of such period or periods such shares are subject to a “put” option and the terms thereof, all as set forth above; and, provided, further, that the number of days between such tenth day and the date of which notice is actually given, if later than on the tenth day, shall be added to the duration of the “put” option.

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(e)Dividend Distributions.

If so determined by the Plan Administrator, and in accordance with procedures established by the Plan Administrator, any cash dividends payable on shares held in the Cinergy Stock Fund attributable to the Accounts of Members and Beneficiaries may be paid currently, or within ninety (90) days after the end of the Plan Year in which the dividends are paid to the Trust, in cash to the Members and Beneficiaries on a nondiscriminatory basis, or such dividends may be paid directly to the Members and Beneficiaries, or the dividends may be paid to the Plan and reinvested in the Cinergy Stock Fund.  If the Plan Administrator so determines, each Member or Beneficiary to whom Cinergy Stock is attributable to their Accounts on the record date for such dividend shall have the right to elect whether such dividends (1) will be paid in cash to the Member or Beneficiary, or (2) will remain in the Member’s or Beneficiary’s Account and be reinvested in Cinergy Stock through the Cinergy Stock Fund.

(f)Special ESOP Valuation.

At any time at which Cinergy Stock held under the ESOP Feature has ceased to be readily tradeable on an established securities market, valuation of such Cinergy Stock with respect to activities carried on by the Plan shall be by an independent appraiser in accordance with Section 401(a)(28)(C) of the Code.

14.10Electronic Media.

Notwithstanding any provision of the Plan to the contrary, including any provision which requires the use of a written instrument, to the extent permitted by applicable law, the Plan Administrator may establish procedures for the use of electronic media in communications and transactions between the Plan or the Plan Administrator and Participants and Beneficiaries.  Electronic media may include, but are not limited to, e-mail, the Internet, intranet systems and automated telephonic response systems.

* * * * * * * * * *

In Witness Whereof, Cinergy Corp. has caused this instrument to be executed by its duly authorized officer on this 20th day of December, 2002.

CINERGY CORP.
By:
	Timothy J. Verhagen
	Vice President
	Human Resources

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CINERGY CORP. NON-UNION
EMPLOYEES’ 401(K) PLAN

(Effective as of January 1, 2003)

ADDENDUMEGTRRA AND 401(a)(9) MODEL PROVISIONS

PREAMBLE

1.  Adoption and Effective Date of Addendum.  This Addendum to the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”).  This Addendum is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder.  Except as otherwise provided, this Addendum shall be effective as of the first day of the first Plan Year beginning after December 31, 2001.

2.  Supersession of Inconsistent Provisions.  This Addendum shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Addendum.

SECTION 1.  LIMITATIONS ON CONTRIBUTIONS

1.  Effective Date.  This section shall be effective for limitation years beginning after December 31, 2001.

2.  Maximum Annual Addition.  Except to the extent permitted under section 9 of this Addendum and Section 414(v) of the Code, if applicable, the annual addition that may be contributed or allocated to a Participant’s Account under the Plan for any limitation year shall not exceed the lesser of:

(a)$40,000, as adjusted for increases in the cost-of-living under Section 415(d) of the Code, or

(b)100 percent of the Participant’s compensation, within the meaning of Section 415(c)(3) of the Code, for the limitation year.

The compensation limit referred to in (b) shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition.

SECTION 2.  INCREASE IN COMPENSATION LIMIT

The annual compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code.  Annual compensation means compensation during the Plan Year or such other consecutive 12–month period over which compensation is otherwise determined under the Plan (the determination

1

period).  The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year.

SECTION 3.  MODIFICATION OF TOP-HEAVY RULES

1.  Effective Date.  This section shall apply for purposes of determining whether the Plan is a top-heavy plan under Section 416(g) of the Code for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years.  This section amends Article 12 of the Plan.

2.  Determination of Top-heavy Status.

2.1  Key Employee.  Key Employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the Determination Date was an officer of an Employer or Affiliate having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of an Employer or Affiliate, or a 1-percent owner of an Employer or Affiliate having annual compensation of more than $150,000.  For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code.  The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

2.2  Determination of Present Values and Amounts.  This section 2.2 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the Determination Date.

2.2.1.  Distributions During Year Ending On the Determination Date.  The present values of accrued benefits and the amounts of account balances of an employee as of the Determination Date shall be increased by the distributions made with respect to the employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date.  The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code.  In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “5–year period” for “1–year period.”

2.2.2  Employees Not Performing Services During Year Ending On the Determination Date.  The accrued benefits and accounts of any individual who has not performed services for the Employer and Affiliates during the 1–year period ending on the Determination Date shall not be taken into account.

3.  Minimum Benefits.

3.1  Matching Contributions.  Employer Matching Contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan.  The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan.  Employer Matching Contributions that are used to satisfy the

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minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code.

3.2  Contributions Under Other Plans.  No minimum contribution made under the Plan will be allocable to any non-key Employee who participates in a defined benefit plan maintained by an Employer or nonparticipating Affiliate and who receives the minimum benefit described in Section 416(c)(1) of the Code under the defined benefit plan.

SECTION 4.  DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS

1.  Effective Date.  This section shall apply to distributions made after December 31, 2001.

2.  Modification of Definition of Eligible Retirement Plan.  For purposes of the direct rollover provisions in Section 6.3(d) of the Plan, an eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan.  The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code.

3.  Modification of Definition of Eligible Rollover Distribution to Exclude Hardship Distributions.  For purposes of the direct rollover provisions in Section 6.3(d) of the Plan, any amount that is distributed on account of hardship shall not be an eligible rollover distribution and the distributee may not elect to have any portion of such a distribution paid directly to an eligible retirement plan.

4.  Modification of Definition of Eligible Rollover Distribution to Include After-tax Employee Contributions.  For purposes of the direct rollover provisions in Section 6.3(d) of the Plan, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income.  However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

SECTION 5.  ROLLOVERS FROM OTHER PLANS

The Plan will accept participant rollover contributions and/or direct rollovers of distributions made after December 31, 2001, from the types of plans specified below, beginning January 1, 2003:

Direct Rollovers:

The Plan will accept a direct rollover of an eligible rollover distribution from: (1) a qualified plan described in Section 401(a) or 403(a) of the Code, excluding after-tax employee contributions,

3

(2) a qualified plan described in Section 401(a) or 403(a) of the Code, including after-tax employee contributions, (3) an annuity contract described in Section 403(b) of the Code, excluding after-tax employee contributions and (4) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.

Participant Rollover Contributions from Other Plans:

The Plan will accept a participant contribution of an eligible rollover distribution from:  (1) a qualified plan described in Section 401(a) or 403(a) of the Code, (2) an annuity contract described in Section 403(b) of the Code, and (3) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.

Participant Rollover Contributions from IRAs:

The Plan will accept a participant rollover contribution of the portion of a distribution from an individual retirement account or annuity described in Section 408(a) or 408(b) of the Code that is eligible to be rolled over and would otherwise be includible in gross income.

SECTION 6.  ROLLOVERS DISREGARDED IN INVOLUNTARY CASH-OUTS

1.  Applicability and effective date. This section shall be effective with respect to distributions made after December 31, 2002.

2.  Rollovers disregarded in determining value of account balance for involuntary distributions. For purposes of Subsection 6.2 of the Plan, the value of a participant’s nonforfeitable account balance shall be determined without regard to that portion of the account balance that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code.  If the value of the participant’s nonforfeitable account balance as so determined is $5,000 or less, the Plan shall immediately distribute the participant’s entire nonforfeitable account balance.

SECTION 7.  REPEAL OF MULTIPLE USE TEST

The multiple use test described in Treasury Regulation Section 1.401(m)-2 and Section 4.4(g)-(i) of the Plan shall not apply for Plan Years beginning after December 31, 2001.

SECTION 8.  ELECTIVE DEFERRALS — CONTRIBUTION LIMITATION

No Participant shall be permitted to have elective deferrals made under this Plan, or any other qualified plan maintained by the Employer or any Affiliate during any taxable year, in excess of the dollar limitation contained in Section 402(g) of the Code in effect for such taxable year, except to the extent permitted under Section 9 of this Addendum and Section 414(v) of the Code, if applicable.

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SECTION 9.  CATCH-UP CONTRIBUTIONS

1.  Catch-up Contributions.  This section shall apply to contributions after December 31, 2001.  All employees who are eligible to make elective deferrals under this Plan and who would attain age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code.  Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Sections 402(g) and 415 of the Code.  The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such catch-up contributions.

2.  No Matching of Catch-up Contributions.  Employer Matching Contributions shall not be made with respect to catch-up contributions.

SECTION 10.  SUSPENSION PERIOD FOLLOWING HARDSHIP DISTRIBUTION

1.  Suspension Period.  A Participant who receives a distribution of elective deferrals after December 31, 2001, on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans of the Employer or any Affiliate for 6 months after receipt of the distribution.  A Participant who receives a distribution of elective deferrals in calendar year 2001 on account of hardship shall be prohibited from making elective deferrals and employee contributions under this and all other plans of the Employer or any Affiliate for 6 months after receipt of the distribution or until January 1, 2002, if later.

2.  Deferral Limit After Suspension.  For calendar years beginning after December 31, 2001, a Participant who receives a distribution of elective deferrals after December 31, 2000, on account of hardship shall be limited in making elective deferrals following the suspension period as provided by Section 402(g) of the Code, without regard to the further limitation of Treasury Regulation Section 1.401(k)-1(d)(2)(iv)(B)(3).

SECTION 11.  DISTRIBUTION UPON SEVERANCE FROM EMPLOYMENT

1.  Effective Date.  This section shall apply for distributions and severances from employment occurring after December 31, 2001, regardless of when the severance from employment occurred.

2.  New Distributable Event.  A Participant’s elective deferrals, qualified nonelective contributions, qualified matching contributions, and earnings attributable to these contributions shall be distributed on account of the Participant’s severance from employment.  However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed.

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SECTION 12.  MINIMUM DISTRIBUTION REQUIREMENTS.

Minimum Distribution Requirements Article.

Section 1.  General Rules.

1.1.  Effective Date.  The provisions of this article will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

1.2.  Precedence.  The requirements of this article will take precedence over any inconsistent provisions of the Plan.

1.3.  Requirements of Treasury Regulations Incorporated.  All distributions required under this article will be determined and made in accordance with the Treasury regulations under Section 401(a)(9) of the Code.

1.4.  TEFRA Section 242(b)(2) Elections.  Notwithstanding the other provisions of this article, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to section 242(b)(2) of TEFRA.

Section 2.  Time and Manner of Distribution.

2.1.  Required Beginning Date.  The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.

2.2.  Death of Participant Before Distributions Begin.  If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(a)  If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, then, except as provided in section 2.2(e) below, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later.

(b)  If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, then, except as provided in section 2.2(e) below, distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(c)  If there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(d)  If the Participant’s surviving spouse is the Participant’s sole designated beneficiary and the surviving spouse dies after the Participant but before distributions to the

6

surviving spouse begin, this section 2.2, other than section 2.2(a), will apply as if the surviving spouse were the Participant.

(e)  If the Participant dies before distributions begin and there is a designated beneficiary, distribution to the designated beneficiary is not required to begin by the date specified in the foregoing provisions of this section 2.2, but the Participant’s entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.  If the Participant’s surviving spouse is the Participant’s sole designated beneficiary and the surviving spouse dies after the Participant but before distributions to either the Participant or the surviving spouse begin, the immediately preceding sentence will apply as if the surviving spouse were the Participant.  Participants or beneficiaries may elect on an individual basis whether the 5-year rule or the life expectancy rule in sections 2.2 and 4.2 of this article applies to distributions after the death of a Participant who has a designated beneficiary.  The election must be made no later than the earlier of September 30 of the calendar year in which distribution would otherwise be required to begin under this section 2.2, or by September 30 of the calendar year which contains the fifth anniversary of the Participant’s (or, if applicable, surviving spouse’s) death.  If neither the Participant nor beneficiary makes an election under this paragraph, distributions will be made in accordance with the foregoing provisions of this section 2.2 and section 4.2 of this article.

For purposes of this section 2.2 and section 4, unless section 2.2(d) applies, distributions are considered to begin on the Participant’s required beginning date.  If section 2.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under section 2.2(a).  If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under section 2.2(a)), the date distributions are considered to begin is the date distributions actually commence.

2.3.  Forms of Distribution.  Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with sections 3 and 4 of this article.  If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury regulations.

Section 3.  Required Minimum Distributions During Participant’s Lifetime.

3.1.  Amount of Required Minimum Distribution For Each Distribution Calendar Year.  During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(a)  the quotient obtained by dividing the Participant’s account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

7

(b)  if the Participant’s sole designated beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

3.2.  Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death.  Required minimum distributions will be determined under this section 3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

Section 4.  Required Minimum Distributions After Participant’s Death.

4.1.  Death On or After Date Distributions Begin.

(a)  Participant Survived by Designated Beneficiary.  If the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated beneficiary, determined as follows:

(1)  The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(2)  If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year.  For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(3)  If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(b)  No Designated Beneficiary.  If the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

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4.2.  Death Before Date Distributions Begin.

(a)  Participant Survived by Designated Beneficiary.  Except as provided in section 2.2(e), if the Participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s designated beneficiary, determined as provided in section 4.1.

(b)  No Designated Beneficiary.  If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(c)  Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin.  If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under section 2.2(a), this section 4.2 will apply as if the surviving spouse were the Participant.

Section 5.  Definitions.

5.1.  Designated Beneficiary.  The individual who is designated as the Beneficiary under Section 14.1 of the Plan and is the designated beneficiary under Section 401(a)(9) of the Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.

5.2.  Distribution Calendar Year.  A calendar year for which a minimum distribution is required.  For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date.  For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under section 2.2.  The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s required beginning date.  The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

5.3.  Life Expectancy.  Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury regulations.

5.4.  Participant’s Account Balance.  The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date.  The account balance for the valuation calendar year includes any amounts rolled over or transferred to the

9

Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

5.5.  Required Beginning Date.  The date specified in Section 6.2(a) of the Plan.

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EX-21

Exhibit 21

Subsidiaries of Cinergy Corp., CG&E, and PSI

As of January 31, 2002, the following is a listing of the subsidiaries of each registrant in which Cinergy Corp. has a greater than 10% ownership interest in and their state or country of incorporation or organization indented to show degree of remoteness from registrant.

Name of Company	State or Country of Organization or Incorporation
(Indentation indicates subsidiary relationship)
Cinergy Corp.(1)	Delaware
Cinergy Services, Inc.	Delaware
The Cincinnati Gas & Electric Company(1)	Ohio
Cinergy Power Investments, Inc.	Ohio
CPI Allowance Management, LLC	Delaware
CPI Investments, LLC	Delaware
The Union Light, Heat and Power Company(1)	Kentucky
Tri-State Improvement Company	Ohio
Lawrenceburg Gas Company	Indiana
Miami Power Corporation	Indiana
KO Transmission Company	Kentucky
PSI Energy, Inc.(1)	Indiana
South Construction Company, Inc.	Indiana
Cinergy Investments, Inc.	Delaware
Cinergy-Cadence, Inc.	Indiana
Cadence Network, Inc.	Delaware
Cinergy Capital & Trading, Inc.	Indiana
Brownsville Power I, LLC	Delaware
Caledonia Power I, LLC	Delaware
CinCap - Chippewa, LLC	Delaware
CinCap - Martinsville, LLC	Delaware
CinCap - Oraville, LLC	Delaware
CinCap VIII, LLC	Delaware
CinCap VII, LLC	Delaware
CinCap Madison, LLC	Delaware
CinCap IX, LLC	Delaware
CinCap X, LLC	Delaware
CinPower I, LLC	Delaware
Cinergy Canada, Inc.	Canada
Cinergy Limited Holdings, LLC	Delaware
Cinergy General Holdings, LLC	Delaware
Cinergy Marketing & Trading, LP	Delaware
Ohio River Valley Propane, LLC	Delaware
Cinergy Retail Power Limited, Inc.	Delaware
Cinergy Retail Power General, Inc.	Texas
Cinergy Retail Power, L.P.	Delaware
CinFuel Resources, Inc.	Delaware
LH1, LLC	Delaware
Oak Mountain Products, LLC	Delaware
Cinergy Transportation, LLC	Delaware
SYNCAP II, LLC	Delaware

(1) Companies indicated are registrants with the Securities and Exchange Commission.

Cinergy Telecommunications Holding Company, Inc.	Delaware
Q-Comm Corporation	Nevada
QCC, Inc.	Nevada
Cinergy Communications Company	Kentucky
Kentucky Data Link, Inc.	Kentucky
Cinergy Telecommunication Networks – Indiana, Inc.	Indiana
Cinergy Telecommunication Networks – Kentucky, Inc.	Kentucky
Cinergy Telecommunication Networks – Ohio, Inc.	Ohio
Indianapolis Data Link, Inc.	Indiana
Lexington Data Link, Inc.	Kentucky
Louisville Data Link, Inc.	Kentucky
Cincinnati Data Link, Inc.	Ohio
Chattanooga Data Link, Inc.	Tennessee
Knoxville Data Link, Inc.	Tennessee
Memphis Data Link, Inc.	Tennessee
Nashville Data Link, Inc.	Tennessee
Lattice Communications, LLC	Delaware
LB Tower Company, LLC	Delaware
Cinergy Engineering, Inc.	Ohio
Cinergy-Centrus, Inc.	Delaware
Cinergy-Centrus Communications, Inc.	Delaware
Cinergy Solutions Holding Company, Inc.	Delaware
1388368 Ontario Inc.	Canada
3036243 Nova Scotia Company	Canada
Cinergy Solutions Limited Partnership	Canada
Vestar, Inc.	Delaware
Vestar Limited	Canada
Keen Rose Technology Group Limited	Canada
Optimira Controls, Inc.	Canada
Cinergy EPCOM, LLC	Delaware
Cinergy EPCOM College Park, LLC	Delaware
Cinergy Solutions, Inc.	Delaware
BSPE Holdings, LLC	Delaware
BSPE Limited, LLC	Delaware
BSPE General, LLC	Texas
BSPE, L.P.	Delaware
Cinergy Energy Solutions, Inc.	Delaware
U.S. Energy Biogas Corporation	Delaware
Biogas Financial Corporation	Connecticut
Biomass Energy Partners I, LP	Connecticut
ZFC Energy, Inc.	Delaware
Barre Landfill Gas Associates L.P.	Delaware
Biomass Energy Partners III, L.P.	Delaware
Power Generation (Suffolk), Inc.	Delaware
Suffolk Energy Partners, L.P.	Virginia
Suffolk Biogas, Inc.	Delaware
Taylor Energy Partners, L.P.	Pennsylvania
Lafayette Energy Partners, L.P.	New Jersey
Biomass New Jersey L.L.C.	New Jersey
Brown County Energy Associates, LLC	Delaware
Barre Energy Partners, L.P.	Delaware
Burlington Energy, Inc.	Vermont
Cape May Energy Associates, L.P.	Delaware
Dunbarton Energy Partners, LP	New Hampshire
Garland Energy Development, LLC	Delaware
Oceanside Energy, Inc.	New York
Onondaga Energy Partners, L.P.	New York

Oyster Bay Energy Partners, L.P.	New York
Resources Generating Systems, Inc.	New York
Hoffman Road Energy Partners, LLC	Delaware
Illinois Electrical Generation Partners, L.P.	Delaware
Avon Energy Partners, L.L.C.	Illinois
Devonshire Power Partners, L.L.C.	Illinois
Riverside Resource Recovery, L.L.C.	Illinois
Zapco Illinois Energy, Inc.	Delaware
Illinois Electrical Generation Partners II L.P.	Delaware
BMC Energy, LLC	Delaware
Brookhaven Energy Partners, LLC	New York
Countryside Genco, L.L.C.	Delaware
Morris Genco, L.L.C.	Delaware
Brickyard Energy Partners, LLC	Delaware
Dixon/Lee Energy Partners, LLC	Delaware
Roxanna Resource Recovery L.L.C.	Illinois
Streator Energy Partners, LLC	Delaware
Upper Rock Energy Partners, LLC	Delaware
Smithtown Energy Partners, L.P.	New York
Springfield Energy Associates LP	Vermont
Suffolk Transmission Partner, L.P.	Delaware
Tucson Energy Partners, L.P.	Delaware
ZFC Royalty Partners	Connecticut
Zapco Broome Naticoke Corp.	New York
Zapco Development Corporation	Delaware
Zapco Energy Tactics Corporation	Delaware
Zapco Readville Cogeneration, Inc.	Delaware
ZMG, Inc.	Delaware
Master Gasco, L.P.	Delaware
Avon Landfill Gas Associates L.P.	Delaware
Biomass Energy Partners II L.P.	Connecticut
Biomass Energy Partners V L.P.	Delaware
Broome Landfill Gas Associates L.P.	New York
Brickyard Landfill Gas Associates L.P.	Delaware
Cape May Landfill Gas Associates L.P.	Delaware
Devonshire Landfill Gas Associates L.P.	Delaware
Garland Landfill Gas Associates L.P.	Delaware
Riverside Landfill Gas Associates L.P.	Delaware
Streator Landfill Gas Associates LP	Delaware
Suffolk Landfill Gas Partners L.P.	Virginia
Tuscon Landfill Gas Associates LP	Delaware
Upper Rock Landfill Gas Associates LP	Delaware
Cinergy GASCO Solutions, LLC	Delaware
Countryside Landfill Gasco., L.L.C.	Delaware
Morris Gasco, L.L.C.	Delaware
Brown County Landfill Gas Associates, L.P.	Delaware
Cinergy Solutions of Boca Raton, LLC	Delaware
Cinergy Solutions Operating Services of Lansing, LLC	Delaware
Cinergy Solutions Operating Services of Shreveport, LLC	Delaware
Cinergy Solutions Operating Services of Oklahoma, LLC	Delaware
Cinergy Solutions of Philadelphia, LLC	Delaware
Cinergy Solutions Partners, LLC	Delaware
CST Limited, LLC	Delaware
CST General, LLC	Texas
CST Green Power, L.P.	Delaware
Green Power Holdings, LLC	Delaware
Green Power G.P., LLC	Texas

Green Power Limited, LLC	Delaware
South Houston Green Power, L.P.	Delaware
CSGP of Southeast Texas, LLC	Delaware
CSGP Limited, LLC	Delaware
CSGP General, LLC	Texas
CSGP Services, L.P.	Delaware
Lansing Grand River Utilities, LLC	Delaware
Oklahoma Arcadian Utilities, LLC	Delaware
Shreveport Red River Utilities, LLC	Delaware
Cinergy Solutions of Tuscola, Inc.	Delaware
Delta Township Utilities, LLC	Delaware
Energy Equipment Leasing LLC	Delaware
Trigen-Cinergy Solutions LLC	Delaware
Trigen-Cinergy Solutions of Ashtabula LLC	Delaware
Trigen-Cinergy Solutions of Baltimore LLC	Delaware
Trigen-Cinergy Solutions of Boca Raton, LLC	Delaware
Trigen-Cinergy Solutions of Cincinnati LLC	Ohio
Trigen-Cinergy Solutions of College Park, LLC	Delaware
Trigen-Cinergy Solutions of Lansing LLC	Delaware
Trigen/Cinergy - USFOS of Lansing LLC	Delaware
Trigen-Cinergy Solutions of Orlando LLC	Delaware
Trigen-Cinergy Solutions of Owings Mills LLC	Delaware
Trigen-Cinergy Solutions of Owings Mills Energy Equipment Leasing, LLC	Delaware
Trigen-Cinergy Solutions of Rochester LLC	Delaware
Trigen-Cinergy Solutions of Silver Grove LLC	Delaware
Trigen-Cinergy Solutions of San Diego LLC	Delaware
Trigen-Cinergy Solutions of the Southeast LLC	Delaware
Trigen-Cinergy Solutions of St. Paul LLC	Delaware
Environmental Wood Supply, LLC	Minnesota
St. Paul Cogeneration LLC	Minnesota
Trigen-Cinergy Solutions of Tuscola, LLC	Delaware
Cinergy Supply Network, Inc.	Delaware
Reliant Services, LLC	Indiana
MP Acquisitions Corp., Inc.	Indiana
Miller Pipeline Corporation	Indiana
Fiber Link, LLC	Indiana
Cinergy Technology, Inc.	Indiana
Cinergy Global Resources, Inc.	Delaware
Cinergy Global Power, Inc.	Delaware
CGP Global Greece Holdings, SA	Greece
Attiki Denmark ApS	Denmark
Attiki Gas Supply Company SA	Greece
Cinergy Global Chandler Holding, Inc.	Delaware
Cinergy Global Chandler I, Inc.	Delaware
Chandler Wind Partners, LLC	Delaware
Cinergy Global Ely, Inc.	Delaware
EPR Ely Power Limited	England
EPR Ely Limited	England
Ely Power Limited	England
Anglian Straw Limited	England
Anglian Ash Limited	England
Cinergy Global Foote Creek, Inc.	Delaware
Foote Creek III, LLC	Delaware
Cinergy Global Foote Creek II, Inc.	Delaware
Foote Creek II, LLC	Delaware
Cinergy Global Foote Creek IV, Inc.	Delaware

Foote Creek IV, LLC	Delaware
Cinergy Global Peetz Table I, Inc.	Delaware
Ridge Crest Wind Partners, LLC	Delaware
Cinergy Global Power Services Limited	England
Cinergy Global Power (UK) Limited	England
Cinergy Global Trading Limited	England
Commercial Electricity Supplies Limited	England
Cinergy Renewable Trading Limited	England
UK Electric Power Limited	England
Cinergy Global Power Iberia, S.A.	Spain
Cinergy Global San Gorgonio, Inc.	Delaware
Cinergy Global Holdings, Inc.	Delaware
Cinergy Holdings B.V.	The Netherlands
Cinergy Zambia B.V.	The Netherlands
Copperbelt Energy Corporation PLC	Republic of Zambia
Cinergy Turbines B.V.	The Netherlands
Cinergy Hydro B.V.	The Netherlands
Cinergy 1 B.V.	The Netherlands
Cinergy Global Resources 1 B.V.	The Netherlands
Moravske Teplarny a.s.	Czech Republic
Cinergy Global Polska Sp. Z.o.o.	Poland
Cinergy Global Resources 1 Sp. Z.o.o.	Poland
Cinergy Global Resources a.s.	Czech Republic
Cinergetika U/L a.s.	Czech Republic
Energy Customer Services, s.r.o.	Czech Republic
Cinergy 2 B.V.	The Netherlands
Baghabari I B.V.	The Netherlands
Baghabari Power Company Limited	Bangladesh
Baghabari II B.V.	The Netherlands
Baghabari Power Company Limited	Bangladesh
Cinergy South Africa Investments 1 B.V.	The Netherlands
Egoli Gas (Proprietary) Limited	South Africa
Cinergy Global 4 B.V.	The Netherlands
Cinergy Global 5 B.V.	The Netherlands
Cinergy Global (Cayman) Holdings, Inc.	Cayman Islands
Cinergy Global Hydrocarbons Pakistan	Cayman Islands
Cinergy Global Tsavo Power	Cayman Islands
IPS-Cinergy Power Limited	Kenya
Tsavo Power Company Limited	Kenya
Cinergy MPI V, Inc.	Cayman Islands
Cinergy Global One, Inc.	Delaware
CZECHPOL ENERGY spol, s.r.o.	Czech Republic
Moravia Energo	Czech Republic
eVent Resources Overseas I, LLC	Delaware
Midlands Hydrocarbons (Bangladesh) Limited	England
Powermid No. 1	England
Cinergy Global Power Africa (Proprietary) Limited	South Africa
Cinergy UK, Inc.	Delaware
CinTec LLC	Delaware
CinTec I LLC	Delaware
eVent Resources I LLC	Delaware
eVent Resources Holdings LLC	Delaware
LASCOM S.A.	France
Cinergy Technologies, Inc.	Delaware
Cinergy Ventures, LLC	Delaware

CES International	Delaware
Izoic Incorporated	Delaware
Kreiss Johnson Technologies, Inc.	California
Pentech Solutions, Inc.	Delaware
Cinergy Ventures II, LLC	Delaware
Cinergy e-Supply Network, LLC	Delaware
Cinergy One, Inc.	Delaware
Cinergy Two, Inc.	Delaware
Cinergy Wholesale Energy, Inc.	Ohio
Cinergy Power Generation Services, LLC	Delaware
Cinergy Origination & Trade, LLC	Delaware
Cinergy Receivables Company LLC	Delaware
Cinergy Foundation, Inc.	Indiana

EX-23

EXHIBIT 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in (i) Cinergy Corp.’s Registration Statement Nos. 33-55267, 33-55713, 33-56089, 33-56091, 33-56093, 33-56095, 333-51484, 333-83461, 333-83467, 333-72898, 333-72900, 333-72902, 333-81770, 333-101707 and 333-102515; (ii) PSI Energy, Inc.’s Registration Statement Nos. 33-48612, 33-57064 and 333-83379; (iii) The Cincinnati Gas & Electric Company’s Registration Statement No. 333-91940; and (iv) The Union Light, Heat and Power Company’s Registration Statement Nos. 33-40245 and 333-83381 of our report dated February 12, 2003 (which expresses an unqualified opinion and includes an explanatory paragraph referring to the Companies' change, effective January 1, 2002, in their accounting method for goodwill), appearing in this Annual Report on Form 10-K of Cinergy Corp., PSI Energy, Inc., The Cincinnati Gas & Electric Company, and The Union Light, Heat and Power Company for the year ended December 31, 2002.

Cincinnati, Ohio

February 26, 2003

EX-24

Exhibit 24

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of each of The Cincinnati Gas & Electric Company and The Union Light, Heat and Power Company, the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 14^th day of February, 2003.

/s/ James L. Turner

James L. Turner

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 17^th day of February, 2003.

/s/ Dudley S. Taft

Dudley S. Taft

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 17^th day of February, 2003.

/s/ John J. Schiff, Jr.

John J. Schiff, Jr.

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 17^th day of February, 2003.

/s/ Michael G. Browning

Michael G. Browning

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 18^th day of February, 2003.

/s/ Thomas E. Petry

Thomas E. Petry

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 19^th day of February, 2003.

/s/ George C. Juilfs

George C. Juilfs

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 20^th day of February, 2003.

/s/ Mary L. Schapiro

Mary L. Schapiro

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 19^th day of February, 2003.

/s/ Philip R. Sharp

Philip R. Sharp

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of  PSI Energy, Inc., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 20^th day of February, 2003.

/s/ Douglas F. Esamann

Douglas F. Esamann

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints James E. Rogers and R. Foster Duncan, or either of them with full power to act without the other, the undersigned’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to execute for and on behalf of the undersigned, in the undersigned’s capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 2002, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.

The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, and each of them, shall lawfully do by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 26^th day of February, 2003.

/s/ Phillip R. Cox

Phillip R. Cox