Duke Energy CORP (Form: 8-K12B, Received: 04/04/2006 06:05:59)

DUKE ENERGY CORPORATION

Corporate Secretary

Chief Executive Officer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 3, 2006

DUKE ENERGY CORPORATION

(formerly Duke Energy Holding Corp.)

(Exact Name of Registrant as Specified in its Charter)

Delaware

20-2777218

(State or Other Jurisdiction

of Incorporation)

(Commission File Number)

(IRS Employer

Identification No.)

526 South Church Street, Charlotte, North Carolina 28202-1904

(Address of Principal Executive Offices, including Zip code)

(704) 594-6200

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240. 13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

The information set forth under Item 2.03 below is incorporated herein by reference.

The forms of Phantom Stock Award Agreement and Performance Share Award Agreement that the registrant intends to use to make such respective types of grants under its equity incentive compensation plans are attached hereto as Exhibits 10.1 and 10.2, respectively, and incorporated herein by reference.

Item 2.01 Completion of Acquisition or Disposition of Assets.

On April 3, 2006, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of May 8, 2005, as amended, by and among the registrant (formerly known as Duke Energy Holding Corp.), Duke Energy Corporation, a North Carolina corporation (“Duke Energy NC”), Cinergy Corp., a Delaware corporation (“Cinergy”), Deer Acquisition Corp., a North Carolina corporation and a wholly-owned subsidiary the registrant (“Deer”), and Cougar Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the registrant (“Cougar”), Deer merged with and into Duke Energy NC (the “Duke Energy Merger”) and Cougar merged with and into Cinergy (the “Cinergy Merger” and, together with the Duke Energy Merger, the “Mergers”).

In addition, pursuant to the Merger Agreement, in connection with the Mergers, Duke Energy NC converted its form of organization from a North Carolina corporation to a North Carolina limited liability company and changed its name to Duke Power Company LLC (“Duke Power”) and transferred to the registrant all of its membership interests in Duke Capital LLC (“Duke Capital”). As a result of the Mergers and the other transactions described above, each of Duke Power, Cinergy and Duke Capital is now a wholly-owned subsidiary of the registrant.

Pursuant to the Cinergy Merger, each share of common stock of Cinergy, par value $0.01 per share (the “Cinergy Common Stock”), was converted into the right to receive 1.56 shares of the registrant’s common stock, par value $0.001 per share. Pursuant to the Duke Energy Merger, each share of common stock of Duke Energy NC, no par value per share, including the associated Preference Stock Purchase Rights (together, the “Duke Energy NC Common Stock”), was converted into the right to receive one share of the registrant’s common stock.

The issuance of the registrant’s common stock pursuant to the Mergers was registered under the Securities Act of 1933, as amended, pursuant to the registrant’s registration statement on Form S-4 (File No. 333-126318) (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”) and declared effective on February 2, 2006. The definitive joint proxy statement/prospectus of Duke Energy NC and Cinergy, dated February 2, 2006 that forms a part of the Registration Statement (the “Joint Proxy Statement/Prospectus”) contains additional information about the Mergers and the other transactions contemplated by the Merger Agreement, including information concerning the interests of directors, executive officers and affiliates of Duke Energy NC and Cinergy in the Mergers.

Pursuant to Rule 12g-3(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the registrant’s common stock is deemed to be registered under Section 12(b) of the Exchange Act. The registrant’s common stock has been approved for listing on the New York Stock Exchange, and began trading under the symbol “DUK” on April 3, 2006.

Each of the Duke Energy NC Common Stock and the Cinergy Common Stock was registered pursuant to Section 12(b) of the Exchange Act and listed on the New York Stock

Exchange. Duke Energy NC is delisting the Duke Energy NC Common Stock and Cinergy is delisting the Cinergy Common Stock, in each case from the New York Stock Exchange. Each of Duke Energy NC and Cinergy have filed a Form 15 with the SEC to terminate the registration under Section 12(g) of the Exchange Act of the Duke Energy NC Common Stock and the Cinergy Common Stock, respectively.

On April 3, 2006, the registrant issued a press release announcing the completion of the Mergers and the other transactions contemplated by the Merger Agreement. The press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On April 3, 2006, in connection with the transactions described above under Item 2.01, the registrant executed the Fifteenth Supplemental Indenture between Duke Energy NC and JPMorgan Chase Bank, N.A., as trustee, pursuant to which the registrant agreed to guarantee the obligations of Duke Power under the Senior Indenture dated as of September 1, 1998, as amended and supplemented. As of April 3, 2006, the current outstanding principal amount of indebtedness under the Senior Indenture guaranteed is approximately $3.7 billion.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

In connection with and effective the date of the Mergers, the registrant amended and restated in their entirety its certificate of incorporation and by-laws substantially in the form attached as Exhibits A and B to the Merger Agreement and included in the Joint Proxy Statement/Prospectus as Annex A (together with technical and conforming amendments thereto). The description of the restated certificate of incorporation and by-laws which was contained under the caption “Comparison of Shareholder Rights” in the Joint Proxy Statement/Prospectus is incorporated herein by reference. The registrant’s Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws are attached hereto as Exhibits 3.1 and 3.2, respectively, and incorporated herein by reference.

Item 8.01 Other Events.

The following summary of our capital stock is subject in all respects to the applicable provisions of the Delaware General Corporation Law and our certificate of incorporation. The following discussion is a summary of our amended and restated certificate of incorporation and by-laws following consummation of the mergers and is qualified in its entirety by reference to the certificate of incorporation and the by-laws attached as Exhibits 3.1 and 3.2, respectively, to this Current Report.

General

Our total number of authorized shares of capital stock consists of 2 billion shares of common stock, par value $0.001 per share, and 44 million shares of preferred stock, par value $0.001 per share.

Common Stock

Except as otherwise required by law and subject to the rights of the holders of any class or series of preferred stock, with respect to all matters upon which shareholders are entitled to vote or to which shareholders are entitled to give consent, the holders of any outstanding shares of common stock will vote together as a class, and every holder of common stock will be entitled to cast one vote in person or by proxy for each share of common stock standing in such holder’s name on our books. We do not have a classified board of directors nor do we permit cumulative voting.

Holders of common stock are not entitled to any preemptive rights to subscribe for additional shares of common stock nor are they subject to further capital calls or to assessments by us.

Subject to applicable law and the rights, if any, of the holders of any class or series of preferred stock having a preference over the rights to participate with the common stock with respect to the payment of dividends, holders of our common stock are entitled to receive dividends or other distributions as declared by our board of directors at its discretion.

The board of directors may create a class or series of preferred stock with dividends the rate of which is calculated by reference to, and payment of which is concurrent with, dividends on shares of common stock.

Preferred Stock

Our board of directors has the full authority permitted by law, at any time and from time to time, to divide the authorized and unissued shares of preferred stock into one or more classes or series and, with respect to each such class or series, to determine by resolution or resolutions the number of shares constituting such class or series and the designation of such class or series, the voting powers, if any, of the shares of such class or series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of any such class or series of preferred stock to the full extent now or as may in the future be permitted by the law of the State of Delaware. The powers, preferences and relative, participating, optional and other special rights of each class or series of preferred stock and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other classes or series at any time outstanding. Except as otherwise required by law, as provided in the certificate of incorporation or as determined by our board of directors, holders of preferred stock will not have any voting rights and will not be entitled to any notice of shareholder meetings.

Provisions that Have or May Have the Effect of Delaying or Prohibiting a Change in Control

Under our certificate of incorporation, the board of directors has the full authority permitted by Delaware law to determine the voting rights, if any, and designations, preferences, limitations and special rights of any class or any series of any class of the preferred stock.

The certificate of incorporation also provides that a director may be removed from office with or without cause. However, subject to applicable law, any director elected by the holders of any series of preferred stock may be removed without cause only by the holders of a majority of the shares of such series of preferred stock.

Our by-laws provide that prior to the first annual meeting of shareholders where directors are elected, the size of the initial board may not be increased or decreased without the affirmative vote of at least 80% of the entire board. Our certificate of incorporation requires an affirmative vote of the holders of at least 80% of the combined voting power of the then outstanding shares of stock of all our classes entitled to vote generally in the election of directors, voting together as a single class, to amend, alter or repeal provisions in the certificate of incorporation which relate to the number of directors and vacancies and newly created directorships.

Our certificate of incorporation provides that any action required to be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice only if consent in writing setting forth the action to be taken is signed by all the holders of our issued and outstanding capital stock entitled to vote in respect of such action.

Our by-laws provide that, except as expressly required by the certificate of incorporation or by applicable law, and subject to the rights of the holders of any series of preferred stock, special meetings of the shareholders or of any series entitled to vote may be called for any purpose or purposes only by the Chairman of the board of directors or by the board of directors. Shareholders are not entitled to call special meetings.

The provisions of our certificate of incorporation and by-laws conferring on our board of directors the full authority to issue preferred stock, the restrictions on removing directors elected by holders of preferred stock, the provision requiring a vote of 80% of the entire board of directors to change the size of the board of directors prior to the first annual meeting of shareholders, the supermajority voting requirements relating to the amendment, alteration or repeal of the provisions governing the number of directors and filling of vacancies and newly created directorships, the requirement that shareholders act at a meeting unless all shareholders agree in writing, and the inability of shareholders to call a special meeting, in certain instances could have the effect of delaying, deferring or preventing a change in control or the removal of existing management.

Item 9.01. Financial Statements And Exhibits.

9.01(a) Financial Statements.

The consolidated financial statements as of and for the fiscal year ended December 31, 2005 of Duke Energy NC were previously filed in its Annual Report on Form 10-K for the Fiscal Year ended December 31, 2005 filed March 6, 2006, as amended by Amendment No. 1 thereto filed March 31, 2006 and by Amendment No. 2 thereto filed April 3, 2006. The consolidated financial statements as of and for the fiscal year ended December 31, 2005 of Cinergy are included in its Annual Report on form 10-K for the Fiscal Year ended December 31, 2005 filed March 2, 2006 (the “Cinergy 2005 10-K”). Pages 101-198 of the Cinergy 2005 10-K containing such consolidated financial statements are attached hereto as Exhibit 99.2 and incorporated herein by reference.

9.01(b) Pro Forma Information.

Pro forma financial information will be filed by amendment to this Current Report.

9.01(c) Exhibits.


Exhibit 2.1		Agreement and Plan of Merger, dated as of May 8, 2005, as amended, by and among Duke Energy Corporation, Duke Energy Holding Corp., Cinergy Corp., Deer Acquisition Corp. and Cougar Acquisition Corp.

Exhibit 3.1		Amended and Restated Certificate of Incorporation of Duke Energy Corporation

Exhibit 3.2		Amended and Restated By-Laws of Duke Energy Corporation

Exhibit 10. 1		Form of Phantom Stock Award Agreement

Exhibit 10.2		Form of Performance Share Award Agreement

Exhibit 23.1		Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm for Cinergy Corp.

Exhibit 99.1		Press Release, dated April 3, 2006

Exhibit 99.2		Consolidated Financial Statements of Cinergy Corp. as of and for the year ended December 31, 2005, 2004 and 2003

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	DUKE ENERGY CORPORATION

Date: April 3, 2006	By:	/s/ Robert T. Lucas III
	Name:	Robert T. Lucas III
	Title:	Assistant Secretary

EXHIBIT INDEX


Exhibit		Description
2.1		Agreement and Plan of Merger, dated as of May 8, 2005, as amended, by and among Duke Energy Corporation, Duke Energy Holding Corp., Cinergy Corp., Deer Acquisition Corp. and Cougar Acquisition Corp.

3.1		Amended and Restated Certificate of Incorporation of Duke Energy Corporation

3.2		Amended and Restated By-Laws of Duke Energy Corporation

10.1		Form of Phantom Stock Award Agreement

10.2		Form of Performance Share Award Agreement

23.1		Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm for Cinergy Corp.

99.1		Press Release, dated April 3, 2006

99.2		Consolidated Financial Statements of Cinergy Corporation as of and for the year ended December 31, 2005, 2004 and 2003

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

by and among

DUKE ENERGY CORPORATION,

CINERGY CORP.,

DEER HOLDING CORP.,

DEER ACQUISITION CORP.

and

COUGAR ACQUISITION CORP.

Dated as of May 8, 2005

As Amended as of July 11, 2005, as of October 3, 2005 and as of March 30, 2006

TABLE OF CONTENTS


		Page
	ARTICLE I The Mergers and the Restructuring Transactions

Section 1.01	The Duke Merger	6
Section 1.02	The Duke Conversion	6
Section 1.03	The Restructuring Transactions	6
Section 1.04	The Cinergy Merger	6
Section 1.05	Closing	6
Section 1.06	Effective Time of the Duke and Cinergy Mergers	7
Section 1.07	Effects of the Mergers and the Conversion	7
Section 1.08	Organizational Documents of Duke, Cinergy and the Company	7
Section 1.09	Directors and Officers of Duke and Cinergy	8
Section 1.10	Directors and Officers of the Company	8
Section 1.11	Post-Merger Operations	8
Section 1.12	Transition Committee	9

	ARTICLE II Effects of the Mergers on the Capital Stock of the Constituent Corporations; Exchange of Certificates

Section 2.01	Effect on Capital Stock	9
Section 2.02	Exchange of Certificates	10
Section 2.03	Dissenting Shares	15

	ARTICLE III Representations and Warranties

Section 3.01	Representations and Warranties of Cinergy	15
Section 3.02	Representations and Warranties of Duke	27

	ARTICLE IV Covenants

Section 4.01	Covenants of Cinergy	37
Section 4.02	Covenants of Duke	41
Section 4.03	No Solicitation by Cinergy	46
Section 4.04	No Solicitation by Duke	48
Section 4.05	Other Actions	50
Section 4.06	Coordination of Dividends	50
Section 4.07	Redemption of Duke Preferred Stock and Duke Preferred Stock A	50
Section 4.08	Transfer of Certain Assets	50

	ARTICLE V Additional Agreements

Section 5.01	Preparation of the Form S-4 and the Joint Proxy Statement; Shareholders Meetings	51
Section 5.02	Letters of Cinergy’s Accountants	52
Section 5.03	Letters of Duke’s Accountants	52
Section 5.04	Access to Information; Effect of Review	52
Section 5.05	Regulatory Matters; Reasonable Best Efforts	53
Section 5.06	Stock Options; Restricted Stock and Equity Awards; Stock Plans	54
Section 5.07	Employee Matters	56
Section 5.08	Indemnification, Exculpation and Insurance	58
Section 5.09	Fees and Expenses	59
Section 5.10	Public Announcements	62
Section 5.11	Affiliates	62
Section 5.12	NYSE Listing	62
Section 5.13	Shareholder Litigation	62
Section 5.14	Tax-Free Reorganization Treatment	62
Section 5.15	Standstill Agreements; Confidentiality Agreements	62

	ARTICLE VI Conditions Precedent

Section 6.01	Conditions to Each Party’s Obligation to Effect the Mergers	63


Section 6.02	Conditions to Obligations of Cinergy	63
Section 6.03	Conditions to Obligations of Duke	64
Section 6.04	Frustration of Closing Conditions	65

	ARTICLE VII Termination, Amendment and Waiver

Section 7.01	Termination	65
Section 7.02	Effect of Termination	67
Section 7.03	Amendment	67
Section 7.04	Extension; Waiver	67

	ARTICLE VIII General Provisions

Section 8.01	Nonsurvival of Representations and Warranties	68
Section 8.02	Notices	68
Section 8.03	Definitions	69
Section 8.04	Interpretation and Other Matters	69
Section 8.05	Counterparts	70
Section 8.06	Entire Agreement; No Third-Party Beneficiaries	70
Section 8.07	Governing Law	70
Section 8.08	Assignment	70
Section 8.09	Enforcement	70
Section 8.10	Severability	71
Section 8.11	Waiver of Jury Trial	71
Section 8.12	Alternative Structure	71

AGREEMENT AND PLAN OF MERGER, dated as of May 8, 2005 (this “Agreement”), by and among DUKE ENERGY CORPORATION, a North Carolina corporation (“Duke”), CINERGY CORP., a Delaware corporation (“Cinergy”), DEER HOLDING CORP., a Delaware corporation (the “Company”) and a wholly-owned subsidiary of Duke, DEER ACQUISITION CORP., a North Carolina corporation and a wholly-owned subsidiary of the Company (“Merger Sub A”), and COUGAR ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub B”).

WHEREAS the respective Boards of Directors of Duke, Cinergy, the Company, Merger Sub A and Merger Sub B have approved the consummation of the business combination provided for in this Agreement, pursuant to which Merger Sub A and Merger Sub B will merge, respectively, with and into Duke and Cinergy, respectively, whereby, subject to the terms of Article II, each share of common stock, no par value per share, of Duke (including, except as the context otherwise requires, the associated Duke Rights as defined in Section 3.02(b), the “Duke Common Stock”) and each share of common stock, par value $.01 per share, of Cinergy (the “Cinergy Common Stock”) will be converted into the right to receive the Merger Consideration (as defined in Section 2.01) (such transactions are referred to herein individually as the “Duke Merger” and the “Cinergy Merger”, respectively, and collectively as the “Mergers”), as a result of which the holders of Duke Common Stock and Cinergy Common Stock will together own all of the outstanding shares of common stock, no par value per share, of the Company (the “Company Common Stock”) (and the Company will, in turn, own all of the outstanding shares of common stock, par value $.001 per share, of the surviving corporation in the Duke Merger (the “Surviving Duke Common Stock”) and all of the outstanding shares of common stock, par value $.01 per share, of the surviving corporation in the Cinergy Merger (the “Surviving Cinergy Common Stock”));

WHEREAS the respective Boards of Directors of Duke, the Company and Merger Sub A have approved the conversion of Duke into a limited liability company organized under the laws of the State of North Carolina (“Duke Power LLC”) as provided for in this Agreement, whereby, subject to the terms and conditions of this Agreement, the outstanding shares of Surviving Duke Common Stock shall be converted into membership interests of Duke Power LLC;

WHEREAS the respective Boards of Directors of Duke and the Company have approved the distribution by Duke to the Company of Duke Capital LLC (“Duke Capital”), a Delaware limited liability company and wholly-owned subsidiary of Duke, and the Restructuring Transactions (as defined below);

WHEREAS the respective Boards of Directors of Duke and Cinergy have each determined that the Mergers and the other transactions contemplated hereby are consistent with, and in furtherance of, the best interests of their respective corporations and shareholders and each of Duke’s and Cinergy’s respective business strategies and goals;

WHEREAS Duke and Cinergy desire to make certain representations, warranties, covenants and agreements in connection with the Mergers and the transactions contemplated by this Agreement and also to prescribe various conditions to the Mergers and the Restructuring Transactions; and

WHEREAS, for United States federal income tax purposes, it is intended that the Duke Merger and the Duke Conversion (as defined below) (together, the “Duke Reorganization”) shall qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”) and that the Cinergy Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Code, and this Agreement is intended to be, and is hereby, adopted as a plan of reorganization within the meaning of Section 368(a) of the Code.

NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants and agreements contained in this Agreement, the parties agree as follows:

ARTICLE I

The Mergers and the Restructuring Transactions

Section 1.01 The Duke Merger. Upon the terms and subject to the conditions set forth in this Agreement, at the Duke Effective Time (as defined in Section 1.06), Merger Sub A shall be merged with and into Duke in accordance with the North Carolina Business Corporation Act (the “NCBCA”). Duke shall be the surviving corporation in the Duke Merger and shall continue its corporate existence under the laws of the State of North Carolina and shall succeed to and assume all of the rights and obligations of Duke and Merger Sub A in accordance with the NCBCA. As a result of the Duke Merger, Duke shall become a wholly-owned subsidiary of the Company.

Section 1.02 The Duke Conversion. Upon the terms and subject to the conditions set forth in this Agreement, immediately following the effectiveness of the Duke Merger, Duke may convert to a limited liability company (the “Duke Conversion”)

pursuant to a plan of conversion adopted pursuant to Section 55-11A-11 of the NCBCA and Section 57C-9A-02 of the North Carolina Limited Liability Company Act (the “NCLLCA”). Following the Duke Conversion, Duke Power LLC will be a limited liability company all of whose membership or other equity interests are held by the Company.

Section 1.03 The Restructuring Transactions.

(a) Immediately following the effectiveness of the Duke Conversion, Duke Power LLC may, and may cause its subsidiaries to, effect the transactions set forth on Section 1.03(a) of the Duke Disclosure Letter (as defined in Section 3.02(a)).

(b) Immediately following the consummation of the transactions set forth on Section 1.03(a) of the Duke Disclosure Letter, Duke Power LLC may distribute to the Company the membership interests in Duke Capital (the “Duke Capital Transfer”). Following the Duke Capital Transfer, Duke Capital will be a direct wholly-owned subsidiary of the Company.

(c) Immediately following the effectiveness of the Duke Capital Transfer, the Company may cause Duke Capital to effect the transactions set forth on Section 1.03(c) of the Duke Disclosure Letter (the Duke Conversion, the Duke Capital Transfer and the transactions set forth on Section 1.03(a) and Section 1.03(c) of the Duke Disclosure Letter are referred to herein as the “Restructuring Transactions”). Duke shall provide prior notice to Cinergy of any Restructuring Transactions it proposes to effect. Immediately after the Duke Effective Time, all shares of Company Common Stock owned by Duke shall be cancelled.

Section 1.04 The Cinergy Merger. Upon the terms and subject to the conditions set forth in this Agreement, immediately following the latest of consummation of the Duke Merger or any Restructuring Transactions, at the Cinergy Effective Time (as defined in Section 1.06), Merger Sub B shall be merged with and into Cinergy in accordance with the Delaware General Corporation Law (the “DGCL”). Cinergy shall be the surviving corporation in the Cinergy Merger and shall continue its corporate existence under the laws of the State of Delaware and shall succeed to and assume all of the rights and obligations of Cinergy and Merger Sub B in accordance with the DGCL. As a result of the Cinergy Merger, Cinergy shall become a wholly-owned subsidiary of the Company.

Section 1.05 Closing. The closing of the Mergers and the Restructuring Transactions (the “Closing”) will take place at 10:00 a.m., local time, on a date to be specified by the parties (the “Closing Date”), which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VI, (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at such time) unless another time or date is agreed to by the parties hereto. The Closing shall be held at such location in The City of New York as is agreed to by the parties hereto.

Section 1.06 Effective Time of the Duke and Cinergy Mergers. Subject to the provisions of this Agreement, (i) with respect to the Duke Merger, as soon as practicable after 10:00 a.m., local time, on the Closing Date the parties thereto shall file articles of merger (the “Duke Articles of Merger”) executed in accordance with, and containing such information as is required by, Section 55-11-05 of the NCBCA with the Secretary of State of the State of North Carolina and on or after the Closing Date shall make all other filings or recordings required under the NCBCA, (ii) with respect to the Duke Conversion, as soon as practicable on the Closing Date following the Duke Effective Time, Duke shall file articles of organization of Duke Power LLC (the “Duke Power Articles of Organization”) and articles of conversion (the “Duke Articles of Conversion”) executed in accordance with, and containing such information as is required by, Section 55-11A-12 of the NCBCA and Section 57C-9A-02 of the NCLLCA with the Secretary of State of the State of North Carolina and on or after the Closing Date shall make all other filings or recordings required under the NCBCA and the NCLLCA, and (iii) with respect to the Cinergy Merger, immediately following the consummation of the Restructuring Transactions, the parties thereto shall file a certificate of merger (the “Cinergy Certificate of Merger”) executed in accordance with, and containing such information as is required by, the relevant provisions of Section 251 of the DGCL with the Secretary of State of the State of Delaware and on or after the Closing Date shall make all other filings or recordings required under the DGCL. The Duke Merger shall become effective at such time as the Duke Articles of Merger are duly filed with the Secretary of State of the State of North Carolina (the time the Duke Merger becomes effective being hereinafter referred to as the “Duke Effective Time”), the Duke Conversion shall become effective at such time as the Duke Articles of Conversion and the Duke Power Articles of Organization are duly filed with the Secretary of State of the State of North Carolina (the time the Duke Conversion becomes effective being hereinafter referred to as the “Conversion Effective Time”), and the Cinergy Merger shall become effective at such time as the Cinergy Certificate of Merger is duly filed with the Secretary of State of the State of Delaware (the time the Cinergy Merger becomes effective being hereinafter referred to as the “Cinergy Effective Time”). The latest time to occur of the Duke Effective Time, the Conversion Effective Time and the Cinergy Effective Time shall hereinafter be referred to as the “Effective Time.”

Section 1.07 Effects of the Mergers and the Conversion. The Duke Merger, the Cinergy Merger and the Duke Conversion shall generally have the effects set forth in this Agreement and the applicable provisions of the NCBCA, the DGCL and the NCLLCA respectively.

Section 1.08 Organizational Documents of Duke, Cinergy and the Company.

(a)

(i) At the Duke Effective Time, (a) the articles of incorporation of Duke, as in effect immediately prior to the Duke Effective Time, shall be the articles of incorporation of Duke as the surviving corporation in the Duke Merger and (b) the by-laws of Duke, as in effect immediately prior to the Duke Effective Time, shall be the by-laws of Duke as the surviving corporation in the Duke Merger, in each case until superceded by the Duke Power Articles of Organization filed as part of the Duke Conversion; and

(ii) At the Conversion Effective Time, the parties shall (i) file the Duke Power LLC Articles of Organization in a form mutually acceptable to the parties hereto and (ii) cause Duke Power LLC to adopt an operating agreement mutually acceptable to the parties hereto; and

(iii) At the Cinergy Effective Time, (A) the certificate of incorporation of Merger Sub B, as in effect immediately prior to the Cinergy Effective Time, shall be the certificate of incorporation of Cinergy as the surviving corporation in the Cinergy Merger until thereafter changed or amended as provided therein or by applicable law and (B) the by-laws of Merger Sub B, as in effect immediately prior to the Cinergy Effective Time, shall be the by-laws of Cinergy as the surviving corporation in the Cinergy Merger, until thereafter changed or amended as provided therein, in the certificate of incorporation of Cinergy or by applicable law.

(b) The parties shall take all appropriate action so that, at the Duke Effective Time, (i) the certificate of incorporation of the Company shall be in the form attached as Exhibit A hereto and (ii) the by-laws of the Company shall be in the form attached as Exhibit B hereto. Each of Duke and Cinergy shall take all actions necessary to cause the Company, Merger Sub A and Merger Sub B to take any actions necessary in order to consummate the Mergers, the Restructuring Transactions and the other transactions contemplated hereby.

Section 1.09 Directors and Officers of Duke and Cinergy.

(a) The directors of Merger Sub A at the Duke Effective Time shall, from and after the Duke Effective Time, be the directors of Duke as the surviving corporation in the Duke Merger until their successors have been duly elected or appointed and qualified.

(b) Subject to Section 1.10, the officers of Duke at the Duke Effective Time shall, from and after the Duke Effective Time, continue to be the officers of Duke as the surviving corporation in the Duke Merger until their successors have been duly elected or appointed and qualified.

(c) The directors of Duke at the Conversion Effective Time shall, from and after the Conversion Effective Time, be the managers of Duke Power LLC until their successors have been duly elected or appointed and qualified.

(d) Subject to Section 1.10, the officers of Duke at the Conversion Effective Time shall, from and after the Conversion Effective Time, continue to be the officers of Duke Power LLC until their successors have been duly elected or appointed and qualified.

(e) The directors of Merger Sub B at the Cinergy Effective Time shall, from and after the Cinergy Effective Time, be the directors of Cinergy as the surviving corporation in the Cinergy Merger until their successors have been duly elected or appointed and qualified.

(f) Subject to Section 1.10, the officers of Cinergy at the Cinergy Effective Time shall, from and after the Cinergy Effective Time, continue to be the officers of Cinergy as the surviving corporation in the Cinergy Merger until their successors have been duly elected or appointed and qualified.

Section 1.10 Directors and Officers of the Company. Exhibit C hereto sets forth (i) as of the Effective Time, subject to the By-Laws of the Company effective as of the Effective Time, the number of directors constituting the Board of Directors of the Company and the number of Duke Directors (as defined in Exhibit B hereto) and the number of Cinergy Directors (as defined in Exhibit B hereto), (ii) as of the Effective Time, the Chairman of the Board of Directors of the Company and the President and

Chief Executive Officer of the Company, and (iii) the manner in which certain senior officers of the Company as of the Effective Time will be selected after the date hereof and prior to the Effective Time. Certain of the responsibilities of the Chairman of the Board of Directors of the Company are set forth on Exhibit C hereto. The material terms of the changes to the existing employment agreement of the President and Chief Executive Officer of Cinergy to be in effect as of the Effective Time in his employment agreement with the Company as the President and Chief Executive Officer of the Company are set forth on Exhibit D hereto. The parties shall use their commercially reasonable efforts to cause an amended employment agreement reflecting such terms to be executed by the Company and the Chief Executive Officer of the Company as promptly as practicable after the date hereof.

Section 1.11 Post-Merger Operations. Following the Effective Time, the Company shall conduct its operations in accordance with the following:

(a) Name. At the Effective Time, the Company’s name shall be changed to “Duke Energy Corporation.”

(b) Principal Corporate Offices. The Company shall maintain its headquarters and principal corporate offices in Charlotte, North Carolina. Each of Duke Power LLC, The Cincinnati Gas & Electric Company, PSI Energy, Inc. and The Union Light, Heat and Power Company shall maintain its utility headquarters in its present location.

(c) Charities. The parties agree that provision of charitable contributions and community support in their respective service areas serves a number of their important corporate goals. During the two-year period immediately following the Cinergy Effective Time, the Company and its subsidiaries taken as a whole intend to continue to provide charitable contributions and community support within the service areas of the parties and each of their respective subsidiaries in each service area at levels substantially comparable to the levels of charitable contributions and community support provided, directly or indirectly, by Duke and Cinergy within their respective service areas during the two-year period immediately prior to the Effective Time.

Section 1.12 Transition Committee. The parties shall create a special transition committee (the “Transition Committee”) that shall be co-chaired by the Chief Executive Officer of Duke and the Chief Executive Officer of Cinergy and shall be composed of such chief executive officers and two other designees of Duke and one other designee of Cinergy. After the date hereof and prior to the Effective Time, the Transition Committee shall examine various alternatives regarding the manner in which to best organize and manage the business of the Company after the Cinergy Effective Time, subject to applicable law.

ARTICLE II

Effects of the Mergers on the Capital Stock of the Constituent Corporations;

Exchange of Certificates

Section 2.01 Effect on Capital Stock. (a) At the Duke Effective Time, by virtue of the Duke Merger and without any action on the part of the holder of any shares of Duke Common Stock or any capital stock of Merger Sub A:

(i) Cancellation of Certain Duke Common Stock. Each share of Duke Common Stock that is owned by Duke, Cinergy or the Company shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefore.

(ii) Conversion of Duke Common Stock. Subject to Section 2.02(e), each issued and outstanding share of Duke Common Stock (other than shares to be canceled in accordance with Section 2.01(a)(i) and Dissenting Shares (as defined in Section 2.03)) shall be converted into the right to receive 1 (the “Duke Ratio”) fully paid and nonassessable share of Company Common Stock (such aggregate amount, the “Duke Merger Consideration”). As of the Duke Effective Time, all such shares of Duke Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Duke Common Stock shall cease to have any rights with respect thereto, except the right to receive the shares of Company Common Stock (and cash in lieu of fractional shares of Company Common Stock) to be issued or paid in consideration therefore upon the surrender of such certificate in accordance with Section 2.02, without interest and the right to receive dividends and other distributions in accordance with Section 2.02.

(iii) Conversion of Merger Sub A Common Stock. The aggregate of all shares of the capital stock of Merger Sub A issued and outstanding immediately prior to the Duke Effective Time (of which, as of the date of this Agreement, 100 shares of common stock, par value $.01 per share, are issued and outstanding, each entitling the holder thereof to vote on the approval of this Agreement) shall be converted into 100 shares of Surviving Duke Common Stock.

(b) At the Cinergy Effective Time, by virtue of the Cinergy Merger and without any action on the part of any holder of Cinergy Common Stock or any capital stock of Merger Sub B:

(i) Cancellation of Certain Cinergy Common Stock. Each share of Cinergy Common Stock that is owned by Cinergy, Duke or the Company shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefore.

(ii) Conversion of Cinergy Common Stock. Subject to Section 2.02(e), each issued and outstanding share of Cinergy Common Stock (other than shares to be canceled in accordance with Section2.01(b)(i)) shall be converted into the right to receive 1.56 (the “Cinergy Ratio”) fully paid and nonassessable shares of Company Common Stock (such aggregate amount, the “Cinergy Merger Consideration,” and, together with the Duke Merger Consideration, the “Merger Consideration”). As of the Cinergy Effective Time, all such shares of Cinergy Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Cinergy Common Stock shall cease to have any rights with respect thereto, except the right to receive the shares of Company Common Stock (and cash in lieu of fractional shares of Company Common Stock) to be issued or paid in consideration therefore upon the surrender of such certificate in accordance with Section 2.02, without interest and the right to receive dividends and other distributions in accordance with Section 2.02.

(iii) Conversion of Merger Sub B Common Stock. The aggregate of all shares of the capital stock of Merger Sub B issued and outstanding immediately prior to the Cinergy Effective Time (of which, as of the date of this Agreement, 100 shares of common stock, without par value, are issued and outstanding, each entitling the holder thereof to vote on the approval of this Agreement) shall be converted into the right to receive 100 shares of Surviving Cinergy Common Stock.

(c) Duke Preferred Stock and Preferred Stock A. Prior to the Duke Effective Time, each issued and outstanding share of Preferred Stock, par value $100 per share (“Duke Preferred Stock”), of Duke and each issued outstanding share of Preferred Stock A, par value $25 per share (“Duke Preferred Stock A”), of Duke shall be redeemed in accordance with Section 4.07.

(d) Exchangeable Shares of Duke Energy Canada Exchangeco, Inc. As of the Duke Effective Time, each issued and outstanding exchangeable share (the “Exchangeable Shares”) of Duke Energy Canada Exchangeco, Inc. (“Exchangeco”), a corporation incorporated under the laws of Canada and an indirect subsidiary of Duke, shall become exchangeable for one share of Company Common Stock and one share of Company Common Stock shall be issuable upon a redemption or retraction of each Exchangeable Share, in each case in accordance with the terms of the provisions relating to the Exchangeable Shares as of immediately prior to the Duke Effective Time. In addition, following the Effective Time, the Company shall execute such assignment and assumption agreements and documentation as are necessary to cause the Company to be bound by the terms and provisions of the Support Agreement among Duke, Duke Canada Call Co. and Exchangeco dated March 14, 2002, and the Voting and Exchange Trust Agreement among Duke, Exchangeco and Computer share Trust Company of Canada, dated March 14, 2002.

Section 2.02 Exchange of Certificates.

(a) Exchange Agent. As of the Effective Time, the Company shall enter into an agreement with such bank or trust company as may be mutually agreed by Duke and Cinergy (the “Exchange Agent”), which agreement shall provide that the Company shall deposit with the Exchange Agent as of the Effective Time, for the benefit of the holders of shares of Duke Common Stock and Cinergy Common Stock, for exchange in accordance with this Article II, through the Exchange Agent, certificates representing the shares of Company Common Stock (such shares of Company Common Stock, together with any dividends or distributions with respect thereto with a record date after the Cinergy Effective Time, being hereinafter referred to as the “Exchange Fund”) representing the Merger Consideration.

(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time represented outstanding shares of Duke Common Stock or Cinergy Common Stock (the “Certificates”) whose shares were converted into the right to receive shares of Company Common Stock pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Duke and Cinergy may reasonably specify) and (ii) instructions for use in surrendering the Certificates in exchange for certificates representing whole shares of Company Common Stock, cash in lieu of fractional shares pursuant to Section 2.02(e) and any dividends or other distributions payable pursuant to Section 2.02(c). Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefore a certificate representing that number of whole shares of Company Common Stock that such holder has the right to receive pursuant to the provisions of this Article II, certain dividends or other

distributions in accordance with Section 2.02(c) and cash in lieu of any fractional share of Company Common Stock in accordance with Section 2.02(e), and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Duke Common Stock or Cinergy Common Stock that is not registered in the transfer records of Duke or Cinergy, as the case may be, a certificate representing the proper number of shares of Company Common Stock may be issued to a person other than the person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such issuance shall pay any transfer or other taxes required by reason of the issuance of shares of Company Common Stock to a person other than the registered holder of such Certificate or establish to the satisfaction of the Company that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.02, each Certificate shall be deemed at any time after the Duke Effective Time or the Cinergy Effective Time, as the case may be, to represent only the right to receive upon such surrender the Merger Consideration, which the holder thereof has the right to receive in respect of such Certificate pursuant to the provisions of this Article II, certain dividends or other distributions in accordance with Section 2.02(c) and cash in lieu of any fractional share of Duke Common Stock or Cinergy Common Stock, as the case may be, in accordance with Section 2.02(e). No interest shall be paid or will accrue on the Merger Consideration or any cash payable to holders of Certificates pursuant to the provisions of this Article II. Notwithstanding anything to the contrary hereinbefore, subject to applicable law, the parties intend that the Company will implement a direct registration system at Closing, and if such direct registration system is implemented by the Company at such time, all shares of Company Common Stock shall be in uncertificated book-entry form unless a physical certificate is requested by such holder.

(c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions with respect to Company Common Stock shall be declared or paid with a record date on or after the Duke Effective Time and on or prior to the Effective Time. No dividends or other distributions with respect to Company Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Company Common Stock issuable hereunder in respect thereof and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.02(e), and all such dividends, other distributions and cash in lieu of fractional shares of Company Common Stock shall be paid by the Company to the Exchange Agent and shall be included in the Exchange Fund, in each case until the surrender of such Certificate in accordance with this Article II. Subject to the effect of applicable escheat or similar laws, following surrender of any such Certificate there shall be paid to the holder of the certificate representing whole shares of Company Common Stock issued in exchange therefore, without interest, (i) promptly after the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Company Common Stock and the amount of any cash payable in lieu of a fractional share of Company Common Stock to which such holder is entitled pursuant to Section 2.02(e) and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole shares of Company Common Stock.

(d) No Further Ownership Rights in Duke Common Stock or Cinergy Common Stock. All shares of Company Common Stock issued upon the surrender for exchange of Certificates in accordance with the terms of this Article II (including any cash paid pursuant to this Article II) shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the shares of Duke Common Stock or Cinergy Common Stock, as the case may be, theretofore represented by such Certificates, subject, however, to Duke’s and Cinergy’s respective obligations to pay any dividends or make any other distributions with a record date prior to the Duke Effective Time or the Cinergy Effective Time, as the case may be, that may have been declared or made by Duke or Cinergy, as the case may be, on such shares of Duke Common Stock or Cinergy Common Stock that remain unpaid at the Duke Effective Time or the Cinergy Effective Time, as the case may be, and there shall be no further registration of transfers on the stock transfer books of Duke or Cinergy of the shares of Duke Common Stock and Cinergy Common Stock, respectively, that were outstanding immediately prior to the Duke Effective Time or the Cinergy Effective Time, as the case may be. If, after the Duke Effective Time or the Cinergy Effective Time, as the case may be, Certificates are presented to the Company, Duke, Cinergy or the Exchange Agent for any reason, they shall be canceled and exchanged as provided in this Article II, except as otherwise provided by law.

(e) No Fractional Shares.

(i) No certificates or scrip representing fractional shares of Company Common Stock shall be issued upon the surrender for exchange of Certificates, no dividend or distribution of the Company shall relate to such fractional share interests and such fractional share interests will not entitle the owner thereof to vote or to any rights of a shareholder of the Company. Notwithstanding the foregoing, Duke and Cinergy shall use reasonable best efforts to cause the Duke Energy InvestorsDirect Choice Plan (the “Duke DRIP”) and the Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan (the “Cinergy DRIP”) to be rolled over into a dividend reinvestment plan to be established and implemented by the Company on or prior to the Closing Date. In connection with such roll-over, fractional shares of Company Common Stock will be issued to the participants in each of the Duke DRIP and the Cinergy DRIP in accordance with Section 2.01.

(ii) As promptly as practicable following the Cinergy Effective Time, the Exchange Agent shall determine the excess of(A) the number of whole shares of Company Common Stock delivered to the Exchange Agent by the Company pursuant to Section 2.02(a) representing the Cinergy Merger Consideration over (B) the aggregate number of whole shares of Company Common Stock to be distributed to former holders of Cinergy Common Stock pursuant to Section 2.02(b) (such excess being herein called the “Cinergy Excess Shares”). Following the Cinergy Effective Time, the Exchange Agent shall, on behalf of former shareholders of Cinergy, sell the Cinergy Excess Shares at then-prevailing prices on the New York Stock Exchange, Inc. (“NYSE”), all in the manner provided in Section 2.02(e)(iii). As promptly as practicable following the Duke Effective Time, the Exchange Agent shall determine the excess, if any, of (A) the number of whole shares of Company Common Stock delivered to the Exchange Agent by the Company pursuant to Section 2.02(a) representing the Duke Merger Consideration over (B) the aggregate number of whole shares of Company Common Stock to be distributed to former holders of Duke Common Stock pursuant to Section 2.02(b) (such excess being herein called the “Duke Excess Shares”). Following the Duke Effective Time, the Exchange Agent shall, on behalf of former shareholders of Duke, sell the Duke Excess Shares at then-prevailing prices on the NYSE, all in the manner provided in Section 2.02(e)(iv).

(iii) The sale of the Cinergy Excess Shares by the Exchange Agent shall be executed on the NYSE through one or more member firms of the NYSE and shall be executed in round lots to the extent practicable. The Exchange Agent shall use reasonable efforts to complete the sale of the Cinergy Excess Shares as promptly following the Effective Time as, in the Exchange Agent’s sole judgment, is practicable consistent with obtaining the best execution of such sales in light of prevailing market conditions. Until the net proceeds of such sale or sales have been distributed to the holders of Certificates formerly representing Cinergy Common Stock, the Exchange Agent shall hold such proceeds in trust for holders of Cinergy Common Stock (the “Cinergy Common Shares Trust”). Cinergy shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent incurred in connection with such sale of the Cinergy Excess Shares. The Exchange Agent shall determine the portion of the Cinergy Common Shares Trust to which each former holder of Cinergy Common Stock is entitled, if any, by multiplying the amount of the aggregate net proceeds composing the Cinergy Common Shares Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such former holder of Cinergy Common Stock is entitled (after taking into account all shares of Cinergy Common Stock held at the Cinergy Effective Time by such holder) and the denominator of which is the aggregate amount of fractional share interests to which all former holders of Cinergy Common Stock are entitled.

(iv) The sale of the Duke Excess Shares by the Exchange Agent shall be executed on the NYSE through one or more member firms of the NYSE and shall be executed in round lots to the extent practicable. The Exchange Agent shall use reasonable efforts to complete the sale of the Duke Excess Shares as promptly following the Effective Time as, in the Exchange Agent’s sole judgment, is practicable consistent with obtaining the best execution of such sales in light of prevailing market conditions. Until the net proceeds of such sale or sales have been distributed to the holders of Certificates formerly representing Duke Common Stock, the Exchange Agent shall hold such proceeds in trust for holders of Duke Common Stock (the “Duke Common Shares Trust”). Duke shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent incurred in connection with such sale of the Duke Excess Shares. The Exchange Agent shall determine the portion of the Duke Common Shares Trust to which each former holder of Duke Common Stock is entitled, if any, by multiplying the amount of the aggregate net proceeds composing the Duke Common Shares Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such former holder of Duke Common Stock is entitled (after taking into account all shares of Duke Common Stock held at the Duke Effective Time by such holder) and the denominator of which is the aggregate amount of fractional share interests to which all former holders of Duke Common Stock are entitled.

(v) As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Certificates formerly representing Duke Common Stock or Cinergy Common Stock, as the case may be, with respect to any fractional share interests, the Exchange Agent shall make available such amounts to such holders of Certificates formerly representing Duke Common Stock or Cinergy Common Stock, as the case may be, subject to and in accordance with the terms of Section 2.02(c).

(f) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates for six months after the Effective Time shall be delivered to the Company, upon demand, and any holders of the Certificates who have not theretofore complied with this Article II shall thereafter look only to the Company for payment of their claim for Merger Consideration, any dividends or distributions with respect to Company Common Stock and any cash in lieu of fractional shares of Company Common Stock.

(g) No Liability. None of the Company, Duke, Cinergy or the Exchange Agent or any of their respective directors, officers, employees and agents shall be liable to any person in respect of any shares of Company Common Stock, any dividends or distributions with respect thereto, any cash in lieu of fractional shares of Company Common Stock or any cash

from the Exchange Fund, in each case delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate shall not have been surrendered prior to two years after the Cinergy Effective Time (or immediately prior to such earlier date on which any Cinergy Merger Consideration, any dividends or distributions payable to the holder of such Certificate or any cash payable to the holder of such Certificate formerly representing Cinergy Common Stock pursuant to this Article II, would otherwise escheat to or become the property of any Governmental Authority (as defined in Section 3.01(d)), any such Cinergy Merger Consideration, dividends or distributions in respect of such Certificate or such cash shall, to the extent permitted by applicable law, become the property of the Company, free and clear of all claims or interest of any person previously entitled thereto. If any Certificate shall not have been surrendered prior to two years after the Duke Effective Time (or immediately prior to such earlier date on which any Duke Merger Consideration, any dividends or distributions payable to the holder of such Certificate or any cash payable to the holder of such Certificate formerly representing Duke Common Stock pursuant to this Article II, would otherwise escheat to or become the property of any Governmental Authority), any such Duke Merger Consideration, dividends or distributions in respect of such Certificate or such cash shall, to the extent permitted by applicable law, become the property of the Company, free and clear of all claims or interest of any person previously entitled thereto.

(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by the Company, on a daily basis. Any interest and other income resulting from such investments shall be paid to the Company.

(i) Withholding Rights. The Company and the Exchange Agent shall be entitled to deduct and withhold from any consideration payable pursuant to this Agreement to any Person who was a holder of Duke Common Stock or Cinergy Common Stock, as the case may be, immediately prior to the Duke Effective Time or the Cinergy Effective Time, as the case may be, such amounts as the Company and the Exchange Agent may be required to deduct and withhold with respect to the making of such payment under the Code or any other provision of applicable federal, state, local or foreign tax law. To the extent that amounts are so withheld by the Company or the Exchange Agent and duly paid over to the applicable taxing authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person to whom such consideration would otherwise have been paid.

(j) Lost, Stolen or Destroyed Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Company, the posting by such person of a bond in such reasonable amount as the Company may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration and, if applicable, any unpaid dividends and distributions on shares of Company Common Stock deliverable in respect thereof and any cash in lieu of fractional shares, in each case pursuant to this Agreement.

(k) Adjustments to Prevent Dilution. In the event that Duke changes the number of shares of Duke Common Stock or securities convertible or exchangeable into or exercisable for shares of Duke Common Stock, Cinergy changes the number of shares of Cinergy Common Stock or securities convertible or exchangeable into or exercisable for shares of Cinergy Common Stock, issued and outstanding prior to the Effective Time, or the Company changes the number of shares of Company Common Stock or securities convertible or exchangeable into or exercisable for shares of Company Common Stock issued and outstanding after the Duke Effective Time and prior to the Cinergy Effective Time, in each case as a result of a reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger, subdivision, issuer tender or exchange offer, or other similar transaction, except to the extent any of the foregoing actions are expressly permitted by this Agreement, the Cinergy Ratio shall be equitably adjusted.

(l) Uncertificated Shares. In the case of outstanding shares of Cinergy Common Stock or Duke Common Stock that are not represented by Certificates, the parties shall make such adjustments to this Section 2.02 as are necessary or appropriate to implement the same purpose and effect that this Section 2.02 has with respect to shares of Cinergy Common Stock and Duke Common Stock that are represented by Certificates provided, however, that Duke and Cinergy shall use reasonable best efforts so that uncertificated shares of Duke Common Stock held in the Duke DRIP and uncertificated shares of Cinergy Common Stock held in the Cinergy DRIP shall be exchanged for uncertificated shares of Company Common Stock in accordance with Section 2.01 and shall be held in a dividend reinvestment plan to be established and implemented by the Company on or prior to the Closing Date, in accordance with Section 2.02(e)(i).

Section 2.03 Dissenting Shares. Any holder of shares of Duke Common Stock who shall have exercised rights to dissent with respect to the Duke Merger in accordance with the NCBCA and who has properly exercised such holder’s rights to demand payment of the “fair value” of the holder’s shares of Duke Common Stock (the “Dissenting Shares”) as provided in the NCBCA (the “Dissenting Shareholder”) shall thereafter have only such rights, if any, as are provided a Dissenting Shareholder in accordance with the NCBCA and shall have no rights to receive the Merger Consideration pursuant to Section 2.01 (provided, that nothing contained herein shall limit such Dissenting Shareholder’s rights to the payment of all declared and unpaid dividends on Duke Common Stock); provided, however, that if a Dissenting Shareholder shall fail to properly demand payment (in accordance with the NCBCA) or shall have effectively withdrawn or lost such rights to relief as a Dissenting Shareholder under the NCBCA, then such Dissenting Shareholder’s Dissenting Shares automatically shall cease to be Dissenting Shares and shall be converted into and represent only the right to receive, upon surrender of the Certificate representing the Dissenting Shares, the Merger Consideration pursuant to Section 2.01 and declared and unpaid dividends or other distributions as provided in Section 2.02(b) and Section 2.02(c). Duke shall give Cinergy and the Company prompt notice of any demands received by Duke prior to the Duke Effective Time, any attempted withdrawals of such demands and any other instruments served pursuant to the NCBCA and received by Duke relating to Duke’s shareholders rights of dissent under the NCBCA, and Duke and Cinergy shall cooperate with respect to all negotiations and proceedings with respect to such demands.

ARTICLE III

Representations and Warranties

Section 3.01 Representations and Warranties of Cinergy. Except as set forth in the letter dated the date of this Agreement and delivered to Duke by Cinergy concurrently with the execution and delivery of this Agreement (the “Cinergy Disclosure Letter”) or, to the extent the qualifying nature of such disclosure is readily apparent therefrom, as set forth in the Cinergy SEC Reports (as defined in Section 3.01(e)) filed on or after January 1, 2004 and prior to the date hereof, Cinergy represents and warrants to Duke as follows:

(a) Organization and Qualification.

(i) Each of Cinergy and its subsidiaries is duly organized, validly existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) under the laws of its jurisdiction of organization and has full power and authority to conduct its business as and to the extent now conducted and to own, use and lease its assets and properties, except for such failures to be so organized, existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) or to have such power and authority that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect (as defined in Section 8.03) on Cinergy. Each of Cinergy and its subsidiaries is duly qualified, licensed or admitted to do business and is in good standing (with respect to jurisdictions that recognize the concept of good standing) in each jurisdiction in which the ownership, use or leasing of its assets and properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so qualified, licensed or admitted and in good standing (with respect to jurisdictions that recognize the concept of good standing) that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy. Section 3.01(a) of the Cinergy Disclosure Letter sets forth as of the date of this Agreement the name and jurisdiction of organization of each subsidiary of Cinergy.

(ii) Section 3.01(a) of the Cinergy Disclosure Letter sets forth a description as of the date of this Agreement, of all Cinergy Joint Ventures, including (x) the name of each such entity and (y) a brief description of the principal line or lines of business conducted by each such entity. For purposes of this Agreement:

(A) “Joint Venture” of a person or entity shall mean any person that is not a subsidiary of such first person, in which such first person or one or more of its subsidiaries owns directly or indirectly an equity interest, other than equity interests held for passive investment purposes that are less than 5% of each class of the outstanding voting securities or equity interests of such second person;

(B) “Cinergy Joint Venture” shall mean any Joint Venture of Cinergy or any of its subsidiaries in which the net book value as of December 31, 2004 of Cinergy’s or its subsidiaries’ interest exceeds $35,000,000; and

(C) “Duke Joint Venture” shall mean any Joint Venture of Duke or any of its subsidiaries in which the invested capital associated with Duke’s or its subsidiaries’ interest exceeds $100,000,000.

(iii) Except for interests in the subsidiaries of Cinergy, the Cinergy Joint Ventures and interests acquired after the date of this Agreement without violating any covenant or agreement set forth herein. Cinergy does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any person, in which the net book value as of December 31, 2004 of such interest individually exceeds $35,000,000.

(b) Capital Stock.

(i) The authorized capital stock of Cinergy consists of:

(A) 600,000,000 shares of Cinergy Common Stock, of which 198,360,398 shares were issued and outstanding as of May 6, 2005; and

(B) 10,000,000 shares of preferred stock, par value $.01 per share, none of which were issued and outstanding as of the date of this Agreement.

As of March 31, 2005, 138,862 shares of Cinergy Common Stock were held in the treasury of Cinergy. As of the date of this Agreement, 5,837,978 shares of Cinergy Common Stock were subject to outstanding Cinergy Employee Stock Options (as defined in Section 5.06(a)) and 6,914,109 additional shares of Cinergy Common Stock were reserved for issuance pursuant to the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan, Stock Option Plan, Employee Stock Purchase and Savings Plan, UK Sharesave Scheme, Retirement Plan for Directors, Directors’ Deferred Compensation Plan, Directors’ Equity Compensation Plan and any other compensatory plan, program or arrangement under which shares of Cinergy Common Stock are reserved for issuance (collectively, the “Cinergy Employee Stock Option Plans”). All of the issued and outstanding shares of Cinergy Common Stock are, and all shares reserved for issuance will be, upon issuance in accordance with the terms specified in the instruments or agreements pursuant to which they are issuable, duly authorized, validly issued, fully paid and nonassessable. Except as disclosed in this Section 3.01(b), as of the date of this Agreement there are no outstanding subscriptions, options, warrants, rights (including stock appreciation rights), preemptive rights or other contracts, commitments, understandings or arrangements, including any right of conversion or exchange under any outstanding security, instrument or agreement (together, “Options”), obligating Cinergy or any of its subsidiaries to issue or sell any shares of capital stock of Cinergy or to grant, extend or enter into any Option with respect thereto.

(ii) Except as permitted by this Agreement, all of the outstanding shares of capital stock of each subsidiary of Cinergy are duly authorized, validly issued, fully paid and nonassessable and are owned, beneficially and of record, by Cinergy or a subsidiary, free and clear of any liens, claims, mortgages, encumbrances, pledges, security interests, equities and charges of any kind (each a “Lien”), except for any of the foregoing that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy. There are no (A) outstanding Options obligating Cinergy or any of its subsidiaries to issue or sell any shares of capital stock of any subsidiary of Cinergy or to grant, extend or enter into any such Option or (B) voting trusts, proxies or other commitments, understandings, restrictions or arrangements in favor of any person other than Cinergy or a subsidiary wholly-owned, directly or indirectly, by Cinergy with respect to the voting of or the right to participate in dividends or other earnings on any capital stock of any subsidiary of Cinergy.

(iii) Cinergy is a “registered holding company” as defined under Section 2(a)(12) of the Public Utility Holding Company Act of 1935, as amended (the “1935 Act”).

(iv) As of the date of this Agreement, no bonds, debentures, notes or other indebtedness of Cinergy or any of its subsidiaries having the right to vote (or which are convertible into or exercisable for securities having the right to vote) (collectively, “Cinergy Voting Debt”) on any matters on which Cinergy shareholders may vote are issued or outstanding nor are there any outstanding Options obligating Cinergy or any of its subsidiaries to issue or sell any Cinergy Voting Debt or to grant, extend or enter into any Option with respect thereto.

(c) Authority. Cinergy has full corporate power and authority to enter into this Agreement, to perform its obligations hereunder and, subject to obtaining Cinergy Shareholder Approval (as defined in Section 3.01(p)), to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Cinergy and the

consummation by Cinergy of the transactions contemplated hereby have been duly and validly adopted and approved by the Board of Directors of Cinergy, the Board of Directors of Cinergy has recommended approval of this Agreement by the shareholders of Cinergy and directed that this Agreement be submitted to the shareholders of Cinergy for their approval, and no other corporate proceedings on the part of Cinergy or its shareholders are necessary to authorize the execution, delivery and performance of this Agreement by Cinergy and the consummation by Cinergy of the Cinergy Merger and the other transactions contemplated hereby, other than obtaining Cinergy Shareholder Approval. This Agreement has been duly and validly executed and delivered by Cinergy and constitutes a legal, valid and binding obligation of Cinergy enforceable against Cinergy in accordance with its terms.

(d) No Conflicts; Approvals and Consents.

(i) The execution and delivery of this Agreement by Cinergy do not, and the performance by Cinergy of its obligations hereunder and the consummation of the Mergers and the other transactions contemplated hereby will not, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, result in or give to any person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of the assets or properties of Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures under, any of the terms, conditions or provisions of (A) the certificates or articles of incorporation or by-laws (or other comparable organizational documents) of Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures, or (B) subject to the obtaining of Cinergy Shareholder Approval and the taking of the actions described in paragraph (ii) of this Section 3.01(d) and obtaining the Duke Required Statutory Approvals (as defined in Section 3.02(d)(ii)), (x) any statute, law, rule, regulation or ordinance (together, “laws”), or any judgment, order, writ or decree (together, “orders”), of any Federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic, foreign or supranational (each, a “Governmental Authority”) applicable to Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures or any of their respective assets or properties, or (y) any note, bond, mortgage, security agreement, agreement, indenture, franchise, concession, contract, lease or other instrument to which Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures is a party or by which Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures or any of their respective assets or properties is bound, excluding from the foregoing clauses (x) and (y) such items that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(ii) Except for (A) compliance with, and filings under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the “HSR Act”); (B) the filing with and, to the extent required, the declaration of effectiveness by the Securities and Exchange Commission (the “SEC”) of (1) a proxy statement relating to the approval of this Agreement by Cinergy’s shareholders (such proxy statement, together with the proxy statement relating to the approval of this Agreement by Duke’s shareholders, in each case as amended or supplemented from time to time, the “Joint Proxy Statement”) pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “Exchange Act”), (2) the registration statement on Form S-4 prepared in connection with the issuance of Company Common Stock in the Mergers (the “Form S-4”) and (3) such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby; (C) the filing of documents with various state securities authorities that may be required in connection with the transactions contemplated hereby; (D) such filings with and approvals of the NYSE to permit the shares of Company Common Stock that are to be issued pursuant to Article II to be listed on the NYSE; (E) the registration, consents, approvals and notices required under the 1935 Act; (F) notice to, and the consent and approval of, the Federal Energy Regulatory Commission (the “FERC”) under Section 203 of the Federal Power Act, as amended (the “Power Act”), or an order under the Power Act disclaiming jurisdiction over the transactions contemplated hereby; (G) the filing of an application to, and consent and approval of, and issuance of any required licenses and license amendments by, the Nuclear Regulatory Commission (the “NRC”) under the Atomic Energy Act of 1954, as amended (the “Atomic Energy Act”); (H) the filing of the Cinergy Certificate of Merger and other appropriate merger documents required by the DGCL with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which Cinergy is qualified to do business; (I) compliance with and such filings as may be required under applicable Environmental Laws (as defined in Section 3.01(n)); (J) to the extent required, notice to and the approval of (1) the Public Utilities Commission of Ohio (“PUCO”), (2) the Indiana Utility Regulatory Commission (“IURC”), (3) the Kentucky Public Service Commission (“KPSC”), (4) the North Carolina Utilities Commission (“NCUC”), and (5) the Public Service Commission of South Carolina (“PSCSC” and, collectively with PUCO, IURC, KPSC, and NCUC, the “Applicable PSCs”); (K) required pre-approvals (the “FCC Pre-Approvals”) of license transfers with the Federal Communications Commission (the “FCC”); (L) such other items as disclosed in Section 3.01(d) of the Cinergy Disclosure Letter; and (M) compliance with, and filings under, antitrust or competition laws of any foreign jurisdiction, including the Competition Act (Canada), Investment Canada Act and other applicable Canadian federal and provincial regulatory requirements (the items set forth above in clauses (A) through (H) and (J), collectively, the “Cinergy Required Statutory Approvals”), no consent, approval, license, order or authorization (“Consents”) or action of, registration, declaration or filing with or notice to any Governmental Authority is necessary or required to be obtained or made in connection

with the execution and delivery of this Agreement by Cinergy, the performance by Cinergy of its obligations hereunder or the consummation of the Mergers and the other transactions contemplated hereby, other than such items that the failure to make or obtain, as the case may be, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on Cinergy.

(e) SEC Reports, Financial Statements and Utility Reports.

(i) Cinergy and its subsidiaries have filed each form, report, schedule, registration statement, registration exemption, if applicable, definitive proxy statement and other document (together with all amendments thereof and supplements thereto) required to be filed by Cinergy or any of its subsidiaries pursuant to the Securities Act of 1933, as amended, and the rules and regulations thereunder (the “Securities Act”) or the Exchange Act with the SEC since January 1, 2002 (as such documents have since the time of their filing been amended or supplemented, the “Cinergy SEC Reports”). As of their respective dates, after giving effect to any amendments or supplements thereto, the Cinergy SEC Reports (A) complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, if applicable, as the case may be, and, to the extent in effect and applicable, the Sarbanes-Oxley Act of 2002 (“SOX”), and (B) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(ii) Each of the principal executive officer of Cinergy and the principal financial officer of Cinergy (or each former principal executive officer of Cinergy and each former principal financial officer of Cinergy, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act or Sections 302 and 906 of SOX and the rules and regulations of the SEC promulgated thereunder with respect to the Cinergy SEC Reports. For purposes of the preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in SOX. Since the effectiveness of SOX, neither Cinergy nor any of its subsidiaries has arranged any outstanding “extensions of credit” to directors or executive officers within the meaning of Section 402 of SOX.

(iii) The audited consolidated financial statements and unaudited interim consolidated financial statements (including, in each case, the notes, if any, thereto) included in the Cinergy SEC Reports (the “Cinergy Financial Statements”) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments that were not or are note expected to be, individually or in the aggregate, materially adverse to Cinergy) the consolidated financial position of Cinergy and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended.

(iv) All filings (other than immaterial filings) required to be made by Cinergy or any of its subsidiaries since January 1, 2002, under the 1935 Act, the Power Act, the Communications Act of 1934 and applicable state laws and regulations, have been filed with the SEC, the FERC, the Department of Energy (the “DOE”), the FCC or any applicable state public utility commissions (including, to the extent required, PUCO, IURC and KPSC), as the case may be, including all forms, statements, reports, agreements (oral or written) and all documents, exhibits, amendments and supplements appertaining thereto, including all rates, tariffs, franchises, service agreements and related documents and all such filings complied, as of their respective dates, with all applicable requirements of the applicable statute and the rules and regulations thereunder, except for filings the failure of which to make or the failure of which to make in compliance with all applicable requirements of the applicable statute and the rules and regulations thereunder, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(v) The management of Cinergy has (x) designed disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), or caused such disclosure controls and procedures to be designed under their supervision, to ensure that material information relating to Cinergy, including its consolidated subsidiaries, is made known to the management of Cinergy by others within those entities, and (y) has disclosed, based on its most recent evaluation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act), to Cinergy’s outside auditors and the audit committee of the Board of Directors of Cinergy (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Cinergy’s ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in Cinergy’s internal control over financial reporting. Since December 31, 2004, any material change in internal control over financial reporting required to be disclosed in any Cinergy SEC Report has been so disclosed.

(vi) Since December 31, 2004, (x) neither Cinergy nor any of its subsidiaries nor, to the knowledge of the Executive Officers (for the purposes of this Section 3.01(e)(vi), as such term is defined in Section 3b-7 of the Exchange Act) of Cinergy, any director, officer, employee, auditor, accountant or representative of Cinergy or any of its subsidiaries has received or otherwise obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of Cinergy or any of its subsidiaries or their respective internal accounting controls relating to periods after December 31, 2004, including any material complaint, allegation, assertion or claim that Cinergy or any of its subsidiaries has engaged in questionable accounting or auditing practices (except for any of the foregoing after the date hereof which have no reasonable basis), and (y) to the knowledge of the Executive Officers of Cinergy, no attorney representing Cinergy or any of its subsidiaries, whether or not employed by Cinergy or any of its subsidiaries, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation, relating to periods after December 31, 2004, by Cinergy or any of its officers, directors, employees or agents to the Board of Directors of Cinergy or any committee thereof or to any director or Executive Officer of Cinergy.

(f) Absence of Certain Changes or Events. Since December 31, 2004, through the date hereof, there has not been any change, event or development that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on Cinergy.

(g) Absence of Undisclosed Liabilities. Except for matters reflected or reserved against in the balance sheet (or notes thereto) as of December 31, 2004, included in the Cinergy Financial Statements, as of the date of this Agreement, neither Cinergy nor any of its subsidiaries has any liabilities or obligations (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due) of any nature that would be required by GAAP to be reflected on a consolidated balance sheet of Cinergy and its consolidated subsidiaries (including the notes thereto), except liabilities or obligations (i) that were incurred in the ordinary course of business consistent with past practice since December 31, 2004, or (ii) that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(h) Legal Proceedings. Except for environmental matters, which are the subject of Section 3.01(n), as of the date of this Agreement, (i) there are no actions, suits, arbitrations or proceedings pending or, to the knowledge of Cinergy, threatened against, relating to or affecting, nor to the knowledge of Cinergy are there any Governmental Authority investigations or audits pending or threatened against, relating to or affecting, Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures or any of their respective assets and properties that, in each case, individually or in the aggregate, have had or could reasonably be expected to have a material adverse effect on Cinergy, and (ii) neither Cinergy nor any of its subsidiaries is subject to any order of any Governmental Authority that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on Cinergy.

(i) Information Supplied. None of the information supplied or to be supplied by Cinergy for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Joint Proxy Statement will, at the date it is first mailed to Cinergy’s shareholders or Duke’s shareholders or at the time of the Cinergy Shareholders Meeting (as defined in Section 5.01) or the Duke Shareholders Meeting (as defined in Section 5.01), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Joint Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation is made by Cinergy with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of Duke for inclusion or incorporation by reference in the Joint Proxy Statement.

(j) Permits; Compliance with Laws and Orders. Cinergy, its subsidiaries and the Cinergy Joint Ventures hold all permits, licenses, certificates, authorizations and approvals of all Governmental Authorities (“Permits”) necessary for the lawful conduct of their respective businesses, except for failures to hold such Permits that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy. Cinergy, its subsidiaries and the Cinergy Joint Ventures are in compliance with the terms of their Permits, except failures so to comply that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy. Cinergy, its subsidiaries and the Cinergy Joint Ventures are not in violation of or default under any law or order of any Governmental Authority, except for such violations or defaults that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy. Cinergy is, and has been, in compliance in all material respects with (i) the provisions of SOX applicable to it on or prior to the date hereof and has implemented such programs and has taken all reasonable steps necessary to ensure Cinergy’s future compliance (not later than the relevant statutory and regulatory deadlines therefore) with all provisions of SOX which shall become applicable to Cinergy after the date hereof and (ii) the applicable listing standards and corporate governance rules and regulations of the NYSE. This Section 3.01(j) does not relate to matters with respect to taxes, such matters being the subject of Section 3.01(k), Environmental Laws, such matters being the subject of Section 3.01(n) and benefits plans, such matters being the subject of Section 3.01(l).

(k) Taxes. Except as has not had, and could not reasonably be expected to have, a material adverse effect on Cinergy:

(i) Each of Cinergy and its subsidiaries has timely filed, or has caused to be timely filed on its behalf, all Tax Returns (as defined below) required to be filed by it, and all such Tax Returns are true, complete and accurate. All Taxes (as defined below) shown to be due and owing on such Tax Returns have been timely paid.

(ii) The most recent financial statements contained in the Cinergy SEC Reports filed prior to the date of This Agreement reflect, in accordance with GAAP, an adequate reserve for all Taxes payable by Cinergy and its subsidiaries for all taxable periods through the date of such financial statements.

(iii) There is no audit, examination, deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any Taxes or Tax Return of Cinergy or its subsidiaries, to the knowledge of Cinergy, neither Cinergy nor any of its subsidiaries has received written notice of any claim made by a governmental authority in a jurisdiction where Cinergy or any of its subsidiaries, as applicable, does not file a Tax Return, that Cinergy or such subsidiary is or may be subject to income taxation by that jurisdiction, no deficiency with respect to any Taxes has been proposed, asserted or assessed against Cinergy or any of its subsidiaries, and no requests for waivers of the time to assess any Taxes are pending.

(iv) The federal income Tax Returns of Cinergy and its subsidiaries have been examined by and settled with the Internal Revenue Service (“IRS”) (or the applicable statutes of limitation have lapsed) for all years through 1990. All material assessments for Taxes due with respect to such completed and settled examinations or any concluded litigation have been fully paid.

(v) There are no outstanding written agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against Cinergy or any of its subsidiaries, and no power of attorney granted by either Cinergy or any of its subsidiaries with respect to any Taxes is currently in force.

(vi) Neither Cinergy nor any of its subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes imposed on or with respect to any individual or other Person (other than (I) such agreements with customers, vendors, lessors or the like entered into in the ordinary course of business and (II) agreements with or among Cinergy or any of its subsidiaries), and neither Cinergy nor any of its subsidiaries (A) has been a member of an affiliated group (or similar state, local or foreign filing group) filing a consolidated U.S. federal income Tax Return (other than the group the common parent of which is Cinergy) or (B) has any liability for the Taxes of any person (other than Cinergy or any of its subsidiaries) (I) under Treasury Regulation ss. 1.1502-6 (or any similar provision of state, local or foreign law), or (II) as a transferee or successor.

(vii) There are no material Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of Cinergy and its subsidiaries.

(viii) Neither Cinergy nor any of its subsidiaries has taken or agreed to take any action or knows of any fact, agreement, plan or other circumstance that is reasonably likely to prevent or impede either the Duke Reorganization from qualifying as a reorganization under Section 368(a) of the Code or the Cinvergy Merger from qualifying as a reorganization under Section 368(a) of the Code.

For purposes of this Agreement:

“Taxes” means any and all federal, state, local, foreign or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any governmental authority, including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, unemployment, social security, workers’ compensation, or net worth, and taxes or other charges in the nature of excise, withholding, ad valorem or value added.

“Tax Return” means any return, report or similar statement (including the schedules attached thereto) required to be filed with respect to Taxes, including, without limitation, any information return, claim for refund, amended return, or declaration of estimated Taxes.

(l) Employee Benefit Plans; ERISA.

(i) Except for such matters that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy, (A) all Cinergy Employee Benefit Plans (as defined below) are in compliance with all applicable requirements of law, including ERISA (as defined below) and the Code, and (B) there does not now exist, nor do any circumstances exist that could result in, any Controlled Group Liability that would be a liability of Cinergy or any of its subsidiaries following the Closing. The only material employment agreements, severance agreements or severance policies applicable to Cinergy or any of its subsidiaries are the agreements and policies disclosed in Section 3.01(l)(i) of the Cinergy Disclosure Letter.

(ii) As used herein:

(A) “Controlled Group Liability” means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, and (iv) as a result of a failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code.

(B) “Cinergy Employee Benefit Plan” means any Plan entered into, established, maintained, sponsored, contributed to or required to be contributed to by Cinergy or any of its subsidiaries for the benefit of the current or former employees or directors of Cinergy or any of its subsidiaries and existing on the date of this Agreement or at any time subsequent thereto and, in the case of a Plan (as defined below) that is subject to Part 3 of Title I of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder (“ERISA”), Section 412 of the Code or Title IV of ERISA, at any time during the five-year period preceding the date of this Agreement with respect to which Cinergy or any of its subsidiaries has or could reasonably be expected to have any present or future actual or contingent liabilities;

(C) “Plan” means any employment, bonus, incentive compensation, deferred compensation, long term incentive, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, medical, accident, disability, workmen’s compensation or other insurance, severance, separation, termination, change of control or other benefit plan, agreement, practice, policy, program, scheme or arrangement of any kind, whether written or oral,including any “employee benefit plan” within the meaning of Section3(3) of ERISA; and

(iii) No event has occurred, and there exists no condition or set of circumstances in connection with any Cinergy Employee Benefit Plan, that has had or could reasonably be expected to have a material adverse effect on Cinergy.

(iv) Section 3.01(l)(iv) of the Cinergy Disclosure Letter identifies each Cinergy Employee Benefit Plan that provides, upon the occurrence of a change in the ownership or effective control of Cinergy or its subsidiaries or a change in the ownership of all or a substantial portion of the assets of Cinergy or its subsidiaries, either alone or upon the occurrence of any additional or subsequent events and whether or not applicable to the transactions contemplated by this Agreement, for (A) and acceleration of the time of payment of or vesting in, or an increase in the amount of, compensation or benefits due any current or former employee, director or officer of Cinergy or its subsidiaries, (B) any forgiveness of indebtedness or obligation to fund benefits with respect to any such employee, director or officer, or (C) an entitlement of any such employee, director or officer to severance pay, unemployment compensation or any other payment or other benefit.

(m) Labor Matters. As of the date hereof, neither Cinergy nor any of its subsidiaries is a party to, bound by or in the process of negotiating any collective bargaining agreement or other labor agreement with any union or labor organization. As of the date of this Agreement, there are no disputes, grievances or arbitrations pending or, to the knowledge of Cinergy, threatened between Cinergy or any of its subsidiaries and any trade union or other representatives of its employees and there is no charge or complaint pending or threatened in writing against Cinergy or any of its subsidiaries before the National Labor Relations Board (the “NLRB”) or any similar Governmental Authority, except in each case as, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy, and, to the knowledge of Cinergy, as of the date of this Agreement, there are no material organizational efforts presently being made involving any of the employees of Cinergy or any of its subsidiaries. From December 31, 2002, to the date of this Agreement, there has been no work stoppage, strike, slowdown or lockout by or affecting employees of Cinergy or any of its subsidiaries and, to the knowledge of Cinergy, no such action has been threatened in writing, except in each case as, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy. Except as, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Cinergy: (A) there are no litigations, lawsuits, claims, charges, complaints, arbitrations, actions, investigations or proceedings pending or, to the knowledge of Cinergy, threatened between or involving Cinergy or any of its subsidiaries and any of their respective current or former employees, independent contractors, applicants for employment or classes of the foregoing; (B) Cinergy and its subsidiaries are in compliance with all applicable laws,orders, agreements, contracts and policies respecting employment and employment

practices, including, without limitation, all legal requirements respecting terms and conditions of employment, equal opportunity, workplace health and safety, wages and hours, child labor, immigration, discrimination, disability rights or benefits, facility closures and layoffs, workers’ compensation, labor relations, employee leaves and unemployment insurance; and (C) since January 1, 2002, neither Cinergy nor any of its subsidiaries has engaged in any “plant closing” or “mass layoff”, as defined in the Worker Adjustment Retraining and Notification Act or any comparable state or local law (the “WARN Act”), without complying with the notice requirements of such laws.

(n) Environmental Matters.

(i) Each of Cinergy, its subsidiaries and the Cinergy Joint Ventures has been and is in compliance with all applicable Environmental Laws (as hereinafter defined), except where the failure to be in such compliance, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(ii) Each of Cinergy, its subsidiaries and the Cinergy Joint Ventures has obtained all environmental Permits (collectively, the “Environmental Permits”) necessary for the construction of their facilities and the conduct of their operations as of the date of this Agreement, as applicable, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and Cinergy, its subsidiaries and the Cinergy Joint Ventures are in compliance with all terms and conditions of the Environmental Permits, except where the failure to obtain such Environmental Permits, of such Permits to be in good standing or, where applicable, of a renewal application to have been timely filed and be pending or to be in such compliance, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(iii) There is no Environmental Claim (as herein after defined) pending:

(A) against Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures;

(B) to the knowledge of Cinergy, against any person or entity whose liability for such Environmental Claim has been retained or assumed either contractually or by operation of law by Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures; or

(C) against any real or personal property or operations that Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures owns, leases or manages, in whole or in part, or, to the knowledge of Cinergy, formerly owned, leased or managed, in whole or in part, except in the case of clause (A), (B) or (C) for such Environmental Claims that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(iv) To the knowledge of Cinergy, there have not been any Releases (as hereinafter defined) of any Hazardous Material (as herein after defined) that would be reasonably likely to form the basis of any Environmental Claim against Cinergy or any of its subsidiaries or any of the Cinergy Joint Ventures, in each case, except for such Releases that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(v) As used in this Section 3.01(n) and in Section3.02(n):

(A) “Environmental Claim” means any and all administrative, regulatory or judicial actions, suits, orders, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance, liability or violation (written or oral) by any person or entity (including any Governmental Authority) alleging potential liability (including potential responsibility or liability for enforcement, investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from

(1) the presence or Release into the environment of any Hazardous Materials at any location;

(2) circumstances forming the basis of any actual or alleged violation of, or liability under, any Environmental Law or Environmental Permit; or

(3) any and all claims by any-third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence or Release of, or exposure to, any Hazardous Materials;

(B) “Environmental Laws” means all domestic or foreign Federal, state and local laws, principles of common law and orders relating to pollution, the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or protection of human health as it relates to the environment including laws relating to the presence or Release of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of, or exposure to, Hazardous Materials;

(C) “Hazardous Materials” means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and polychlorinated biphenyls; and (b) any chemical, material, substance or waste that is now prohibited, limited or regulated under any Environmental Law; and

(D) “Release” means any actual or threatened release, spill, emission, leaking, injection, deposit, disposal, discharge, dispersal, leaching or migration into the atmosphere, soil, surface water, groundwater or property.

(o) No Ownership of Nuclear Power Plants. None of Cinergy, any of its subsidiaries or any Cinergy Joint Venture owns, directly or indirectly, any interest in any nuclear generation station or manages or operates any nuclear generation station.

(p) Vote Required. Assuming the accuracy of the representation and warranty contained in Section 3.02(r), the affirmative vote of the holders of record of at least a majority of the outstanding shares of Cinergy Common Stock, with respect to the approval of this Agreement (the “Cinergy Shareholder Approval”), is the only vote of the holders of any class or series of the capital stock of Cinergy or its subsidiaries required to approve this Agreement, the Cinergy Merger and the other transactions contemplated hereby.

(q) Opinion of Financial Advisor. Cinergy has received the opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated the date of this Agreement, to the effect that, as of the date of this Agreement, the Cinergy Exchange Ratio is fair from a financial point of view to the holders of Cinergy Common Stock.

(r) Ownership of Duke Capital Stock. Neither Cinergy or any of its subsidiaries or other affiliates beneficially owns any shares of Duke capital stock.

(s) Section 203 of the DGCL Not Applicable; Other Statutes. Cinergy has taken all necessary actions, if any, so that the provisions of Section 203 of the DGCL will not, before the termination of this Agreement, apply to this Agreement, the Cinergy Merger or the other transactions contemplated hereby. No “fair price”, “merger moratorium”, “control share acquisition”, or other anti-takeover or similar statute or regulation applies or purports to apply to this Agreement, the Cinergy Merger or the other transactions contemplated hereby.

(t) Joint Venture Representations. Each representation or warranty made by Cinergy in this Section 3.01 relating to a Cinergy Joint Venture that is neither operated nor managed by Cinergy or a Cinergy subsidiary shall be deemed made only to the knowledge of Cinergy.

(u) Insurance. Except for failures to maintain insurance or self-insurance that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Cinergy, from January 1, 2004, through the date of this Agreement, each of Cinergy and its subsidiaries has been continuously insured with financially responsible insurers or has self-insured, in each case in such amounts and with respect to such risks and losses as are customary for companies in the United States conducting the business conducted by Cinergy and its subsidiaries during such time period. Neither Cinergy nor any of its subsidiaries has received any notice of cancellation or termination with respect to any insurance policy of Cinergy or any of its subsidiaries, except with respect to any cancellation or termination that, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Cinergy.

(v) Trading. Cinergy has established risk parameters, limits and guidelines in compliance with the risk management policy approved by Cinergy’s Board of Directors (the “Cinergy Trading Guidelines”) to restrict the level of risk that Cinergy and its subsidiaries are authorized to take with respect to, among other things, the net position resulting from all physical commodity transactions, exchange-traded futures and options transactions, over-the-counter transactions and derivatives thereof and similar transactions (the “Net Cinergy Position”) and monitors compliance by Cinergy and its subsidiaries with such risk parameters. Cinergy has provided the Cinergy Trading Guidelines to Duke prior to the date of this Agreement. As of the date of this Agreement, (i) the Net Cinergy Position is within the risk parameters that are set forth in the Cinergy Trading Guidelines and (ii) the exposure of Cinergy and its subsidiaries with respect to the Net Cinergy Position resulting from all such transactions is not material to Cinergy and its subsidiaries taken as a whole. From December 31, 2004 to the date of this Agreement, neither Cinergy nor any of its subsidiaries has, in accordance with its mark to market accounting policies, experienced an aggregate net loss in its trading and related operations that would be material to Cinergy and its subsidiaries taken as a whole.

Section 3.02 Representations and Warranties of Duke. Except as set forth in the letter dated the date of this Agreement and delivered to Cinergy by Duke concurrently with the execution and delivery of this Agreement (the “Duke Disclosure Letter”) or, to the extent the qualifying nature of such disclosure is readily apparent therefrom, as set forth in the Duke SEC Reports (as defined in Section 3.02(e)) filed on or after January 1, 2004 and prior to the date hereof, Duke represents and warrants to Cinergy as follows:

(a) Organization and Qualification.

(i) Each of Duke and its subsidiaries is duly organized, validly existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) under the laws of its jurisdiction of organization and has full power and authority to conduct its business as and to the extent now conducted and to own, use and lease its assets and properties, except for such failures to be so organized, existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) or to have such power and authority that, individually or in the aggregate, have not had and could not be reasonably expected to have a material adverse effect (as defined in Section 8.03) on Duke. Each of Duke and its subsidiaries is duly qualified, licensed or admitted to do business and is in good standing (with respect to jurisdictions that recognize the concept of good standing) in each jurisdiction in which the ownership, use or leasing of its assets and properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so qualified, licensed or admitted and in good standing (with respect to jurisdictions that recognize the concept of good standing) that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. Section 3.02(a) of the Duke Disclosure Letter sets forth as of the date of this Agreement the name and jurisdiction of organization of each subsidiary of Duke. Each of the Company, Merger Sub A and Merger Sub B is a newly formed corporation and has engaged in no activities except as contemplated by this Agreement.

(ii) Section 3.02(a) of the Duke Disclosure And authority forth a description as of the date of this Agreement, of all Duke Joint Ventures, including (x) the name of each such entity and (y) a brief description of the principal line or lines of business conducted by each such entity.

(iii) Except for interests in the subsidiaries of Duke, the Duke Joint Ventures and interests acquired after the date of this Agreement without violating any covenant or agreement set forth herein, Duke does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any person, in which the invested capital associated with such interest individually as of the date of this Agreement exceeds $100,000,000.

(b) Capital Stock.

(i) The authorized capital stock of Duke consists of:

(A) 2,000,000,000 shares of Duke Common Stock, of which 926,431,621 shares were outstanding as of the close of business on May 6, 2005;

(B) 1,500,000 shares of Preference Stock, par value $100 per share (“Duke Preference Stock”), none of which were outstanding as of the date of this Agreement;

(C) 20,000,000 shares of Serial Preferred , no par value, none of which were outstanding as of the date of this Agreement;

(D) 12,500,000 shares of Duke Preferred Stock, of which 1,234,984 shares were outstanding as of the date of this Agreement, issued in the following series:

(1) 175,000 shares of 4.5% Cumulative Preferred Stock, Series C;

(2) 300,000 shares of 7.85% Cumulative Preferred Stock, Series S;

(3) 249,989 shares of 7.0% Cumulative Preferred Stock, Series W; and

(4) 299,995 shares of 7.04% Cumulative Preferred Stock, Series Y; and

(E) 10,000,000 shares of Duke Preferred Stock A, of which 1,257,185 shares were outstanding as of the date of this Agreement, issued as 6.375% Cumulative Preferred Stock A.

As of the date of this Agreement, no shares of Duke Common Stock are held in the treasury of Duke. As of the date of this Agreement, (x) 1,500,000 shares of Duke Preference Stock are designated Series A Participating Preference Stock (the “Duke Series A Preference Stock”) and are reserved for issuance in accordance with the Rights Agreement dated as of December 17, 1998, as amended, by and between Duke and The Bank of New York, as Rights Agent, pursuant to which Duke has issued rights (the “Duke Rights”) to purchase such shares of Duke Series A Preference Stock and (y) 26,635,301 shares of Duke Common Stock were subject to outstanding Duke Employee Stock Options (as defined in Section 5.06(b)), and 24,294,199 additional shares of Duke Common Stock were reserved for issuance pursuant to the Duke Power Company Stock Incentive Plan and the Duke 1998 Long-Term Incentive Plan and any other compensatory plan, program or arrangement under which shares of Duke Common Stock are reserved for issuance (collectively, the “Duke Option Plans”). All of the issued and outstanding shares of Duke Common Stock are, and all shares reserved for issuance will be, upon issuance in accordance with the terms specified in the instruments or agreements pursuant to which they are issuable, duly authorized, validly issued, fully paid and nonassessable. Except as disclosed in this Section 3.02(b), on the date of this Agreement there are no outstanding Options obligating Duke or any of its subsidiaries to issue or sell any shares of capital stock of Duke or to grant, extend or enter into any Option with respect thereto.

(ii) Except as permitted by this Agreement, all of the outstanding shares of capital stock of each subsidiary of Duke are duly authorized, validly issued, fully paid and nonassessable and are owned, beneficially and of record, by Duke or a subsidiary, free and clear of any Liens, except for any of the foregoing that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. All of the outstanding shares of capital stock of the Company, Merger Sub A and Merger Sub B are duly authorized, validly issued, fully paid and nonassessable and are owned, beneficially and of record, by Duke (in the case of shares of capital stock of the Company) or by the Company (in the case of capital stock of Merger Sub A and Merger Sub B). The shares of the Company owned by Duke, and the shares of each of

Merger Sub A and Merger Sub B owned by the Company, are owned free and clear of any Lien. There are no (A) outstanding Options obligating Duke or any of its subsidiaries to issue or sell any shares of capital stock of any subsidiary of Duke or to grant, extend or enter into any such Option or (B) voting trusts, proxies or other commitments, understandings, restrictions or arrangements in favor of any person other than Duke or a subsidiary wholly-owned, directly or indirectly, by Duke with respect to the voting of or the right to participate in dividends or other earnings on any capital stock of any subsidiary of Duke.

(iii) As of the date of this Agreement, none of the subsidiaries of Duke or the Duke Joint Ventures is a “public utility company”, a “holding company”, a “subsidiary company” or an “affiliate” of any holding company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act, respectively. None of Duke, its subsidiaries and the Duke Joint Ventures is registered under the 1935 Act.

(iv) As of the date of this Agreement, no bonds, debentures, notes or other indebtedness of Duke or any of its subsidiaries having the right to vote (or which are convertible into or exercisable for securities having the right to vote) (collectively, “Duke Voting Debt”) on any matters on which Duke shareholders may vote are issued or outstanding nor are there any outstanding Options obligating Duke or any of its subsidiaries to issue or sell any Duke Voting Debt or to grant, extend or enter into any Option with respect thereto.

(v) Each share of Company Common Stock to be issued in either the Duke Merger or the Cinergy Merger shall be duly authorized, validly issued, fully paid and nonassessable and free and clear of any Liens.

(c) Authority. Duke has full corporate power and authority to enter into this Agreement, to perform its obligations hereunder and, subject to obtaining Duke Shareholder Approval (as defined in Section3.02(p)), to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Duke and the consummation by Duke of the transactions contemplated hereby have been duly and validly adopted and approved by the Board of Directors of Duke, the Board of Directors of Duke has recommended approval of this Agreement by the shareholders of Duke and directed that this Agreement be submitted to the shareholders of Duke for their approval, and no other corporate proceedings on the part of Duke or its shareholders are necessary to authorize the execution, delivery and performance of this Agreement by Duke and the consummation by Duke of the Duke Merger, the Duke Conversion, the Restructuring Transactions and the other transactions contemplated hereby, other than obtaining Duke Shareholders Approval. This Agreement has been duly and validly executed and delivered by Duke and constitutes a legal, valid and binding obligation of Duke enforceable against Duke in accordance with its terms.

(d) No Conflicts; Approvals and Consents.

(i) The execution and delivery of this Agreement by Duke do not, and the performance by Duke of its obligations hereunder and the consummation of the Mergers, the Duke Conversion, the Restructuring Transactions and the other transactions contemplated hereby will not, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, result in or give to any person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of the assets or properties of Duke or any of its subsidiaries or any of the Duke Joint Ventures under, any of the terms, conditions or provisions of (A) the certificates or articles of incorporation or by-laws (or other comparable organizational documents) of Duke or any of its subsidiaries or any of the Duke Joint Ventures, or (B) subject to the obtaining of Duke Shareholder Approval and the taking of the actions described in paragraph (ii) of this Section 3.02(d) and obtaining the Cinergy Required Statutory Approvals, (x) any laws or orders of any Governmental Authority applicable to Duke or any of its subsidiaries or any of the Duke Joint Ventures or any of their respective assets or properties, or (y) any note, bond, mortgage, security agreement, agreement, indenture, license, franchise, permit, concession, contract, lease or other instrument to which Duke or any of its subsidiaries or any of the Duke Joint Ventures is a party or by which Duke or any of its subsidiaries or any of the Duke Joint Ventures or any of their respective assets or properties is bound, excluding from the foregoing clauses (x) and (y) such items that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke.

(ii) Except for (A) compliance with, and filings under, the HSR Act; (B) the filing with, and to the extent required, the declaration of effectiveness by, the SEC of (1) the Joint Proxy Statement with the SEC pursuant to the Exchange Act, (2) the Form S-4 and (3) such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby; (C) the filing of documents with various state securities authorities that may be required in connection with the transactions contemplated hereby; (D) such filings with and approvals of the NYSE to permit the shares of Company Common Stock that are to be issued pursuant to Article II to be listed on the NYSE; (E) the registration, consents, approvals and notices required under the 1935 Act; (F) notice to, and the consent and approval of, FERC under Section 203 of the Power Act, or an order under the Power Act disclaiming jurisdiction over the transactions contemplated hereby; (G) the filing of an application to, and consent and approval of, and issuance of any required licenses and license amendments by, the

NRC under the Atomic Energy Act; (H) the filing of the Duke Articles of Merger, the Duke Articles of Conversion and other appropriate merger documents required by the NCBCA and the NCLLCA with the Secretary of State of the State of North Carolina and appropriate documents with the relevant authorities of other states in which Duke is qualified to do business; (I) compliance with and such filings as may be required under applicable Environmental Laws; (J) to the extent required, notice to and the approval of, the Applicable PSCs; (K) the FCC Pre-Approvals; (L) such other items as disclosed in Section 3.02(d) of the Duke Disclosure Letter; and (M) compliance with, and filings under, antitrust or competition laws of any foreign jurisdiction, including the Competition Act (Canada), Investment Canada Act, and other applicable Canadian federal and provincial regulatory requirements (the items set forth above in clauses (A) through (H) and (J) collectively, the “Duke Required Statutory Approvals”), no Consents or action of, registration, declaration or filing with or notice to any Governmental Authority is necessary or required to be obtained or made in connection with the execution and delivery of this Agreement by Duke, the performance by Duke of its obligations hereunder or the consummation of the Mergers, the Duke Conversion, the Restructuring Transactions and the other transactions contemplated hereby, other than such items that the failure to make or obtain, as the case may be, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on Duke.

(e) SEC Reports, Financial Statements and Utility Reports.

(i) Duke and its subsidiaries have filed each form, report, schedule, registration statement, registration exemption, if applicable, definitive proxy statement and other document (together with all amendments thereof and supplements thereto) required to be filed by Duke or any of its subsidiaries pursuant to the Securities Act or the Exchange Act with the SEC since January 1, 2002 (as such documents have since the time of their filing been amended or supplemented, the “Duke SEC Reports”). As of their respective dates, after giving effect to any amendments or supplements thereto, the Duke SEC Reports (A) complied as to form in all material respects with the requirements of the Securities Actor the Exchange Act, if applicable, as the case may be, and, to the extent in effect applicable, SOX and (B) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(ii) Each of the principal executive officer of Duke and the principal financial officer of Duke (or each former principal executive officer of Duke and each former principal financial officer of Duke, as applicable) has made all certifications required by Rule 13a-14 or15d-14 under the Exchange Act or Sections 302 and 906 of SOX and the rules and regulations of the SEC promulgated thereunder with respect to the Duke SEC Reports. For purposes of the preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in SOX. Since the effectiveness of SOX, neither Duke nor any of its subsidiaries has arranged any outstanding “extensions of credit” to directors or executive officers within the meaning of Section 402 of SOX.

(iii) The audited consolidated financial statements and unaudited interim consolidated financial statements (including, in each case, the notes, if any, thereto) included in the Duke SEC Reports (the “Duke Financial Statements”) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments that were not or are not expected to be, individually or in the aggregate, materially adverse to Duke) the consolidated financial position of Duke and its consolidated subsidiaries as of the respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended.

(iv) All filings (other than immaterial filings) required to be made by Duke or any of its subsidiaries since January 1, 2002, under the 1935 Act, the Power Act, the Atomic Energy Act, the Natural Gas Act, the Natural Gas Policy Act of 1978, the Communications Act of 1934 and applicable state laws and regulations, have been filed with the SEC, the FERC, the DOE, the NRC, the FCC or any applicable state public utility commissions (including, to the extent required, NCUC and PSCSC), as the case may be, including all forms, statements, reports, agreements (oral or written) and all documents, exhibits, amendments and supplements appertaining thereto, including all rates, tariffs, franchises, service agreements and related documents and all such filings complied, as of their respective dates, with all applicable requirements of the applicable statute and the rules and regulations thereunder, except for filings the failure of which to make or the failure of which to make in compliance with all requirements of the applicable statute and the rules and regulations thereunder, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke.

(v) The management of Duke has (x) designed disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), or caused such disclosure controls and procedures to be designed under their supervision to ensure that material information relating to Duke, including its consolidated subsidiaries, is made known to the management of Duke by others within those entities, and (y) has disclosed, based on its most recent evaluation of internal control over financial reporting

(as defined in Rule 13a-15(f) of the Exchange Act), to Duke’s outside auditors and the audit committee of the Board of Directors of Duke (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Duke’s ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in Duke’s internal control over financial reporting. Since December 31, 2004, any material change in internal control over financial reporting required to be disclosed in any Duke SEC Report has been so disclosed.

(vi) Since December 31, 2004, (x) neither Duke nor any of its subsidiaries nor, to the knowledge of the Executive Officers (for the purpose of this Section 3.02(e)(vi), as such term is defined in Section 3b-7 of the Exchange Act) of Duke, any director, officer, employee, auditor, accountant or representative of Duke or any of its subsidiaries has received or otherwise obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of Duke or any of its subsidiaries or their respective internal accounting controls relating to periods after December 31, 2004, including any material complaint, allegation, assertion or claim that Duke or any of its subsidiaries has engaged in questionable accounting or auditing practices (except for any of the foregoing after the date hereof which have no reasonable basis), and (y) to the knowledge of the Executive Officers of Duke, no attorney representing Duke or any of its subsidiaries, whether or not employed by Duke or any of its subsidiaries, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation, relating to periods after December 31, 2004, by Duke or any of its officers, directors, employees or agents to the Board of Directors of Duke or any committee thereof or, to any director or Executive Officer of Duke.

(f) Absence of Certain Changes or Events. Since December 31,2004 through the date hereof, there has not been any change, event or development that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on Duke.

(g) Absence of Undisclosed Liabilities. Except for matters reflected or reserved against in the balance sheet (or notes thereto) as of December 31, 2004, included in the Duke Financial Statements, as of the date of this Agreement, neither Duke nor any of its subsidiaries has any liabilities or obligations (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due) of any nature that would be required by GAAP to be reflected on a consolidated balance sheet of Duke and its consolidated subsidiaries (including the notes thereto), except liabilities or obligations (i) that were incurred in the ordinary course of business consistent with past practice since December 31, 2004, or (ii) that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke.

(h) Legal Proceedings. Except for environmental matters, which are the subject of Section 3.02(n), as of the date of this Agreement, (i) there are no actions, suits, arbitrations or proceedings pending or, to the knowledge of Duke, threatened against, relating to or affecting, nor to the knowledge of Duke are there any Governmental Authority investigations or audits pending or threatened against, relating to or affecting, Duke or any of its subsidiaries or any of the Duke Joint Ventures or any of their respective assets and properties that, in each case, individually or in the aggregate, have had or could reasonably be expected to have a material adverse effect on Duke, and (ii) neither Duke nor any of its subsidiaries is subject to any order of any Governmental Authority that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on Duke.

(i) Information Supplied. None of the information supplied or to be supplied by Duke for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Joint Proxy Statement will, at the date it is first mailed to Cinergy’s shareholders or Duke’s shareholders or at the time of the Cinergy Shareholders Meeting or the Duke Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Joint Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation is made by Duke with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of Cinergy for inclusion or incorporation by reference in the Joint Proxy Statement.

(j) Permits; Compliance with Laws and Orders. Duke, its subsidiaries and the Duke Joint Ventures hold all Permits necessary for the lawful conduct of their respective businesses, except for failures to hold such Permits that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. Duke, its subsidiaries and the Duke Joint Ventures are in compliance with the terms of their Permits, except failures so to comply that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. Duke, its subsidiaries and the Duke Joint Ventures are not in violation of or default under any law or order of any Governmental

Authority, except for such violations or defaults that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. Duke is, and has been, in compliance in all material respects with (i) the provisions of SOX applicable to it on or prior to the date hereof and has implemented such programs and has taken all reasonable steps necessary to ensure Duke’s future compliance (not later than the relevant statutory and regulatory deadlines therefore) with all provisions of SOX which shall become applicable to Duke after the date hereof and (ii) the applicable listing standards and corporate governance rules and regulations of the NYSE. This Section 3.02(j) does not relate to matters with respect to taxes, such matters being the subject of Section 3.02(k), Environmental Laws, such matters being the subject of Section 3.02(n), benefits plans, such matters being the subject of Section 3.02(l), and nuclear power plants, such matters being the subject of Section 3.02(o).

(k) Taxes. Except as has not had, and could not reasonably be expected to have, a material adverse affect on Duke:

(i) Each of Duke and its subsidiaries has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate. All Taxes shown to be due and owing on such Tax Returns have been timely paid.

(ii) The most recent financial statements contained in the Duke SEC Reports filed prior to the date of this Agreement reflect, in accordance with GAAP, an adequate reserve for all Taxes payable by Duke and its subsidiaries for all taxable periods through the date of such financial statements.

(iii) There is no audit, examination, deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any Taxes or Tax Return of Duke or its subsidiaries, to the knowledge of Duke, neither Duke nor any of its subsidiaries has received written notice of any claim made by a governmental authority in a jurisdiction where Duke or any of its subsidiaries, as applicable, does not file a Tax Return, that Duke or such subsidiary is or may be subject to income taxation by that jurisdiction, no deficiency with respect to any Taxes has been proposed, asserted or assessed against Duke or any of its subsidiaries, and no requests for waivers of the time to assess any Taxes are pending.

(iv) The federal income Tax Returns of Duke and its subsidiaries have been examined by and settled with the IRS (or the applicable statutes of limitation have lapsed) for all years through 1994. All material assessments for Taxes due with respect to such completed and settled examinations or any concluded litigation have been fully paid.

(v) There are no outstanding written agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against Duke or any of its subsidiaries, and no power of attorney granted by either Duke or any of its subsidiaries with respect to any Taxes is currently in force.

(vi) Neither Duke nor any of its subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes imposed on or with respect to any individual or other Person (other than (I) such agreements with customers, vendors, lessors or the like entered into in the ordinary course of business, and (II) agreements with or among Duke or any of its subsidiaries), and neither Duke nor any of its subsidiaries (A) has been a member of an affiliated group (or similar state, local or foreign filing group) filing a consolidated U.S. federal income Tax Return (other than the group the common parent of which is Duke) or (B) has any liability for the Taxes of any person (other than Duke or any of its subsidiaries) (I) under Treasury Regulation ss. 1.1502-6 (or any similar provision of state, local or foreign law), or (II) as a transferee or successor.

(vii) There are no material Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of Duke and its subsidiaries.

(viii) Neither Duke nor any of its subsidiaries has taken or agreed to take any action or knows of any fact, agreement, plan or other circumstance that is reasonably likely to prevent or impede either the Duke Reorganization from qualifying as a reorganization under Section 368(a) of the Code or the Cinergy Merger from qualifying as a reorganization under Section 368(a) of the Code.

(l) Employee Benefit Plans; ERISA.

(i) Except for such matters that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke, (A) all Duke Employee Benefit Plans (as defined below) are in compliance with all applicable requirements of law, including ERISA (as defined below) and the Code, and (B) there does not now exist, nor do any circumstances exist that could result in, any Controlled Group Liability that would be a liability of Duke or any of its

subsidiaries. The only material employment agreements, severance agreements or severance policies applicable to Duke or any of its subsidiaries are the agreements and policies disclosed in Section 3.02(l)(i) of the Duke Disclosure Letter.

(ii) As used herein:

(A) “Duke Employee Benefit Plan” means any Plan entered into, established, maintained, sponsored, contributed to or required to be contributed to by Duke or any of its subsidiaries for the benefit of the current or former employees or directors of Duke or any of its subsidiaries and existing on the date of this Agreement or at any time subsequent thereto and in the case of a Plan that is subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA, at any time during the five-year period preceding the date of this Agreement with respect to which Duke or any of its subsidiaries has or could reasonably be expected to have any present or future actual or contingent liabilities;

(iii) No event has occurred, and there exists no condition or set of circumstances in connection with any Duke Employee Benefit Plan, that has had or could reasonably be expected to have a material adverse effect on Duke.

(iv) Section 3.02(l)(iv) of the Duke Disclosure Letter identifies each Duke Employee Benefit Plan that provides, upon the occurrence of a change in the ownership or effective control of Duke or its subsidiaries or a change in the ownership of all or a substantial portion of the assets of Duke or its subsidiaries, either alone or upon the occurrence of any additional or subsequent events and whether or not applicable to the transactions contemplated by this Agreement, for (A) an acceleration of the time of payment of or vesting in, or an increase in the amount of, compensation or benefits due any current or former employee, director or officer of Duke or its subsidiaries, (B) any forgiveness of indebtedness or obligation to fund benefits with respect to any such employee, director or officer, or (C) an entitlement of any such employee, director or officer to severance pay, unemployment compensation or any other payment or other benefit.

(m) Labor Matters. As of the date hereof, neither Duke nor any of its subsidiaries is a party to, bound by or in the process of negotiating any collective bargaining agreement or other labor agreement with any union or labor organization. As of the date of this Agreement, there are no disputes, grievances or arbitrations pending or, to the knowledge of Duke, threatened between Duke or any of its subsidiaries and any trade union or other representatives of its employees and there is no charge or complaint pending or threatened in writing against Duke or any of its subsidiaries before the NLRB or any similar Governmental Authority, except in each case as, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke, and, to the knowledge of Duke, as of the date of this Agreement, there are no material organizational efforts presently being made involving any of the employees of Duke or any of its subsidiaries. From December 31, 2002, to the date of this Agreement, there has been no work stoppage, strike, slowdown or lockout by or affecting employees of Duke or any of its subsidiaries and, to the knowledge of Duke, no such action has been threatened in writing, except in each case as, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. Except as, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Duke: (A) there are no litigations, lawsuits, claims, charges, complaints, arbitrations, actions, investigations or proceedings pending or, to the knowledge of Duke, threatened between or involving Duke or any of its subsidiaries and any of their respective current or former employees, independent contractors, applicants for employment or classes of the foregoing; (B) Duke and its subsidiaries are in compliance with all applicable laws, orders, agreements, contracts and policies respecting employment and employment practices, including, without limitation, all legal requirements respecting terms and conditions of employment, equal opportunity, workplace health and safety, wages and hours, child labor, immigration, discrimination, disability rights or benefits, facility closures and layoffs, workers’ compensation, labor relations, employee leaves and unemployment insurance; and (C) since January 1, 2002, neither Duke nor any of its subsidiaries has engaged in any “plant closing” or “mass layoff”, as defined in the WARN Act, without complying with the notice requirements of such laws.

(n) Environmental Matters.

(i) Each of Duke, its subsidiaries and the Duke Joint Ventures has been and is in compliance with all applicable Environmental Laws, except where the failure to be in such compliance, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Duke.

(ii) Each of Duke, its subsidiaries and the Duke Joint Ventures has obtained all Environmental Permits necessary for the construction of their facilities and the conduct of their operations as of the date of this Agreement, as applicable, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and Duke, its subsidiaries and the Duke Joint Ventures are in compliance with all terms and conditions of the Environmental Permits, except where the failure to obtain such Environmental Permits, of such Permits to be in good standing or, where applicable, of a renewal application to have been timely filed and be pending or to be in such compliance, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Duke.

(iii) There is no Environmental Claim pending

(A) against Duke or any of its subsidiaries or any of the Duke Joint Ventures;

(B) to the knowledge of Duke, against any person or entity whose liability for such Environmental Claim has been retained or assumed either contractually or by operation of law by Duke or any of its subsidiaries or any of the Duke Joint Ventures; or

(C) against any real or personal property or operations that Duke or any of its subsidiaries or any of the Duke Joint Ventures owns, leases or manages, in whole or in part, or, to the knowledge of Duke, formerly owned, leased or arranged, in whole or in part,

except in the case of clause (A), (B) or (C) for such Environmental Claims that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke.

(iv) To the knowledge of Duke, there have not been any Releases of any Hazardous Material that would be reasonably likely to form the basis of any Environmental Claim against Duke or any of its subsidiaries or any of the Duke Joint Ventures, in each case, except for such Releases that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke.

(o) Operations of Nuclear Power Plants. The operations of the nuclear generation stations owned, in whole or part, by Duke or its subsidiaries (collectively, the “Duke Nuclear Facilities”) are and have been conducted in compliance with all applicable laws and Permits, except for such failures to comply that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. Each of the Duke Nuclear Facilities maintains, and is in material compliance with, emergency plans designed to respond to an unplanned Release therefrom of radioactive materials and each such plan conforms with the requirements of applicable law in all material respects. The plans for the decommissioning of each of the Duke Nuclear Facilities and for the storage of spent nuclear fuel conform with the requirements of applicable law in all material respects and, solely with respect to the portion of the Duke Nuclear Facilities owned, directly or indirectly, by Duke, are funded consistent with applicable law. The operations of the Duke Nuclear Facilities are not the subject of any outstanding notices of violation, any ongoing proceeding, NRC Diagnostic Team Inspections or requests for information from the NRC or any other agency with jurisdiction over such facility, except for such notices or requests for information that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke. No Duke Nuclear Facility is listed by the NRC in the Unacceptable Performance column of the NRC Action Matrix, as a part of NRC’s Assessment of Licensee Performance. Liability insurance to the full extent required by law for operating the Duke Nuclear Facilities remains in full force and effect regarding such facilities, except for failures to maintain such insurance in full force and effect that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke.

(p) Vote Required. Assuming the accuracy of the representation and warranty contained in Section 3.01(r), the affirmative vote of the holders of record of at least a majority of the outstanding shares of Duke Common Stock, with respect to the approval of this Agreement (the “Duke Shareholder Approval”), is the only vote of the holders of any class or series of the capital stock of Duke or its subsidiaries required to approve this Agreement, the Duke Merger and the other transactions contemplated hereby.

(q) Opinion of Financial Advisor. Duke has received the opinion of each of UBS Securities LLC and Lazard Freres & Co. LLC dated the date of this Agreement, to the effect that, as of the date of this Agreement, the Duke Exchange Ratio is fair from a financial point of view to Duke.

(r) Ownership of Cinergy Capital Stock. Neither Duke nor any of its subsidiaries or other affiliates beneficially owns any shares of Cinergy capital stock.

(s) Duke Rights Agreement. As of the date of this Agreement, Duke or the Board of Directors of Duke, as the case may be, has (i) taken all necessary actions so that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in a “Distribution Date” (as defined in the Duke Rights Agreement) and (ii) amended the Duke Rights Agreement to render it inapplicable to this Agreement, the Duke Merger and other transactions contemplated hereby.

(t) Articles 9 and 9A of the NCBCA Not Applicable. Duke has taken all necessary actions, if any, so that the provisions of Articles 9 and 9A of the NCBCA will not, before the termination of this Agreement, apply to this Agreement, the Duke Merger or the other transactions contemplated hereby. No “fair price”, “merger moratorium”, “control share acquisition”, or other anti-takeover or similar statute or regulation applies or purports to apply to this Agreement, the Duke Merger or the other transactions contemplated hereby.

(u) Joint Venture Representations. Each representation or warranty made by Duke in this Section 3.02 relating to a Duke Joint Venture that is neither operated nor managed by Duke or a Duke subsidiary shall be deemed made only to the knowledge of Duke.

(v) Insurance. Except for failures to maintain insurance or self-insurance that, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect on Duke, from January 1, 2004, through the date of this Agreement, each of Duke and its subsidiaries has been continuously insured with financially responsible insurers or has self-insured, in each case in such amounts and with respect to such risks and losses as are customary for companies in the United States conducting the business conducted by Duke and its subsidiaries during such time period. Neither Duke nor any of its subsidiaries has received any notice of cancellation or termination with respect to any insurance policy of Duke or any of its subsidiaries, except with respect to any cancellation or termination that, individually or in the aggregate, has not had and could not reasonably be expected to have a material adverse effect on Duke.

(w) Trading. Duke has established risk parameters, limits and guidelines in compliance with the risk management policy approved by Duke’s Board of Directors (the “Duke Trading Guidelines”) to restrict the level of risk that Duke and its subsidiaries are authorized to take with respect to, among other things, the net position resulting from all physical commodity transactions, exchange-traded futures and options transactions, over-the-counter transactions and derivatives thereof and similar transactions (the “Net Duke Position”) and monitors compliance by Duke and its subsidiaries with such risk parameters. Duke has provided the Duke Trading Guidelines to Cinergy prior to the date of this Agreement. As of the date of this Agreement, (i) the Net Duke Position is within the risk parameters that are set forth in the Duke Trading Guidelines and (ii) the exposure of Duke and its subsidiaries with respect to the Net Duke Position resulting from all such transactions is not material to Duke and its subsidiaries taken as a whole. From December 31, 2004 to the date of this Agreement, neither Duke nor any of its subsidiaries has, in accordance with its mark to market accounting policies, experienced an aggregate net loss in its trading operations that would be material to Duke and its subsidiaries taken as a whole.

ARTICLE IV

Covenants

Section 4.01 Covenants of Cinergy. From and after the date of this Agreement until the Cinergy Effective Time, Cinergy covenants and agrees as to itself and its subsidiaries that (except as expressly contemplated or permitted by this Agreement, as set forth in Section 4.01 of the Cinergy Disclosure Letter, for transactions (other than those set forth in Section 4.01(d) to the extent relating to the capital stock of Cinergy) solely involving Cinergy and one or more of its direct or indirect wholly-owned subsidiaries or between two or more direct or indirect wholly-owned subsidiaries of Cinergy, or to the extent that Duke shall otherwise previously consent in writing, such consent not to be unreasonably withheld or delayed):

(a) Ordinary Course. Cinergy and each of its subsidiaries shall conduct their businesses in all material respects in the ordinary course of business consistent with past practice. Without limiting the generality of the foregoing, Cinergy and its subsidiaries shall use commercially reasonable efforts to preserve intact in all material respects their present business organizations, to maintain in effect all existing Permits, subject to prudent management of workforce and business needs, to keep available the services of their key officers and employees, to maintain their assets and properties in good working order and condition, ordinary wear and tear excepted, to preserve their relationships with Governmental Authorities, customers and suppliers and others having significant business dealings with them and to comply in all material respects with all laws, orders and Permits of all Governmental Authorities applicable to them.

(b) Charter Documents. Cinergy shall not amend or propose to amend its certificate of incorporation or, other than in a manner that would not materially restrict the operation of their businesses, its by-laws or its subsidiaries’ certificate of incorporation or by-laws (or other comparable organizational documents).

(i) declare, set aside or pay any dividends on or make other distributions in respect of any of its capital stock or share capital, except:

(A) that Cinergy may continue the declaration and payment of regular quarterly cash dividends on Cinergy Common Stock, not to exceed $0.48 per share, with usual record and payment dates for such dividends in accordance with past dividend practice; provided, that if the Cinergy Effective Time does not occur between a record date and payment date of a regular quarterly dividend, a special dividend may be declared and paid in respect of Cinergy Common Stock with respect to the quarter in which the Cinergy Effective Time occurs with a record date in such quarter and on or prior to the date on which the Cinergy Effective Time occurs, which dividend does not exceed an amount equal to the product of (i) a fraction the (x) numerator of which is equal to the number of days between the last payment date of a regular quarterly dividend and the record date of such special dividend (excluding such last payment date but including the record date of such special dividend) and (y) the denominator of which is equal to the number of days between the last payment date of a regular quarterly dividend and the same calendar day in the third month after the month in which such last payment date occurred (excluding such last payment date but including such same calendar day), multiplied by (ii) the then permitted quarterly dividend per share, and

(B) for the declaration and payment of dividends by a direct or indirect wholly-owned subsidiary solely to its parent, or by a direct or indirect partially owned subsidiary of Cinergy (provided that Cinergy or the Cinergy subsidiary receives or is to receive its proportionate share of such dividend or distribution), and

(C) for the declaration and payment of regular cash dividends with respect to preferred stock of Cinergy’s subsidiaries outstanding as of the date of the Agreement or permitted to be issued under the terms of this Agreement, and

(D) to the extent advisable in the exercise of the fiduciary duties of the Board of Directors of Cinergy, for the declaration and payment of a customary share purchase rights plan, provided, that, (1) Cinergy shall provide Duke prior notice of any such declaration or payment and (2) in connection with any such declaration or payment, the Board of Directors of Cinergy and Cinergy shall cause (x) this Agreement and the transactions contemplated hereby to not result in a “Distribution Date” (as such term may be defined in any such share purchase rights plan) or similar event under such share purchase rights plan and (y) any such share purchase rights plan to be inapplicable in all respects to this Agreement, the Duke Merger, the Cinergy Merger and the other transactions contemplated hereby; and

(iii) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or other reorganization, or

(iv) except as disclosed in Section 4.01(c)(iv) of the Cinergy Disclosure Letter, directly or indirectly redeem, repurchase or otherwise acquire any shares of its capital stock or any Option with respect thereto except:

(A) in connection with intercompany purchases of capital stock or share capital, or

(B) for the purpose of funding the Cinergy Employee Stock Option Plans or employee stock ownership or dividend reinvestment and stock purchase plans, or

(C) mandatory repurchases or redemptions of preferred stock of Cinergy’s subsidiaries in accordance with the terms thereof.

(d) Share Issuances. Cinergy shall not, nor shall it permit any of its subsidiaries to issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock or any Option with respect thereto (other than (i) the issuance of Cinergy Common Stock upon the exercise of Cinergy Employee Stock Options outstanding as of the date hereof or issued after the date hereof in accordance with the terms of this Agreement in accordance with their terms, (ii) the issuance of Cinergy Common Stock in respect of other equity compensation awards granted under the Cinergy Employee Stock Option Plans outstanding as of the date hereof or issued after the date hereof in accordance with the terms of this Agreement in accordance with their terms, (iii) the issuance of Cinergy Employee Stock Options and the grant of other equity compensation awards pursuant to the Cinergy Employee Stock Option Plans in accordance with their terms providing, in aggregate, up to an additional 2,000,000 shares of Cinergy Common Stock in any 12-month period following the date hereof, provided, however, that any Cinergy Employee Stock Options and equity awards granted after the date of this Agreement shall, subject to paragraph 4 of Section 4.01(i) of the Cinergy Disclosure Letter, be granted on terms pursuant to which such Cinergy Employee Stock Options and equity awards shall not vest on the Cinergy Shareholder Approval or otherwise on the occurrence of the transactions contemplated hereby, provided, further, however, that Cinergy Employee Stock Options and equity awards granted

after the date of this Agreement may vest upon termination of employment by the Company or any of its subsidiaries without “cause” or by the participants for “good reason” (each as defined in the applicable agreement), in each case, within the two-year period following the Cinergy Effective Time, and shall, at the Cinergy Effective Time, be converted into options or equity- based awards to acquire or in respect of, as applicable, Company Common Stock in the manner contemplated by Section 5.06, and (iv) the pro rata issuance by a subsidiary of its capital stock to its shareholders, provided, further, subject to Section 4.01(d) of the Cinergy Disclosure Letter, that any shares of Cinergy Common Stock that Cinergy or its subsidiaries shall contribute, directly or indirectly, to any employee benefit plan (including any plan intended to satisfy the requirements of Section 401(a) of the Code) or that Cinergy or its subsidiaries shall make subject to any dividend reinvestment or similar plan shall be shares purchased in open-market or privately negotiated transactions, but shall not constitute newly issued shares of Cinergy Common Stock), or modify or amend any right of any holder of outstanding shares of its capital stock or any Option with respect thereto other than to give effect to Section 5.06.

(e) Acquisitions; Capital Expenditures. Except for (x) acquisitions of, or capital expenditures relating to, the entities, assets and facilities identified in Section 4.01(e) of the Cinergy Disclosure Letter, (y) expenditures of amounts set forth in Cinergy’s capital expenditure plan included in Section 4.01(e) of the Cinergy Disclosure Letter, and (z) capital expenditures (1) required by law or Governmental Authorities or (2) incurred in connection with the repair or replacement of facilities destroyed or damaged due to casualty or accident (whether or not covered by insurance), Cinergy shall not, nor shall it permit any of its subsidiaries to, make any capital expenditures, or acquire or agree to acquire (whether by merger, consolidation, purchase or otherwise) any person or assets, if (A) the expected gross expenditures and commitments pursuant thereto (including the amount of any indebtedness and amounts received for negative trading positions assumed) exceeds or may exceed (i) $100,000,000, in the case of any acquisition or series of related acquisitions of any person, asset or property located in the United States, or (ii) $50,000,000 in the case of any acquisition or series of related acquisitions of any person, asset or property located outside of the United States (each acquisition or series of related acquisitions described in (i) and (ii), a “Cinergy Threshold Acquisition”), (B) the expected gross expenditures and commitments pursuant thereto (including the amount of any indebtedness and amounts received for negative trading positions assumed) exceeds or may exceed, in the aggregate, $100,000,000 excluding all Cinergy Threshold Acquisitions identified in Section 4.01(e) of the Cinergy Disclosure Letter or to which Duke has previously consented in writing, (C) any such acquisition or capital expenditure constitutes any line of business that is not conducted by Cinergy, its subsidiaries or the Cinergy Joint Ventures as of the date of this Agreement or extends any line of business of Cinergy, its subsidiaries or the Cinergy Joint Ventures into any geographic region outside of the continental United States or Canada in which Cinergy, its subsidiaries or the Cinergy Joint Ventures do not conduct business as of the date of this Agreement, or (D) any such acquisition or capital expenditure is reasonably likely, individually or in the aggregate, to materially delay the satisfaction of the conditions set forth in Sections 6.02(d) or Sections 6.03(d) or prevent the satisfaction of such conditions.

(f) Dispositions. Except for (x) dispositions set forth in Section 4.01(f) of the Cinergy Disclosure Letter, (y) dispositions of obsolete equipment or assets or dispositions of assets being replaced, in each case in the ordinary course of business consistent with past practice and (z) dispositions by Cinergy or its subsidiaries of its assets in accordance with the terms of restructuring and divestiture plans mandated or approved by applicable local or state regulatory agencies, Cinergy shall not, nor shall it permit any of its subsidiaries to, sell, lease, grant any security interest in or otherwise dispose of or encumber any of its assets or properties if (A) the value of such disposition exceeds or may exceed (i) $100,000,000, in the case of any disposition or series of related dispositions of any person, asset or property located in the United States, or (ii) $50,000,000 in the case of any disposition or series of related dispositions of any person, asset or property located outside of the United States (each disposition or series of related dispositions described in (i) and (ii), a “Cinergy Threshold Disposition”) or (B) the aggregate value of all such dispositions, excluding all Cinergy Threshold Dispositions identified in Section 4.01(f) of the Cinergy Disclosure Letter or to which Duke has previously consented in writing, exceeds or may exceed, in the aggregate, $100,000,000. For the purposes of this Section 4.01(f), the value of any disposition or series of related dispositions shall mean the greater of (i) the book value or (ii) the sales price, in each case of the person, asset or property which is the subject of such disposition and, in each case, together with the indebtedness and amounts paid for negative trading positions transferred by Cinergy or its subsidiaries in connection with such disposition.

(g) Indebtedness. Except as disclosed in Section 4.01(g) of the Cinergy Disclosure Letter, Cinergy shall not, nor shall it permit any of its subsidiaries to, (A) incur or guarantee any indebtedness or enter into any “keep well” or other agreement to maintain any financial condition of another person or enter into any arrangement having the economic effect of any of the foregoing (including any capital leases, “synthetic” leases or conditional sale or other title retention agreements) other than (i) short- term borrowings incurred in the ordinary course of business, (ii) letters of credit obtained in the ordinary course of business, (iii) borrowings made in connection with the refunding of existing indebtedness (x) at maturity or upon final mandatory redemption (without the need for the occurrence of any special event) or (y) at a lower cost of funds, (iv) borrowings to finance capital expenditures or acquisitions permitted pursuant to Section 4.01(e) or indebtedness assumed pursuant thereto, (v) other borrowings in an aggregate principal amount not to exceed $150,000,000 outstanding at any time, (vi) guarantees or

other credit support issued pursuant to trading or marketing positions established prior to the date of this Agreement and (vii) in addition to the guarantees or other credit support contemplated by subsection (vi) of this Section 4.01(g), additional guarantees or other credit support issued in connection with trading or marketing activities in the ordinary course of business or (B) make any loans or advances to any other person, other than (i) in the ordinary course of business consistent with past practice, (ii) to any direct or indirect wholly- owned subsidiary of Cinergy, or, in the case of a subsidiary of Cinergy, to Cinergy or (iii) as required pursuant to any obligation in effect as of the date of this Agreement.

(h) Marketing of Energy; Trading. Cinergy shall not, nor shall it permit any of its subsidiaries to, (i) permit any material change in policies governing or otherwise relating to the trading or marketing of energy other than as a result of acquisitions or capital expenditures permitted pursuant to Section 4.01(e) or to increase the existing aggregate VaR limit as established by the Risk Policy Committee or (ii) enter into any physical commodity transactions, exchange-traded futures and options transactions, over-the-counter transactions and derivatives thereof or similar transactions other than as permitted by the Cinergy Trading Guidelines.

(i) Employee Benefits. Except as required by law or the terms of any collective bargaining agreement or any Cinergy Employee Benefit Plan, or as disclosed in Section 4.01(i) of the Cinergy Disclosure Letter, Cinergy shall not, nor shall it permit any of its subsidiaries to, enter into, adopt, amend or terminate any Cinergy Employee Benefit Plan, or other agreement, arrangement, plan or policy between Cinergy or one of its subsidiaries and one or more of its directors, officers or employees (other than any amendment that is immaterial or administrative in nature), or except for normal increases in the ordinary course of business consistent with past practice, increase in any manner the compensation or fringe benefits of any director, executive officer or other employee, or, except for normal payments in the ordinary course of business consistent with past practice, pay any benefit not required by any plan or arrangement in effect as of the date of this Agreement, provided, however, that the foregoing shall not restrict Cinergy or its subsidiaries from (i) entering into or making available to newly hired officers and employees or to officers and employees in the context of promotions based on job performance or workplace requirements in the ordinary course of business consistent with past practice, plans, agreements, benefits and compensation arrangements (including incentive grants) that have, consistent with past practice, been made available to newly hired or promoted officers and employees, or (ii) entering into or amending collective bargaining agreements with existing collective bargaining representatives or newly certified bargaining units regarding mandatory subjects of bargaining under applicable law, in each case in a manner consistent with past practice to the extent permitted by law.

(j) Regulatory Status. Except as disclosed in Section 4.01(j) of the Cinergy Disclosure Letter, Cinergy shall not, nor shall it permit any of its subsidiaries to, agree or consent to any material agreements or material modifications of existing agreements or course of dealings with any Governmental Authority in respect of the operations of their businesses outside the ordinary course of business, except (i) as required by law to renew Permits or agreements in the ordinary course of business consistent with past practice, (ii) as may be necessary or required in connection with the consummation of any acquisition permitted pursuant to Section 4.01(e), or (iii) to effect the consummation of the transactions contemplated hereby.

(k) Accounting. Cinergy shall not, nor shall it permit any of its subsidiaries to, make any changes in their accounting methods materially affecting the reported consolidated assets, liabilities or results of operations of Cinergy, except as required by law or GAAP.

(l) Insurance. Cinergy shall, and shall cause its subsidiaries to, maintain with financially responsible insurance companies (or through self-insurance, consistent with past practice) insurance in such amounts and against such risks and losses as are customary for companies engaged in their respective businesses.

(m) Taxes. Except as could not reasonably be expected to have a material adverse effect on Cinergy, Cinergy shall not, nor shall it permit any of its subsidiaries to, (i) settle any claim, action or proceeding relating to Taxes or (ii) make any Tax election (this clause (m)being the sole provision of this Section 4.01 governing Tax matters).

Section 4.02 Covenants of Duke. From and after the date of this Agreement until the Effective Time, Duke covenants and agrees as to itself and its subsidiaries (which shall be deemed at all times to include the Company and its subsidiaries) that (except as expressly contemplated or permitted by this Agreement, as set forth in Section 4.02 of the Duke Disclosure Letter, for transactions (other than those set forth in Section 4.01(d) to the extent relating to capital stock of Duke) solely involving Duke and one or more of its direct or indirect wholly-owned subsidiaries or between two or more direct or indirect wholly-owned subsidiaries of Duke, or to the extent that Cinergy shall otherwise previously consent in writing, such consent not to be unreasonably withheld or delayed):

(a) Ordinary Course. Duke and each of its subsidiaries shall conduct their businesses in all material respects in the ordinary course of business consistent with past practice. Without limiting the generality of the foregoing, Duke and its

subsidiaries shall use commercially reasonable efforts to preserve intact in all material respects their present business organizations, to maintain in effect all existing Permits, subject to prudent management of workforce and business needs, to keep available the services of their key officers and employees, to maintain their assets and properties in good working order and condition, ordinary wear and tear excepted, to preserve their relationships with Governmental Authorities, customers and suppliers and others having significant business dealings with them and to comply in all material respects with all laws, orders and Permits of all Governmental Authorities applicable to them.

(b) Charter Documents. Duke shall not amend or propose to amend its articles of incorporation or, other than in a manner that would not materially restrict the operation of their businesses, its by-laws or its subsidiaries’ articles of incorporation or by-laws (or other comparable organizational documents).

(c) Dividends. Duke shall not, nor shall it permit any of its subsidiaries to, (i) declare, set aside or pay any dividends on or make other distributions in respect of any of its capital stock or share capital, except:

(A) that Duke may continue the declaration and payment of regular quarterly cash dividends on Duke Common Stock, not to exceed $0.275 per share, with usual record and payment dates for such dividends in accordance with past dividend practice; provided, that (1) Duke may increase its regular quarterly cash dividend to an amount not to exceed $0.31 per share between the date hereof and the Duke Effective Time and (2) if the Duke Effective Time does not occur between a record date and payment date of a regular quarterly dividend, a special dividend may be declared and paid in respect of Duke Common Stock with respect to the quarter in which the Duke Effective Time occurs with a record date in such quarter and on or prior to the date on which the Duke Effective Time occurs, which dividend does not exceed an amount equal to the product of (i) a fraction the (x) numerator of which is equal to the number of days between the last payment date of a regular quarterly dividend and the record date of such special dividend (excluding such last payment date but including the record date of such special dividend) and (y) the denominator of which is equal to the number of days between the last payment date of a regular quarterly dividend and the same calendar day in the third month after the month in which such last payment date occurred (excluding such last payment date but including such same calendar day), multiplied by (ii) the then permitted quarterly dividend per share, and

(B) for the declaration and payment of dividends by a direct or indirect wholly-owned subsidiary of Duke solely to its parent, or by a direct or indirect partially owned subsidiary of Duke (provided, that Duke or a Duke subsidiary receives or is to receive its proportionate share of such dividend or distribution), and

(C) for the declaration and payment of regular cash dividends with respect to preferred stock of Duke or its subsidiaries outstanding as of the date of the Agreement or permitted to be issued under the terms of this Agreement, and

(ii) split, combine, reclassify or take similar action with respect to any of its capital stock or share capital or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or comprised in its share capital, (iii) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or other reorganization, or (iv) except as disclosed in Section 4.02(c)(iv) of the Duke Disclosure Letter directly or indirectly redeem, repurchase or otherwise acquire any shares of its capital stock or any Option with respect thereto except:

(A) in connection with intercompany purchases of capital stock or share capital, or

(B) for the purpose of funding the Duke Option Plan or employee stock ownership or dividend reinvestment and stock purchase plans, or

(C) mandatory repurchases or redemptions of preferred stock of Duke or its subsidiaries in accordance with the terms thereof, or

(D) the redemptions by Duke of Duke Preferred Stock and Duke Preferred Stock A as contemplated by Section 4.07.

(d) Share Issuances. Duke shall not, nor shall it permit any of its subsidiaries to issue, deliver or sell, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock or any Option with respect thereto (other than (i) the issuance of Duke Common Stock upon the exercise of Duke Employee Stock Options outstanding as of the date of hereof or issued after the date hereof in accordance with the terms of this Agreement in accordance with their terms, (ii) the issuance of Duke Common Stock in respect of other equity compensation awards granted under the Duke Option Plans outstanding as of the date hereof or issued after the date hereof in accordance with the terms of this Agreement in accordance with their terms, (iii) the issuance of Duke Employee Stock Options and the grant of other equity compensation awards pursuant to the Duke Option

Plans in accordance with their terms providing, in aggregate, up to 5,000,000 shares of Duke Common Stock in any 12-month period following the date of this Agreement, provided, however, that any Duke Employee Stock Options and equity awards granted after the date of this Agreement shall be granted on terms pursuant to which such Duke Employee Stock Options and equity awards shall not vest on the Duke Shareholder Approval or otherwise on the occurrence of the transactions contemplated hereby and shall, at the Duke Effective Time, be converted into options or equity based awards to acquire or in respect of, as applicable, Company Common Stock in the manner contemplated by Section 5.06, and (iv) the pro rata issuance by a subsidiary of its capital stock to its shareholders, provided, further, that any shares of Duke Common Stock that Duke or its subsidiaries shall contribute, directly or indirectly, to any employee benefit plan (including any plan intended to satisfy the requirements of Section 401(a) of the Code) or that Duke or its subsidiaries shall make subject to any dividend reinvestment or similar plan shall be shares purchased in open-market or privately negotiated transactions, but shall not constitute newly issued shares of Duke Common Stock), or modify or amend any right of any holder of outstanding shares of its capital stock or any Option with respect thereto other than to give effect to Section 5.06.

(e) Acquisitions; Capital Expenditures. Except for (x) acquisitions of, or capital expenditures relating to, the entities, assets and facilities identified in Section 4.02(e) of the Duke Disclosure Letter, (y) expenditures of amounts set forth in Duke’s capital expenditure plan included in Section 4.02(e) of the Duke Disclosure Letter, and (z) capital expenditures (1) required by law or Governmental Authorities or (2) incurred in connection with the repair or replacement of facilities destroyed or damaged due to casualty or accident (whether or not covered by insurance), Duke shall not, nor shall it permit any of its subsidiaries to, make any capital expenditures, or acquire or agree to acquire (whether by merger, consolidation, purchase or otherwise) any person or assets, if (A) the expected gross expenditures and commitments pursuant thereto (including the amount of any indebtedness and amounts received for negative trading positions assumed) exceeds or may exceed (i) $300,000,000, in the case of any acquisition or series of related acquisitions of any person, asset or property located in the United States, or (ii) $150,000,000 in the case of any acquisition or series of related acquisitions of any person, asset or property located outside of the United States (each acquisition or series of related acquisitions described in (i) and (ii), a “Duke Threshold Acquisition”), (B) the expected gross expenditures and commitments pursuant thereto (including the amount of any indebtedness and amounts received for negative trading positions assumed) exceeds or may exceed, in the aggregate, $300,000,000 excluding all Duke Threshold Acquisitions identified in Section 4.02(e) of the Duke Disclosure Letter or to which Cinergy has previously consented in writing, (C) any such acquisition or capital expenditure constitutes any line of business that is not conducted by Duke, its subsidiaries or the Duke Joint Ventures as of the date of this Agreement or extends any line of business of Duke, its subsidiaries or the Duke Joint Ventures into any geographic region outside of the continental United States or Canada in which Duke, its subsidiaries or the Duke Joint Ventures do not conduct business as of the date of this Agreement, or (D) any such acquisition or capital expenditure is reasonably likely, individually or in the aggregate, to materially delay the satisfaction of the conditions set forth in Sections 6.02(d) or Sections 6.03(d) or prevent the satisfaction of such conditions.

(f) Dispositions. Except for (x) dispositions set forth in Section 4.02(f) of the Duke Disclosure Letter, (y) dispositions of obsolete equipment or assets or dispositions of assets being replaced, in each case in the ordinary course of business consistent with past practice and (z) dispositions by Duke or its subsidiaries of its assets in accordance with the terms of restructuring and divestiture plans mandated or approved by applicable local or state regulatory agencies, Duke shall not, nor shall it permit any of its subsidiaries to, sell, lease, grant any security interest in or otherwise dispose of or encumber any of its assets or properties if (A) the value of such disposition exceeds or may exceed (i) $300,000,000, in the case of any disposition or series of related dispositions of any person, asset or property located in the United States, or (ii) $150,000,000 in the case of any disposition or series of related dispositions of any person, asset or property located outside of the United States (each disposition or series of related dispositions described in (i) and (ii), a “Duke Threshold Disposition”) or (B) the aggregate value of all such dispositions, excluding all Duke Threshold Dispositions identified in Section 4.02(f) of the Duke Disclosure Letter or to which Cinergy has previously consented in writing, exceeds or may exceed, in the aggregate, $300,000,000. For the purposes of this Section 4.02(f), the value of any disposition or series of related dispositions shall mean the greater of (i) the book value or (ii) the sales price, in each case of the person, asset or property which is the subject of such disposition and, in each case, together with the indebtedness and amounts paid for negative trading positions transferred by Duke or its subsidiaries in connection with such disposition.

(g) Indebtedness. Except as disclosed in Section 4.02(g) of the Duke Disclosure Letter, Duke shall not, nor shall it permit any of its subsidiaries to, (A) incur or guarantee any indebtedness or enter into any “keep well” or other agreement to maintain any financial condition of another person or enter into any arrangement having the economic effect of any of the foregoing (including any capital leases, “synthetic” leases or conditional sale or other title retention agreements) other than (i) short-term borrowings incurred in the ordinary course of business, (ii) letters of credit obtained in the ordinary course of business, (iii) borrowings made in connection with the refunding of existing indebtedness (x) at maturity or upon final mandatory redemption (without the need for the occurrence of any special event) or (y) at a lower cost of funds, (iv) borrowings to finance capital expenditures or acquisitions permitted pursuant to Section 4.02(e) or indebtedness assumed pursuant thereto, (v) other borrowings in an aggregate principal amount not to exceed $500,000,000 outstanding at any time, (vi) guarantees or

other credit support issued pursuant to trading or marketing positions established prior to the date of this Agreement and (vii) in addition to the guarantees or other credit support contemplated by subsection (vi) of this Section 4.02(g), additional guarantees or other credit support issued in connection with trading or marketing activities in the ordinary course of business at any one time or (B) make any loans or advances to any other person, other than (i) in the ordinary course of business consistent with past practice (ii) to any direct or indirect wholly-owned subsidiary of Duke, or, in the case of a subsidiary of Duke, to Duke or (iii) as required pursuant to any obligation in effect as of the date of this Agreement.

(h) Marketing of Energy; Trading. Duke shall not, nor shall it permit any of its subsidiaries to, (i) permit any material change in policies governing or otherwise relating to the trading or marketing of energy other than as a result of acquisitions or capital expenditures permitted pursuant to Section 4.02(e) or (ii) enter into any physical commodity transactions, exchange-traded futures and options transactions, over-the-counter transactions and derivatives thereof or similar transactions other than as permitted by the Duke Trading Guidelines.

(i) Employee Benefits. Except as required by law or the terms of any collective bargaining agreement or any Duke Employee Benefit Plan, or as disclosed in Section 4.02(i) of the Duke Disclosure Letter, Duke shall not, nor shall it permit any of its subsidiaries to, enter into, adopt, amend or terminate any Duke Employee Benefit Plan, or other agreement, arrangement, plan or policy between Duke or one of its subsidiaries and one or more of its directors, officers or employees (other than any amendment that is immaterial or administrative in nature), or except for normal increases in the ordinary course of business consistent with past practice, increase in any manner the compensation or fringe benefits of any director, executive officer or other employee, or, except for normal payments in the ordinary course of business consistent with past practice, pay any benefit not required by any plan or arrangement in effect as of the date of this Agreement, provided, however, that the foregoing shall not restrict Duke or its subsidiaries from (i) entering into or making available to newly hired officers and employees or to officers and employees in the context of promotions based on job performance or work place requirements in the ordinary course of business consistent with past practice, plans, agreements, benefits and compensation arrangements (including incentive grants) that have, consistent with past practice, been made available to newly hired or promoted officers and employees, or (ii) entering into or amending collective bargaining agreements with existing collective bargaining representatives or newly certified bargaining units regarding mandatory subjects of bargaining under applicable law, in each case in a manner consistent with past practice to the extent permitted by law.

(j) Regulatory Status. Except as disclosed in Section 4.02 (j) of the Duke Disclosure Letter, Duke shall not, nor shall it permit any of its subsidiaries to, agree or consent to any material agreements or material modifications of existing agreements or course of dealings with any Governmental Authority in respect of the operations of their businesses, except (i) as required by law to renew Permits or agreements in the ordinary course of business consistent with past practice, (ii) as may be necessary or required in connection with the consummation of any acquisition permitted pursuant to Section 4.02(e), or (iii) to effect the consummation of the transactions contemplated hereby.

(k) Accounting. Duke shall not, nor shall it permit any of its subsidiaries to, make any changes in their accounting methods materially affecting the reported consolidated assets, liabilities or results of operations of Duke, except as required by law or GAAP.

(l) Insurance. Duke shall, and shall cause its subsidiaries to, maintain with financially responsible insurance companies (or through self-insurance, consistent with past practice) insurance in such amounts and against such risks and losses as are customary for companies engaged in their respective businesses.

(m) Taxes. Except as could not reasonably be expected to have a material adverse effect on Duke, Duke shall not, nor shall it permit any of its subsidiaries to, (i) settle any claim, action or proceeding relating to Taxes or (ii) make any Tax election (this clause (m) being the sole provision of this Section 4.02 governing Tax matters).

(n) Company Actions. Duke shall not permit the Company or any of its subsidiaries to take, or to commit to take, any action after the Duke Effective Time and prior to the Cinergy Effective Time, except for the actions expressly set forth in this Agreement as actions to be taken by any such person during such period.

Section 4.03 No Solicitation by Cinergy.

(a) Cinergy shall not, nor shall it permit any of its subsidiaries to, nor shall it authorize or permit any of its directors, officers or employees to, and shall use its reasonable best efforts to cause any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its subsidiaries not to, directly or indirectly, (i) solicit, initiate or knowingly encourage (including by way of furnishing information), or knowingly take any other action designed to facilitate, any inquiries or the making of any proposal that constitutes a Cinergy Takeover Proposal (as defined below) or (ii) participate in

any negotiations or substantive discussions regarding any Cinergy Takeover Proposal; provided, however, that if, at any time prior to receipt of the Cinergy Shareholder Approval (the “Cinergy Applicable Period”), the Board of Directors of Cinergy determines in good faith, after consultation with its legal and financial advisors, that a Cinergy Takeover Proposal that was not solicited by it and that did not otherwise result from a breach (other than in immaterial respects) of this Section 4.03(a) is, or is reasonably likely to result in, a Cinergy Superior Proposal (as defined in Section 4.03(b)), and subject to providing prior written notice of its decision to take such action to Duke and compliance with Section 4.03(c), Cinergy may (x) furnish information with respect to Cinergy and its subsidiaries to the person making such proposal (and its representatives) pursuant to a customary confidentiality agreement containing terms no less favorable to Cinergy than those set forth in the Confidentiality Agreement (the “Confidentiality Agreement”) dated November 10, 2004, between Cinergy and Duke (provided, that such confidentiality agreement shall not in any way restrict Cinergy from complying with its disclosure obligations under this Agreement, including with respect to such proposal, but such confidentiality agreement may allow such party to submit to Cinergy a proposal or offer relating to a transaction) and (y) participate in discussions or negotiations regarding such proposal. Cinergy, its subsidiaries and the representatives immediately shall cease and cause to be terminated any existing activities, discussions or negotiations with any parties with respect to any Cinergy Takeover Proposal. For purposes of this Agreement, “Cinergy Takeover Proposal” means any bona fide inquiry, proposal or offer from any person relating to (i) any direct or indirect acquisition or purchase of a business (a “Cinergy Material Business”) that constitutes 20% or more of the net revenues, net income or the assets (including equity securities) of Cinergy and its subsidiaries, taken as a whole, (ii) any direct or indirect acquisition or purchase of 20% or more of any class of voting securities of Cinergy or 20% or more of the voting power of any class of stock of any subsidiary of Cinergy owning, operating or controlling a Cinergy Material Business, (iii) any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class of voting securities of Cinergy or 20% or more of the voting power of any class of stock of any subsidiary of Cinergy owning, operating or controlling a Cinergy Material Business, or (iv) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Cinergy or any such subsidiary of Cinergy owning, operating or controlling a Cinergy Material Business, in each case other than the transactions contemplated by this Agreement.

(b) Except as contemplated by this Section 4.03, neither the Board of Directors of Cinergy nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Duke, the approval or recommendation by such Board of Directors or such committee of this Agreement or the Cinergy Merger, (ii) approve or recommend, or propose publicly to approve or recommend, any Cinergy Takeover Proposal, or (iii) cause Cinergy to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, a “Cinergy Acquisition Agreement”) related to any Cinergy Takeover Proposal. Notwithstanding the foregoing:

(i) in response to a Cinergy Takeover Proposal that was not solicited by it and that did not otherwise result from a breach (other than in immaterial respects) of Section 4.03(a), during the Cinergy Applicable Period, the Board of Directors of Cinergy may, if it determines in good faith, after consulting with outside counsel, that the failure to take such action would be reasonably likely to result in a breach of the Board of Directors’ fiduciary obligations under applicable law, (A) withdraw or modify, or propose publicly to withdraw or modify, the approval or recommendation by such Board of Directors or any committee thereof of this Agreement or the Cinergy Merger, (B) approve or recommend, or propose to approve or recommend, any Cinergy Superior Proposal, or (C) terminate this Agreement pursuant to Section 7.01(d), but only after (1) in the case of each of clauses (B) or (C), such Board of Directors has determined in good faith that such Cinergy Takeover Proposal constitutes a Cinergy Superior Proposal, and (2) in the case of clause (C), (I) Cinergy has notified Duke in writing of the determination that such Cinergy Takeover Proposal constitutes a Cinergy Superior Proposal and (II) at least five business days following receipt by Duke of such notice, the Board of Directors of Cinergy has determined that such Cinergy Superior Proposal remains a Cinergy Superior Proposal; and

(ii) in circumstances other than as provided in Section 4.03(b)(i), during the Cinergy Applicable Period, the Board of Directors of Cinergy may, if it determines in good faith, after consulting with outside counsel, that the failure to take such action would be reasonably likely to result in a breach of the Board of Directors’ fiduciary obligations under applicable law, withdraw or modify, or propose publicly to withdraw or modify, the approval or recommendation by such Board of Directors or any committee thereof of this Agreement or the Cinergy Merger, but only after (1) Cinergy has notified Duke in writing that the Board of Directors of Cinergy is prepared to make the determination set forth in this clause (ii) setting forth the reasons therefore in sufficient detail, (2) for a period of five business days following Duke’s receipt of the notice set forth in clause (1) of this sentence, Cinergy negotiates with Duke in good faith to make such adjustments to the terms and conditions of this Agreement, the Mergers and the other transactions contemplated hereby as would enable the Cinergy Board of Directors to proceed with its recommendation of this Agreement, the Cinergy Merger and the other transactions contemplated hereby and (3) at the end of such five-business day period the Board of Directors of Cinergy maintains its determination described in this clause (ii) (after taking into account Duke’s proposed adjustments to the terms and conditions of this Agreement, the Mergers and the other transactions contemplated hereby).

For purposes of this Agreement, “Cinergy Superior Proposal” means any written Cinergy Takeover Proposal that the Board of Directors of Cinergy determines in good faith (after consultation with a financial advisor of nationally recognized reputation) to be more favorable (taking into account (i) all financial and strategic considerations, including relevant legal, financial, regulatory and other aspects of such Cinergy Takeover Proposal and the Mergers and the other transactions contemplated by this Agreement deemed relevant by the Board of Directors, (ii) the identity of the third-party making such Cinergy Takeover Proposal, and (iii) the conditions and prospects for completion of such Cinergy Takeover Proposal) to Cinergy’s shareholders than the Cinergy Merger, the Duke Merger and the other transactions contemplated by this Agreement (taking into account all of the terms of any proposal by Duke to amend or modify the terms of the Cinergy Merger and the other transactions contemplated by this Agreement), except that (x) the reference to “20%” in clauses (i), (ii) and (iii) of the definition of “Cinergy Takeover Proposal” in Section 4.03(a) shall be deemed to be a reference to “50%”, (y) a “Cinergy Takeover Proposal” shall only be deemed to refer to a transaction involving Cinergy, and not any of its subsidiaries or Cinergy Material Businesses alone, and (z) the references to “or any subsidiary of Cinergy owning, operating or controlling a Cinergy Material Business” in clauses (ii), (iii) and (iv) shall be deemed to be deleted.

(c) In addition to the obligations of Cinergy set forth in paragraphs (a) and (b) of this Section 4.03, Cinergy shall as promptly as practicable advise Duke, orally and in writing, of any request for information or of any Cinergy Takeover Proposal (and in any case within 24 hours of such request or the receipt of such Cinergy Takeover Proposal), the principal terms and conditions of such request or Cinergy Takeover Proposal and the identity of the person making such request or Cinergy Takeover Proposal. Cinergy shall keep Duke informed of the status and details (including amendments or proposed amendments) of any such request or Cinergy Takeover Proposal. Contemporaneously with any termination by Cinergy of this Agreement pursuant to Section 7.01(b)(i), Cinergy shall provide Duke with a written verification that it has complied with its obligations pursuant to this Section 4.03(c) (other than noncompliance which is immaterial).

(d) Nothing contained in this Section 4.03 shall prohibit Cinergy from (i) taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to Cinergy’s shareholders if, in the good faith judgment of the Board of Directors of Cinergy, after consultation with outside counsel, failure so to disclose would be inconsistent with its obligations under applicable law or (ii) taking actions permitted by Section 4.01(f).

Section 4.04 No Solicitation by Duke.

(a) Duke shall not, nor shall it permit any of its subsidiaries to, nor shall it authorize or permit any of its directors, officers or employees to, and shall use its reasonable best efforts to cause any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its subsidiaries not to, directly or indirectly, (i) solicit, initiate or knowingly encourage (including by way of furnishing information), or knowingly take any other action designed to facilitate, any inquiries or the making of any proposal that constitutes a Duke Takeover Proposal (as defined below) or (ii) participate in any negotiations or substantive discussions regarding any Duke Takeover Proposal; provided, however, that if, at any time prior to receipt of the Duke Shareholder Approval (the “Duke Applicable Period”), the Board of Directors of Duke determines in good faith, after consultation with its legal and financial advisors, that a Duke Takeover Proposal that was not solicited by it and that did not otherwise result from a breach (other than in immaterial respects) of this Section 4.04(a) is, or is reasonably likely to result in, a Duke Superior Proposal (as defined in Section 4.04(b)), and subject to providing prior written notice of its decision to take such action to Cinergy and compliance with Section 4.04(c), Duke may (x) furnish information with respect to Duke and its subsidiaries to the person making such proposal (and its representatives) pursuant to a customary confidentiality agreement containing terms no less favorable to Duke than those set forth in the Confidentiality Agreement (provided, that such confidentiality agreement shall not in any way restrict Duke from complying with its disclosure obligations under this Agreement, including with respect to such proposal, but such confidentiality agreement may allow such party to submit to Duke a proposal or offer relating to a transaction) and (y) participate in discussions or negotiations regarding such proposal. Duke, its subsidiaries and their representatives immediately shall cease and cause to be terminated any existing activities, discussions or negotiations with any parties with respect to any Duke Takeover Proposal. For purposes of this Agreement, “Duke Takeover Proposal” means any bona fide inquiry, proposal or offer from any person relating to (i)any direct or indirect acquisition or purchase of a business (a “Duke Material Business”) that constitutes 20% or more of the net revenues, net income or the assets (including equity securities) of Duke and its subsidiaries, taken as a whole, (ii) any direct or indirect acquisition or purchase of 20% or more of any class of voting securities of Duke or 20% or more of the voting power of any class of stock of any subsidiary of Duke owning, operating or controlling a Duke Material Business, (iii) any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class of voting securities of Duke or 20% or more of the voting power of any class of stock of any subsidiary of Duke owning, operating or controlling a Duke Material Business, or (iv) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Duke or any such subsidiary of Duke owning, operating or controlling a Duke Material Business, in each case other than the transactions contemplated by this Agreement.

(b) Except as contemplated by this Section 4.04, neither the Board of Directors of Duke nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Cinergy, the approval or recommendation by such Board of Directors or such committee of this Agreement or the Duke Merger, (ii) approve or recommend, or propose publicly to approve or recommend, any Duke Takeover Proposal, or (iii) cause Duke to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, a “Duke Acquisition Agreement”) related to any Duke Takeover Proposal. Notwithstanding the foregoing:

(i) in response to a Duke Takeover Proposal that was not solicited by it and that did not otherwise result from a breach (other than in immaterial respects) of Section 4.04(a), during the Duke Applicable Period, the Board of Directors of Duke may, if it determines in good faith, after consulting with outside counsel, that the failure to take such action would be reasonably likely to result in a breach of the Board of Directors’ fiduciary obligations under applicable law, (A) withdraw or modify, or propose publicly to withdraw or modify, the approval or recommendation by such Board of Directors or any committee thereof of this Agreement or the Duke Merger, (B) approve or recommend, or propose to approve or recommend, any Duke Superior Proposal, or (C) terminate this Agreement pursuant to Section 7.01(f), but only after (1) in the case of each of clauses (B) or (C), such Board of Directors has determined in good faith that such Duke Takeover Proposal constitutes a Duke Superior Proposal, and (2) in the case of clause (C), (I) Duke has notified Cinergy in writing of the determination that such Duke Takeover Proposal constitutes a Duke Superior Proposal and (II) at least five business days following receipt by Cinergy of such notice, the Board of Directors of Duke has determined that such Duke Superior Proposal remains a Duke Superior Proposal; and

(ii) in circumstances other than as provided in Section 4.04(b)(i), during the Duke Applicable Period, the Board of Directors of Duke may, if it determines in good faith, after consulting with outside counsel, that the failure to take such action would be reasonably likely to result in a breach of the Board of Directors’ fiduciary obligations under applicable law, withdraw or modify, or propose publicly to withdraw or modify, the approval or recommendation by such Board of Directors or any committee thereof of this Agreement or the Duke Merger, but only after (1) Duke has notified Cinergy in writing that the Board of Directors of Duke is prepared to make the determination set forth in this clause (ii) setting forth the reasons therefor in sufficient detail, (2) for a period of five business days following Cinergy’s receipt of the notice set forth in clause (1) of this sentence, Duke negotiates with Cinergy in good faith to make such adjustments to the terms and conditions of this Agreement, the Mergers and the other transactions contemplated hereby as would enable the Duke Board of Directors to proceed with its recommendation of this Agreement, the Duke Merger and the other transactions contemplated hereby and (3) at the end of such five-business day period the Board of Directors of Duke maintains its determination described in this clause (ii) (after taking into account Cinergy’s proposed adjustments to the terms and conditions of this Agreement, the Mergers and the other transactions contemplated hereby).

For purposes of this Agreement, a “Duke Superior Proposal” means any written Duke Takeover Proposal that the Board of Directors of Duke determines in good faith (after consultation with a financial advisor of nationally recognized reputation) to be more favorable (taking into account (i) all financial and strategic considerations, including relevant legal, financial, regulatory and other aspects of such Duke Takeover Proposal and the Mergers and the other transactions contemplated by this Agreement deemed relevant by the Board of Directors, (ii) the identity of the third-party making such Duke Takeover Proposal, and (iii) the conditions and prospects for completion of such Duke Takeover Proposal) to Duke’s shareholders than the Duke Merger and the other transactions contemplated by this Agreement (taking into account all of the terms of any proposal by Cinergy to amend or modify the terms of the Duke Merger, the Cinergy Merger and the other transactions contemplated by this Agreement), except that (x) the reference to “20%” in clauses (i), (ii) and (iii) of the definition of “Duke Takeover Proposal” in Section 4.04(a) shall be deemed to be a reference to “50%”, (y) a “Duke Takeover Proposal” shall only be deemed to refer to a transaction involving Duke, and not any of its subsidiaries or Duke Material Businesses alone, and (z) the references to “or any subsidiary of Duke owning, operating or controlling a Duke Material Business” in clauses (ii), (iii) and (iv) shall be deemed to be deleted.

(c) In addition to the obligations of Duke set forth in paragraphs (a) and (b) of this Section 4.04, Duke shall as promptly as practicable advise Cinergy, orally and in writing, of any request for information or of any Duke Takeover Proposal (and in any case within 24 hours of such request or the receipt of such Duke Takeover Proposal), the principal terms and conditions of such request or Duke Takeover Proposal and the identity of the person making such request or Duke Takeover Proposal. Duke shall keep Cinergy informed of the status and details (including amendments or proposed amendments) of any such request or Duke Takeover Proposal. Contemporaneously with any termination by Duke of this Agreement pursuant to Section 7.01(b)(i), Duke shall provide Cinergy with a written verification that it has complied with its obligations pursuant to this Section 4.03(c) (other than noncompliance which is immaterial).

(d) Nothing contained in this Section 4.04 shall prohibit Duke from (i) taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to Duke’s shareholders if, in the good faith judgment of the Board of Directors of Duke, after consultation with outside counsel, failure so to disclose would be inconsistent with its obligations under applicable law or (ii) taking actions permitted by Section 4.02(f).

Section 4.05 Other Actions. Each of Cinergy and Duke shall use its reasonable best efforts not to, and shall use its reasonable best efforts not to permit any of their respective subsidiaries to, take any action that would, or that could reasonably be expected to, result in (i) any of there presentations and warranties of such party set forth in this Agreement that is qualified as to materiality becoming untrue, (ii) any of such representations and warranties that is not so qualified becoming untrue in any material respect, or (iii) any condition to the Mergers set forth in Article VI not being satisfied.

Section 4.06 Coordination of Dividends. From the date of this Agreement until the Effective Time, Duke and Cinergy shall coordinate with each other regarding the declaration and payment of dividends in respect of the shares of Cinergy Common Stock and Duke Common Stock and the record dates and payment dates relating thereto, including, if applicable, through the payment of the special dividend contemplated by Sections 4.01(c)(i)(A) and 4.02(c)(i)(A), it being the intention of Cinergy and Duke that no holder of Cinergy Common Stock, Duke Common Stock or Company Common Stock shall receive two dividends, or fail to receive one dividend, for any single calendar quarter with respect to its shares of Cinergy Common Stock or Duke Common Stock, as the case may be, and/or any shares of Company Common Stock any such holder receives in exchange therefor pursuant to the Mergers.

Section 4.07 Redemption of Duke Preferred Stock and Duke Preferred Stock A. Prior to the Duke Effective Time, Duke shall call for redemption all outstanding shares of Duke Preferred Stock and Duke Preferred Stock A at a redemption price equal to the amounts then required to be paid upon redemption of the applicable series of Duke Preferred Stock or Duke Preferred Stock A, as the case may be, pursuant to the term of each such series, together with all dividends accrued and unpaid to the date of such redemption. Duke shall use its reasonable best efforts to redeem all shares of Duke Preferred Stock and Duke Preferred Stock A so that no such shares shall be deemed to be outstanding as of the Duke Effective Time.

Section 4.08 Transfer of Certain Assets. Each of Duke, Cinergy and the Company shall, and shall cause each of their subsidiaries to, use their reasonable best efforts prior to the Closing to obtain all consents and approvals necessary to distribute at the Closing, or as soon as reasonably possible thereafter, the generation stations set forth on Section 4.08 of the Duke Disclosure Letter, (together the “Transferred Assets”) to the Company and subsequently to contribute the Transferred Assets to The Cincinnati Gas & Electric and shall effect such distribution and contribution as promptly as practicable following the Cinergy Effective Time, subject to the receipt of all such necessary consents and approvals.

ARTICLE V

Additional Agreements

Section 5.01 Preparation of the Form S-4 and the Joint Proxy Statement; Shareholders Meetings.

(a) As soon as practicable following the date of this Agreement, Cinergy and Duke shall prepare and file with the SEC the Joint Proxy Statement and Cinergy, Duke and the Company shall prepare and file with the SEC the Form S-4, in which the Joint Proxy Statement will be included. Each of Cinergy, Duke and the Company shall use its reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing. Cinergy will use its reasonable best efforts to cause the Joint Proxy Statement to be mailed to Cinergy’s shareholders, and Duke will use its reasonable best efforts to cause the Joint Proxy Statement to be mailed to Duke’s shareholders, in each case as promptly as practicable after the Form S-4is declared effective under the Securities Act. Each party hereto shall also take any action required to be taken under any applicable state or provincial securities laws in connection with the issuance of Company Common Stock in the Mergers and each party shall furnish all information concerning itself and its shareholders as may be reasonably requested in connection with any such action. Each party will advise the others, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Company Common Stock issuable in connection with the Mergers for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Joint Proxy Statement or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. If prior to the Effective Time any event occurs with respect to Cinergy, Duke or any subsidiary of Cinergy or Duke, respectively, or any change occurs with respect to information supplied by or on behalf of Cinergy or Duke, respectively, for inclusion in the Joint Proxy Statement or the Form S-4 that, in each case, is required to be described in an amendment of, or a supplement to, the Joint Proxy Statement or the Form S-4, Cinergy or Duke, as applicable, shall promptly notify the other and the Company of such event, and Cinergy or Duke, as applicable, shall cooperate with the Company in the prompt filing with the SEC of any necessary amendment or supplement to the Joint Proxy Statement and the Form S-4 and, as required by law, in disseminating the information contained in such amendment or supplement to Cinergy’s shareholders and to Duke’s shareholders.

(b) Cinergy shall, as soon as reasonably practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its shareholders (the “Cinergy Shareholders Meeting”) for the purpose of obtaining the Cinergy Shareholder Approval. Without limiting the generality of the foregoing, Cinergy agrees that its obligations pursuant to the first sentence of this Section 5.01(b) shall not be affected by (i) the commencement, public proposal, public disclosure or communication to Cinergy of any Cinergy Takeover Proposal, (ii) the withdrawal or modification by the Board of Directors of Cinergy of its approval or recommendation of this Agreement, the Cinergy Merger or the other transactions contemplated hereby, or (iii) the approval or recommendation of any Cinergy Superior Proposal. Notwithstanding any of the events set forth in clauses (i), (ii) and (iii) of the immediately preceding sentence, in the event Cinergy fulfills its obligations pursuant to this Section 5.01(b) and the Cinergy Shareholder Approval is not obtained at the Cinergy Shareholders Meeting, Duke shall not thereafter have the right to terminate this Agreement pursuant to Sections 7.01(h)(i) as a result of the Board of Directors of Cinergy (or any committee thereof) having, pursuant to Section 4.03(b)(ii), withdrawn or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Cinergy Merger, provided Duke shall retain all other rights to terminate this Agreement set forth in Section 7.01.

(c) Duke shall, as soon as reasonably practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its shareholders (the “Duke Shareholders Meeting”) for the purpose of obtaining the Duke Shareholder Approval. Without limiting the generality of the foregoing, Duke agrees that its obligations pursuant to the first sentence of this Section 5.01(c) shall not be affected by (i) the commencement, public proposal, public disclosure or communication to Duke of any Duke Takeover Proposal, (ii) the withdrawal or modification by the Board of Directors of Duke of its approval or recommendation of this Agreement, the Duke Merger or the other transactions contemplated hereby, or (iii) the approval or recommendation of any Duke Superior Proposal. Notwithstanding any of the events set forth in clauses (i), (ii) and (iii) of the immediately preceding sentence, in the event Duke fulfills its obligations pursuant to this Section 5.01(c) and the Duke Shareholder Approval is not obtained at the Duke Shareholders Meeting, Cinergy shall not thereafter have the right to terminate this Agreement pursuant to Sections 7.01(g)(i) as a result of the Board of Directors of Duke (or any committee thereof) having, pursuant to Section 4.04(b)(ii), withdrawn or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Duke Merger, provided Cinergy shall retain all other rights to terminate this Agreement set forth in Section 7.01.

(d) Cinergy and Duke will use their reasonable best efforts to hold the Duke Shareholders Meeting and the Cinergy Shareholders Meeting on the same date and as soon as practicable after the date of this Agreement.

Section 5.02 Letters of Cinergy’s Accountants. Cinergy shall use its reasonable best efforts to cause to be delivered to Duke two letters from Cinergy’s independent accountants, one dated a date within two business days before the date on which the Form S-4 shall become effective and one dated a date within two business days before the Closing Date, each addressed to Duke, in form and substance reasonably satisfactory to Duke and customary in scope and substance for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4.

Section 5.03 Letters of Duke’s Accountants. Duke shall use its reasonable best efforts to cause to be delivered to Cinergy two letters from Duke’s independent accountants, one dated a date within two business days before the date on which the Form S-4 shall become effective and one dated a date within two business days before the Closing Date, each addressed to Cinergy, inform and substance reasonably satisfactory to Cinergy and customary in scope and substance for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4.

Section 5.04 Access to Information; Effect of Review.

(a) Access. Subject to the Confidentiality Agreement, to the extent permitted by applicable law, each of Cinergy and Duke shall, and shall cause each of its respective subsidiaries to, and, so long as consistent with its confidentiality obligations under its applicable agreements, shall use its respective reasonable best efforts to cause the Cinergy Joint Ventures and Duke Joint Ventures, respectively, to, afford to the other party and to the officers, employees, accountants, counsel, financial advisors and other representatives of such other party reasonable access during normal business hours during the period prior to the Effective Time to all their respective properties, books, contracts, commitments, personnel and records and, during such period, to the extent permitted by applicable law, each of Cinergy and Duke shall, and shall cause each of its respective subsidiaries to, and, so long as consistent with its confidentiality obligations under its applicable agreements, shall use its respective reasonable best efforts to cause the Cinergy Joint Ventures and Duke Joint Ventures, respectively, to, (i) confer on a regular and frequent basis with one or more representatives of the other party to discuss material operational and regulatory matters and the general status of its ongoing operations, (ii) advise the other party of any change or event that has had or could reasonably be expected to have a material adverse effect on such party, and (iii) furnish promptly all other information concerning its business, properties and personnel, in each case as such other party may reasonably request; provided , however , that no actions shall be taken pursuant to this Section 5.04(a) that would result in a waiver of the attorney/client privilege.

Notwithstanding the foregoing, if a party requests access to proprietary information of the other party, the disclosure of which would have a material adverse effect on the other party if the Closing were not to occur (giving effect to the requesting party’s obligations under the Confidentiality Agreement), such information shall only be disclosed to the extent reasonably agreed upon by the chief financial officers (or their designees) of Cinergy and Duke. All information exchanged pursuant to this Section 5.04(a) shall be subject to the Confidentiality Agreement.

(b) Effect of Review. No review pursuant to this Section 5.04 shall have any effect for the purpose of determining the accuracy of any representation or warranty given by any of the parties hereto to any of the other parties hereto.

Section 5.05 Regulatory Matters; Reasonable Best Efforts.

(a) Regulatory Approvals. Each party hereto shall cooperate and promptly prepare and file all necessary documentation, to effect all necessary applications, notices, petitions and filings, and shall use reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things in order to obtain all approvals and authorizations of all Governmental Authorities, necessary or advisable to consummate and make effective, in the most expeditious manner reasonably practicable, the Mergers and the other transactions contemplated by this Agreement, including the Cinergy Required Statutory Approvals and the Duke Required Statutory Approvals; provided, however, that Cinergy shall have primary responsibility for the preparation and filing of any related applications, filings or other materials with the PUCO, the IURC and the KPSC and, provided , further , that Duke shall have primary responsibility for the preparation and filing of any related applications, filings or other materials with the NCUC and the PSCSC. Cinergy shall have the right to review and approve in advance all characterizations of the information relating to Cinergy, on the one hand, and Duke shall have the right to review and approve in advance all characterizations of the information relating to Duke, on the other hand, in either case, that appear in any application, notice, petition or filing made in connection with the Mergers or the other transactions contemplated by this Agreement. Cinergy and Duke agree that they will consult and cooperate with each other with respect to the obtaining of all such necessary approvals and authorizations of Governmental Authorities. On or about the date which is the twelve-month anniversary of the date of this Agreement, the parties shall mutually determine in good faith whether the failure to extend the dates set forth in Section 7.01(b)(i) would be reasonably likely to result in the failure to receive required consents and approvals from Governmental Authorities in light of the facts and circumstances in existence on or about such twelve-month anniversary, and if the parties determine that such an extension is appropriate, they shall negotiate the terms and length of such extension in good faith.

(b) Further Actions. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things reasonably necessary or advisable to consummate and make effective, in the most expeditious manner reasonably practicable, the Mergers and the other transactions contemplated by this Agreement, including (i) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated by this Agreement, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Authority vacated or reversed, and (ii) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement. Notwithstanding the foregoing, as used in this Section 5.05, “reasonable best efforts” shall not include nor require any party, except as set forth in Section 5.05(b) of the Duke Disclosure Letter, to (A) sell, or agree to sell, hold or agree to hold separate, or otherwise dispose or agree to dispose of any asset, in each case if such sale, separation or disposition or agreement with respect thereto (i) would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company, Cinergy or Duke (provided that for the purposes of determining whether a potential adverse effect would constitute a material adverse effect for the purposes of this clause (i), each of the Company, Cinergy and Duke and their respective subsidiaries, taken as a whole, shall each be deemed to be a consolidated group of entities of the size and scale of Cinergy and its subsidiaries, taken as a whole), (ii) would involve any capital stock of Duke Energy Gas Transmission Corporation or any capital stock of its subsidiaries or any of their respective assets, other than a de minimis amount of such assets or (iii) is of the Transferred Assets or with respect to the Transferred Assets and as a result of such sale, separation, disposition or agreement with respect thereto, thereafter the remaining Transferred Assets held by Duke or its subsidiaries would include less than 1,500 megawatts, or (B) conduct or agree to conduct its business in any particular manner if such conduct or agreement with respect thereto would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company, Cinergy, or Duke (provided that for the purposes of determining whether a potential adverse effect would constitute a material adverse effect for the purposes of this clause (ii), each of the Company, Cinergy and Duke and their respective subsidiaries, taken as a whole, shall be deemed to be a consolidated group of entities of the size and scale of Cinergy and its subsidiaries, taken as a whole.

(c) State Anti-Takeover Statutes. Without limiting the generality of Section 5.05(b), Cinergy and Duke shall (i) take all action necessary to ensure that no state anti-takeover statute or similar statute or regulation is or becomes applicable to the Mergers, this Agreement or any of the other transactions contemplated by this Agreement and (ii) if any state

anti-takeover statute or similar statute or regulation becomes applicable to the Mergers, this Agreement or any other transaction contemplated by this Agreement, take all action necessary to ensure that the Mergers and the other transactions contemplated by this Agreement may be consummated as promptly as reasonably practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Mergers and the other transactions contemplated by this Agreement.

Section 5.06 Stock Options; Restricted Stock and Equity Awards; Stock Plans.

(a) (i) At the Effective Time, all outstanding stock options (the “Cinergy Employee Stock Options”) granted under the Cinergy Employee Stock Option Plans, whether vested or unvested, shall be converted into an option to acquire, on the same terms and conditions as were applicable under such Cinergy Employee Stock Option, including vesting (taking into account any acceleration of vesting that may occur as a result of the transactions contemplated hereby), a number of shares of Company Common Stock equal to the number of shares of Cinergy Common Stock subject to such Cinergy Employee Stock Option immediately before the Cinergy Effective Time multiplied by the Cinergy Ratio (rounded to the nearest whole share) at a price per share of Company Common Stock equal to the price per share under such Cinergy Stock Option divided by the Cinergy Ratio (rounded to the nearest cent) (each, as so adjusted, a “Cinergy Adjusted Option”);

(ii) Prior to the Effective Time, Cinergy shall make such other changes to the Cinergy Employee Stock Option Plans as Cinergy and Duke may agree are appropriate to give effect to the Cinergy Merger;

(iii) At the Effective Time, each restricted share of Cinergy Common Stock (“Cinergy Restricted Stock”) shall be converted into a number of restricted shares of Company Common Stock equal to the number of restricted shares of Cinergy Common Stock multiplied by the Cinergy Ratio, on the same terms and conditions as were applicable to such share of Cinergy Common Stock, including vesting (taking into account any acceleration of vesting that may occur as a result of the transactions contemplated hereby) (“Cinergy Adjusted Restricted Stock”); and

(iv) except as disclosed in Section 5.06(a) of the Cinergy Disclosure Letter, all outstanding Cinergy equity or equity-based awards other than Cinergy Employee Stock Options and Cinergy Restricted Stock (together, “Cinergy Awards”), whether vested or unvested, as of immediately prior to the Cinergy Effective Time shall be converted into an equity or equity-based award in respect of a number of shares of Company Common Stock equal to the number of Cinergy Common Stock represented by such award multiplied by the Cinergy Ratio, on the same terms and conditions as were applicable to such Cinergy equity or equity-based award, including vesting (taking into account any acceleration of vesting that may occur as a result of the transactions contemplated hereby) (“Cinergy Adjusted Awards”).

(v) Prior to the Cinergy Effective Time, the Board of Directors of Cinergy (or, if appropriate, any committee administering the Cinergy Employee Stock Option Plans) shall adopt such resolutions or take such other actions as may be required to effect the foregoing and to ensure that the conversion pursuant to Section 2.01(b) of the Cinergy Common Stock held by any director or officer of Cinergy and the conversion pursuant to this Section 5.06(a) into Cinergy Adjusted Options of Cinergy Employee Stock Options, Cinergy Adjusted Restricted Stock of Cinergy Restricted Stock and Cinergy Adjusted Awards of Cinergy Awards held by any director or officer of Cinergy will be eligible for exemption under Rule16b-3(e) under the Exchange Act. Notwithstanding anything in Section5.06(a) to the contrary, to the extent that the adjustments set forth in Section 5.06(a) would otherwise result in the adjustment being treated as anew grant of stock options or deferred compensation under Section 409A of the Code, the number of shares subject to any Cinergy Adjusted Option, Cinergy Adjusted Restricted Stock or Cinergy Adjusted Awards converted pursuant to Section 5.06(a) and the exercise price per share of any Cinergy Adjusted Option converted pursuant to Section 5.06(a) shall be determined in a manner that will not result in such conversions being treated as a new grant of stock options or deferred compensation under Section 409A of the Code and most closely reflects the economics of the adjustment pursuant to Section 5.06(a).

(b) (i) At the Duke Effective Time, all outstanding stock options (the “Duke Employee Stock Options”) granted under the Duke Option Plans, whether vested or unvested, shall be converted into an option to acquire, on the same terms and conditions as were applicable under such Duke Employee Stock Option after taking into account the transactions contemplated hereby, the same number of shares of Company Common Stock at the same price per share of Company Common Stock (each, as so adjusted, a “Duke Adjusted Option”, and, together with the Cinergy Adjusted Options, the “Adjusted Options”);

(ii) Prior to the Duke Effective Time, Duke shall make such other changes to the Duke Option Plans as Cinergy and Duke may agree are appropriate to give effect to the Duke Merger;

(iii) At the Duke Effective Time, each restricted share of Duke Common Stock (the “Duke Restricted Stock”) shall be converted into a restricted share of Company Common Stock, on the same terms and conditions as were applicable to such share of Duke Common Stock after taking into account the transactions contemplated hereby (the “Duke Adjusted Restricted Stock”); and

(iv) except as disclosed in Section 5.06(b) of the Duke Disclosure Letter, all outstanding Duke equity or equity-based awards other than Duke Employee Stock Options and Duke Restricted Stock (together, “Duke Awards”), whether vested or unvested, as of immediately prior to the Duke Effective Time shall be converted into an equity or equity-based award in respect of the same number of shares of Company Common Stock, on the same terms and conditions as were applicable to such Duke equity or equity-based award after taking into account the transactions contemplated hereby (“Duke Adjusted Awards”).

(v) Prior to the Duke Effective Time, the Board of Directors of Duke (or, if appropriate, any committee administering the Duke Option Plans) shall adopt such resolutions or take such other actions as may be required to effect the foregoing and to ensure that the conversion pursuant to Section 2.01(a) of the Duke Common Stock held by any director or officer of Cinergy and the conversion pursuant to this Section 5.06(b) into Duke Adjusted Options of Duke Employee Stock Options, Duke Adjusted Restricted Stock of Duke Restricted Stock and Duke Adjusted Awards of Duke Awards held by any director or officer of Duke will be eligible for exemption under Rule 16b-3(e) under the Exchange Act. Notwithstanding anything in Section 5.06(b) to the contrary, to the extent that the adjustments set forth in Section 5.06(b) would otherwise result in the adjustment being treated as a new grant of stock options or deferred compensation under Section 409A of the Code, the number of shares subject to any Duke Adjusted Option, Duke Adjusted Restricted Stock or Duke Adjusted Awards converted pursuant to Section 5.06(b) and the exercise price per share of any Duke Adjusted Option converted pursuant to Section 5.06(b) shall be determined in a manner that will not result in such conversions being treated as a new grant of stock options or deferred compensation under Section 409A of the Code and most closely reflects the economics of the adjustment pursuant to Section 5.06(b).

(c) Prior to the Duke Effective Time, the Board of Directors of the Company shall adopt such resolutions or take such other actions as may be required to ensure to the maximum extent permitted by law that the conversion pursuant to Section 2.01(b) of the Duke Common Stock held by any director or officer of Duke, the conversions pursuant to Section 5.06(b), the conversion pursuant to Section 2.01(a) of the Cinergy Common Stock held by any director or officer of Cinergy and the conversion pursuant to Section 5.06(a) will be eligible for exemption under Rule 16b-3(e) under the Exchange Act. Prior to the Cinergy Effective Time or the Duke Effective Time, as the case may be, Duke and Cinergy, as applicable, shall each deliver to the holders of Cinergy Employee Stock Options and Duke Employee Stock Options (collectively, the “Stock Options”) appropriate notices setting forth such holders’ rights pursuant to the respective Cinergy Employee Stock Option Plans or Duke Option Plans, as the case may be (collectively, the “Stock Plans”), and the agreements evidencing the grants of such Stock Options, and that such Stock Options and agreements shall be assumed by the Company and shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 5.06 after giving effect to the Mergers).

(d) Except as otherwise contemplated by this Agreement and except to the extent required under the respective terms of the Stock Options, all restrictions or limitations on transfer and vesting with respect to Stock Options awarded under the Stock Plans, or any other plan, program or arrangement of Cinergy, Duke or any of their subsidiaries, to the extent that such restrictions or limitations shall not have already lapsed, shall remain in full force and effect with respect to such Stock Options after giving effect to the Mergers and the assumption by the Company as set forth above.

(e) At the Cinergy Effective Time, by virtue of the Mergers, the Stock Plans shall be assumed by the Company, with the result that all obligations of Cinergy and Duke under the Stock Plans, including with respect to awards outstanding at the Effective Time under each Stock Plan, shall be obligations of the Company following the Effective Time. Prior to the Cinergy Effective Time, the Company shall take all necessary actions for the assumption of the Stock Plans, including the reservation, issuance and listing of Company Common Stock in a number at least equal to the number of shares of Company Common Stock that will be subject to Adjusted Options. As promptly as practicable following the Cinergy Effective Time, the Company shall prepare and file with the SEC a registration statement on Form S-8 (or another appropriate form) registering a number of shares of Company Common Stock determined in accordance with the preceding sentence. Such registration statement shall be kept effective (and the current status of the prospectus or prospectuses required thereby shall be maintained) at least for so long as Adjusted Options remain outstanding.

Section 5.07 Employee Matters.

(a) Following the Cinergy Effective Time, the Company will (subject to this Section 5.07 and Section 5.08), or, as applicable, will cause its subsidiaries to, honor all obligations under any contracts, agreements, collective bargaining agreements, plans (as such may be amended in accordance with this Agreement) and commitments of Cinergy and Duke and their respective subsidiaries that exist on the date of this Agreement (or as established or amended in accordance with or

permitted by this Agreement) that apply to any current or former employee, or current or former director, of Cinergy or Duke or any of their subsidiaries; provided , however , that this undertaking is not intended to prevent the Company or its subsidiaries from enforcing such contracts, agreements, collective bargaining agreements, plans (as such may be amended in accordance with this Agreement) and commitments in accordance with their terms, including any reserved right to amend, modify, suspend, revoke or terminate any such contract, agreement, collective bargaining agreement or commitment. The Company acknowledges on behalf of itself and its subsidiaries that the Mergers and the transactions contemplated by this Agreement shall constitute a “Change of Control” or a “Change in Control,” as applicable under the Cinergy Employee Stock Options and Cinergy Employee Benefit Plans. Until the first anniversary of the Effective Time, the Company shall provide, or shall cause to be provided, to each individual who is an employee of Cinergy or its subsidiaries (exclusive of any individual who is employed subject to a collective bargaining agreement) immediately prior to the Cinergy Effective Time (“Cinergy Employees”) compensation and benefits from time to time that are no less favorable, in the aggregate, than the compensation and benefits provided to Cinergy Employees immediately prior to the Effective time.

(b) At the Cinergy Effective Time, it shall be the intent of the Company, that (subject to obligations under applicable law and applicable collective bargaining agreements) (i) any reductions in the employee work force of the Company and its subsidiaries shall be made in light of the circumstances and the objectives to be achieved, giving consideration to previous work history, job experience and qualifications and such other factors as the Company and its subsidiaries consider appropriate, without regard to whether employment prior to the Effective Time was with Cinergy and its subsidiaries or Duke and its subsidiaries, and any employees whose employment is terminated or jobs are eliminated by the Company or any of its subsidiaries during such period shall be entitled to participate on a fair and equitable basis (as determined by the Company and its subsidiaries) in the job opportunity and employment placement programs offered by the Company or any of its subsidiaries for which they are eligible and (ii) employees shall be entitled to participate in all job training, career development and educational programs of the Company and its subsidiaries for which they are eligible, and shall be entitled to be considered for any job opportunities with the Company and its subsidiaries, in each case without regard to whether employment prior to the Cinergy Effective Time was with Cinergy and its subsidiaries or Duke and its subsidiaries. Until the later to occur of (w) the first anniversary of the Cinergy Effective Time and (x) December 31, 2007 (the “Severance Maintenance Period”), Cinergy Employees shall be eligible to receive severance benefits (exclusive of severance benefits provided pursuant to individual agreements or pursuant to arrangements covering only select highly compensated or management employees) in amounts and on terms and conditions no less favorable than the more favorable of (y) those provided to Cinergy Employees pursuant to policies in effect immediately prior to the Cinergy Effective Time, or (z) those provided to similarly situated employees of Duke or its subsidiaries immediately prior to the Effective Time pursuant to policies (other than the DENA Asset Partners, L.P. 2003-2005 Severance Benefits Plan) as in effect from time to time during the Severance Maintenance Period.

(c) Subject to its obligations under applicable law and applicable collective bargaining agreements, the Company and its subsidiaries shall give credit under each of their respective employee benefit plans, programs and arrangements to employees for all service prior to the Cinergy Effective Time with Cinergy or Duke or their respective subsidiaries, as applicable, or any predecessor employer (to the extent that such credit was given by Cinergy or Duke or any of their respective subsidiaries, as applicable) for all purposes for which such service was taken into account or recognized by Cinergy or Duke or their respective subsidiaries, as applicable, but not to the extent crediting such service would result in duplication of benefits (including for benefit accrual purposes under defined benefit pension plans).

Section 5.08 Indemnification, Exculpation and Insurance.

(a) Each of the Company, Cinergy, Duke, Merger Sub A and Merger Sub B agrees that, to the fullest extent permitted under applicable law, all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Cinergy Effective Time now existing in favor of the current or former directors, officers, employees or fiduciaries under benefit plans currently indemnified of Cinergy and its subsidiaries or Duke and its subsidiaries, as the case may be, as provided in their respective certificate or articles of incorporation, by-laws (or comparable organizational documents) or other agreements providing indemnification shall survive the Mergers and shall continue in full force and effect in accordance with their terms. In addition, from and after the Cinergy Effective Time, directors, officers, employees and fiduciaries under benefit plans currently indemnified of Cinergy or Duke or their respective subsidiaries who become directors, officers, employees or fiduciaries under benefit plans of the Company will be entitled to the indemnity rights and protections afforded to directors, officers, employees and fiduciaries under benefit plans of the Company.

(b) For six years after the Effective Time, the Company shall maintain in effect the directors’ and officers’ liability (and fiduciary) insurance policies currently maintained by Cinergy and Duke covering acts or omissions occurring on or prior to the Effective Time with respect to those persons who are currently covered by Cinergy’s and Duke’s respective directors’ and officers’ liability (and fiduciary) insurance policies on terms with respect to such coverage and in amounts no less favorable than those set forth in the relevant policy in effect on the date of this Agreement. If such no less favorable insurance coverage cannot

be maintained, the Company shall maintain the most advantageous policies of directors’ and officers’ insurance otherwise obtainable. In addition, each of Duke and Cinergy may purchase a six-year “tail”prepaid policy prior to the Effective Time on terms and conditions no less advantageous to the Cinergy Indemnified Parties and Duke Indemnified Parties, or any other person entitled to the benefit of Sections 5.08(a) and (b), as applicable, than the existing directors’ and officers’ liability (and fiduciary) insurance maintained by Duke or Cinergy, as the case may be, covering without limitation the transactions contemplated hereby. If such “tail” prepaid policy has been obtained by Duke or Cinergy, as the case may be, prior to the Effective Time, the Company shall, and shall cause Duke or Cinergy, as the case may be,after the Effective Time, to maintain such policy in full force and effect, for its full term, and to continue to honor their respective obligations thereunder.

(c) From and after the Cinergy Effective Time, each of the Company and the corporation surviving the Cinergy Merger (the “Cinergy Surviving Corporation”) agrees that it will jointly and severally indemnify and hold harmless each present director and officer of Cinergy or any of its subsidiaries (in each case, for acts or failures to act in such capacity), determined as of the date hereof, and any person who becomes such a director or officer between the date hereof and the Cinergy Effective Time (collectively, the “Cinergy Indemnified Parties”), against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities (collectively, “Costs”) incurred in connection with any claim,action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Cinergy Effective Time, whether asserted or claimed prior to, at or after the Cinergy Effective Time (including any matters arising in connection with the transactions contemplated by this Agreement), to the fullest extent permitted by applicable law (and the Company or the Cinergy Surviving Corporation shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided that if required by applicable law the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification); and provided , further , that any determination as to whether a Cinergy Indemnified Person is entitled to indemnification or advancement of expenses hereunder pursuant to applicable law shall be made by independent counsel jointly selected by the Cinergy Surviving Corporation and such Cinergy Indemnified Person.

(d) From and after the Duke Effective Time, each of the Company and Duke Power LLC, as the successor to the corporation surviving the Duke Merger, agrees that it will jointly and severally indemnify and hold harmless each present director and officer of Duke or any of its subsidiaries(in each case, for acts or failures to act in such capacity), determined as of the date hereof, and any person who becomes such director or officer between the date hereof and the Duke Effective Time (collectively, the “Duke Indemnified Parties”), against any Costs incurred in connection with any claim, action,suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Duke Effective Time, whether asserted or claimed prior to, at or after the Duke Effective Time (including any matters arising in connection with the transactions contemplated by this Agreement), to the fullest extent permitted by applicable law (and the Company or Duke Power LLC shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided that if required by applicable law the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification); and provided , further , that any determination as to whether a Duke Indemnified Person is entitled to indemnification or advancement of expenses hereunder pursuant to applicable law shall be made by independent counsel jointly selected by the Duke Power LLC and such Duke Indemnified Person.

(e) The obligations of the Company, the Cinergy Surviving Corporation and Duke Power LLC under this Section 5.08 shall not be terminated or modified by such parties in a manner so as to adversely affect any Cinergy Indemnified Party, Duke Indemnified Party, or any other person entitled to the benefit of Sections 5.08(a) and (b), as the case may be, to whom this Section 5.08 applies without the consent of the affected Cinergy Indemnified Party, Duke Indemnified Party, or such other person, as the case may be. If the Company, the Cinergy Surviving Corporation or Duke Power LLC or any of its respective successors or assigns (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or Surviving Corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any individual, corporation or other entity, then, and in each such case, proper provisions shall be made so that the successors and assigns of the Company, the Cinergy Surviving Corporation or Duke Power LLC, as the case may be, shall assume all of the obligations set forth in this Section 5.08.

(f) The provisions of Section 5.08 are (i) intended to be for the benefit of, and will be enforceable by, each indemnified party, his or her heirs and his or her representatives and (ii) in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise.

Section 5.09 Fees and Expenses.

(a) Except as provided in this Section 5.09, all fees and expenses incurred in connection with the Mergers, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses,

whether or not the Mergers are consummated, except that each of Cinergy and Duke shall bear and pay one-half of the costs and expenses incurred in connection with (1) the filing, printing and mailing of the Form S-4and the Joint Proxy Statement (including SEC filing fees) and (2) the filings of the premerger notification and report forms under the HSR Act (including filing fees). The Company shall file any return with respect to, and shall pay, any state or local taxes (including any penalties or interest with respect thereto), if any, that are attributable to (i) the transfer of the beneficial ownership of Duke’s real property and (ii) the transfer of Duke Common Stock pursuant to this Agreement as a result of the Mergers. Cinergy shall file any return with respect to, and shall pay, any state or local taxes (including penalties or interest with respect thereto), if any, that are attributable to (i) the transfer of the beneficial ownership of Cinergy’s real property and (ii) the transfer of Cinergy Common Stock pursuant to this Agreement as a result of the Mergers. Cinergy, Duke and the Company shall cooperate with respect to the filing of such returns, including supplying any information that is reasonably necessary to complete such returns.

(b) In the event that (i) following the Cinergy Shareholder Approval, a Cinergy Takeover Proposal shall have been made known to Cinergy or any person shall have publicly announced an intention (whether or not conditional) to make a Cinergy Takeover Proposal and thereafter this Agreement is terminated by Cinergy pursuant to Section 7.01(b)(i), (ii) prior to or during the Cinergy Shareholders Meeting (or any subsequent meeting of Cinergy shareholders at which it is proposed that the Cinergy Merger be approved), a Cinergy Takeover Proposal shall have been publicly disclosed or any person shall have publicly announced an intention (whether or not conditional) to make a Cinergy Takeover Proposal, and thereafter this Agreement is terminated by either Cinergy or Duke pursuant to Section 7.01(b)(iii), (iii) this Agreement is terminated by Cinergy pursuant to Section 7.01(d), or (iv) this Agreement is terminated by Duke pursuant to Section 7.01(h)(i) or (iii), then Cinergy shall immediately pay Duke a fee equal to $300,000,000 (the “Cinergy Termination Fee”) minus any amounts as may have been previously paid by Cinergy pursuant to Section 5.09(d), payable by wire transfer of same day funds; provided , however , that no Cinergy Termination Fee shall be payable to Duke (x) pursuant to clause (i) of this paragraph (b) unless and until within six months of such termination Cinergy or any of its subsidiaries enters into any Cinergy Acquisition Agreement or consummates any Cinergy Takeover Proposal, in either case with the person (or an affiliate of such person) that made the Cinergy Takeover Proposal referred to in clause (i) of this paragraph (b) or (y) pursuant to clause (ii) of this paragraph (b) unless and until within 18 months of such termination Cinergy or any of its subsidiaries enters into any Cinergy Acquisition Agreement or consummates any Cinergy Takeover Proposal, in either case with the person (or an affiliate of such person) that made the Cinergy Takeover Proposal referred to in clause (ii) of this paragraph (b) (for the purposes of the foregoing proviso the terms “Cinergy Acquisition Agreement” and “Cinergy Takeover Proposal” shall have the meanings assigned to such terms in Section 4.03 except that the reference to “20%” in the definition of “Cinergy Takeover Proposal” in Section 4.03(a) shall be deemed to be references to “35%”), in which event the Termination Fee shall be immediately payable upon the first to occur of such events, and provided , further , if this Agreement is terminated by Duke pursuant to Section 7.01(h)(i) as a result of the Board of Directors of Cinergy (or any committee thereof) having withdrawn or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Cinergy Merger primarily due to adverse conditions, events or actions of or relating to Duke, the Cinergy Termination Fee shall not be payable to Duke.

(c) In the event that (i) following the Duke Shareholder Approval, a Duke Takeover Proposal shall have been made known to Duke or any person shall have publicly announced an intention (whether or not conditional) to make a Duke Takeover Proposal and thereafter this Agreement is terminated by Duke pursuant to Section 7.01(b)(i), (ii) prior to or during the Duke Shareholders Meeting (or any subsequent meeting of Duke shareholders at which it is proposed that the Duke Merger be approved), a Duke Takeover Proposal shall have been publicly disclosed or any person shall have publicly announced an intention (whether or not conditional) to make a Duke Takeover Proposal, and thereafter this Agreement is terminated by either Cinergy or Duke pursuant to Section 7.01(b)(ii), (iii) this Agreement is terminated by Duke pursuant to Section 7.01(f), or (iv) this Agreement is terminated by Cinergy pursuant to Section 7.01(g)(i) or (iii), then Duke shall immediately pay Cinergy a fee equal to $500,000,000 (the “Duke Termination Fee”) minus any amounts as may have been previously paid by Duke pursuant to Section 5.09(e), payable by wire transfer of same day funds; provided, however, that no Duke Termination Fee shall be payable to Cinergy (x) pursuant to clause (i) of this paragraph (c) unless and until within six months of such termination Duke or any of its subsidiaries enters into any Duke Acquisition Agreement or consummates any Duke Takeover Proposal, in either case with the person (or an affiliate of such person) that made the Duke Takeover Proposal referred to in clause (i) of this paragraph (c) or (y) pursuant to clause (ii) of this paragraph (c) unless and until within 18 months of such termination Duke or any of its subsidiaries enters into any Duke Acquisition Agreement or consummates any Duke Takeover Proposal, in either case with the person (or an affiliate of such person) that made the Duke Takeover Proposal referred to in clause (ii) of this paragraph (c) (for the purposes of the foregoing proviso the terms “Duke Acquisition Agreement” and “Duke Takeover Proposal” shall have the meanings assigned to such terms in Section 4.04 except that the references to “20%” in the definition of “Duke Takeover Proposal” in Section 4.04(a) shall be deemed to be references to “35%”), in which event the Termination Fee shall be immediately payable upon the first to occur of such events, and provided , further , if this Agreement is terminated by Cinergy pursuant to Section 7.01(g)(i) as a result of the Board of Directors of Duke (or any committee thereof) having withdrawn or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Duke Merger primarily due to adverse conditions, events or actions of or relating to Cinergy, the Duke Termination Fee shall not be payable to Cinergy.

(d) If this Agreement is terminated by Cinergy pursuant to Section 7.01(b)(i) (and following the Cinergy Shareholder Approval a Cinergy Takeover Proposal shall have been made known to Cinergy or any person shall have publicly announced an intention (whether or not conditional) to make a Cinergy Takeover Proposal and in each case there shall not have been a bona fide withdrawal thereof) or by Cinergy or Duke pursuant to Section 7.01(b)(iii) (after the public disclosure of a Cinergy Takeover Proposal or the announcement by any person of the intention (whether or not conditional) to make a Cinergy Takeover Proposal and in each case there shall not have been a bona fide withdrawal thereof), Cinergy shall reimburse Duke promptly upon demand, but in no event later than three business days after the date of such demand, by wire transfer of same day funds, for all fees and expenses, incurred or paid by or on behalf of, Duke in connection with the Mergers, the Duke Conversion, the Restructuring Transactions or the transactions contemplated by this Agreement, including all fees and expenses of counsel, investment banking firms, accountants, experts and consultants to Duke; provided , however , that Cinergy shall not be obligated to make payments pursuant to this Section 5.09(d) in excess of $35,000,000 in the aggregate.

(e) If this Agreement is terminated by Duke pursuant to Section 7.01(b)(i) (and following the Duke Shareholder Approval a Duke Takeover Proposal shall have been made known to Duke or any person shall have publicly announced an intention (whether or not conditional) to make a bona fide Duke Takeover Proposal and in each case there shall not have been a bona fide withdrawal thereof) or by Cinergy or Duke pursuant to Section 7.01(b)(ii) (after the public disclosure of a bona fide Duke Takeover Proposal or the announcement by any person of the intention (whether or not conditional) to make a bona fide Duke Takeover Proposal and in each case there shall not have been a bona fide withdrawal thereof), Duke shall reimburse Cinergy promptly upon demand, but in no event later than three business days after the date of such demand, by wire transfer of same day funds, for all fees and expenses incurred, or paid by or on behalf of, Cinergy in connection with the Mergers or the transactions contemplated by this Agreement, including all fees and expenses of counsel, investment banking firms, accountants, experts and consultants to Cinergy; provided , however , that Duke shall not be obligated to make payments pursuant to this Section 5.09(e) in excess of $35,000,000 in the aggregate.

(f) Cinergy acknowledges that the agreements contained in Sections 5.09(b) and 5.09(d) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Duke would not enter into this Agreement; accordingly, if Cinergy fails promptly to pay the amount due pursuant to Section 5.09(b) or 5.09(d), and, in order to obtain such payment, Duke commences a suit that results in a judgment against Cinergy for the fees set forth in Section 5.09(b) or 5.09(d), Cinergy shall pay to Duke its costs and expenses (including attorneys’ fees and expenses) in connection with such suit, together with interest on the amount of the fee at the prime rate of Citibank N.A. in effect on the date such payment was required to be made.

(g) Duke acknowledges that the agreements contained in Sections 5.09(c) and 5.09(e) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Cinergy would not enter into this Agreement; accordingly, if Duke fails promptly to pay the amount due pursuant to Section 5.09(c) or 5.09(e), and, in order to obtain such payment, Cinergy commences a suit that results in a judgment against Duke for the fees set forth in Section 5.09(c) or 5.09(e), Duke shall pay to Cinergy its costs and expenses (including attorneys’ fees and expenses) in connection with such suit, together with interest on the amount of the fee at the prime rate of Citibank N.A. in effect on the date such payment was required to be made.

Section 5.10 Public Announcements. Cinergy and Duke will consult with each other before issuing, and provide each other the reasonable opportunity to review, comment upon and concur with, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Mergers, and shall not issue any such press release or make any such public statement prior to such consultation, except as any party, after consultation with counsel, determines is required by applicable law or applicable rule or regulation of the NYSE.

Section 5.11 Affiliates. As soon as practicable after the date of this Agreement, Cinergy shall deliver to Duke, and Duke shall deliver to Cinergy, a letter identifying all persons who are, at the time this Agreement is submitted for adoption by the respective shareholders of Duke and Cinergy, “affiliates” of Cinergy or Duke, as the case may be, for purposes of Rule 145 under the Securities Act. Cinergy and Duke shall use their respective reasonable best efforts to cause each such person to deliver to the Company as of the Closing Date, a written agreement in mutually acceptable customary form.

Section 5.12 NYSE Listing. The Company shall use its reasonable best efforts to cause the shares of Company Common Stock issuable to Cinergy’s shareholders and Duke’s shareholders as contemplated by this Agreement to be approved for listing on the NYSE, subject to official notice of issuance, as promptly as practicable after the date of this Agreement, and in any event prior to the Closing Date.

Section 5.13 Shareholder Litigation. Each of Cinergy and Duke shall give the other the reasonable opportunity to consult concerning the defense of any shareholder litigation against Cinergy or Duke, as applicable, or any of their respective directors relating to the transactions contemplated by this Agreement.

Section 5.14 Tax-Free Reorganization Treatment. The parties to this Agreement intend that the Duke Reorganization will qualify as are organization under Section 368(a) of the Code and that the Cinergy Merger will qualify as a reorganization under Section 368(a) of the Code, and each shall not, and shall not permit any of their respective subsidiaries to, take any action, or fail to take any action, that would reasonably be expected to jeopardize the qualification of the Duke Reorganization or the Cinergy Merger as reorganizations under Section 368(a) of the Code.

Section 5.15 Standstill Agreements; Confidentiality Agreements. During the period from the date of this Agreement through the Effective Time, neither Cinergy nor Duke shall terminate, amend, modify or waive any provision of any confidentiality or standstill agreement to which it or any of its respective subsidiaries is a party unless required by applicable law or,in the case of a standstill agreement, during the Cinergy Applicable Period in the case of Cinergy or during the Duke Applicable Period in the case of Duke, unless the Board of Directors of the applicable party determines in good faith that failure to do so could reasonably be expected to result in a breach of its fiduciary obligations under applicable law. During such period, Cinergy or Duke, as the case may be, shall enforce, to the fullest extent permitted under applicable law or, in the case of a standstill agreement, during the Cinergy Applicable Period in the case of Cinergy or during the Duke Applicable Period in the case of Duke, unless the Board of Directors of the applicable party determines in good faith that failure to do so could reasonably be expected to result in a breach of its fiduciary obligations under applicable law, the provisions of any such agreement, including by seeking injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof.

ARTICLE VI

Conditions Precedent

Section 6.01 Conditions to Each Party’s Obligation to Effect the Mergers. The respective obligation of each party to effect the Mergers is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions:

(a) Shareholder Approvals. Each of the Duke Shareholder Approval and the Cinergy Shareholder Approval shall have been obtained.

(b) No Injunctions or Restraints. No (i) temporary restraining order or preliminary or permanent injunction or other order by any Federal or state court of competent jurisdiction preventing consummation of either of the Mergers or (ii) applicable Federal or state law prohibiting consummation of either of the Mergers (collectively, “Restraints”) shall be in effect.

(c) Form S-4. The Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order.

(d) NYSE Listing. The shares of Company Common Stock issuable to Cinergy’s shareholders and Duke’s shareholders as contemplated by this Agreement shall have been approved for listing on the NYSE, subject to official notice of issuance.

Section 6.02 Conditions to Obligations of Cinergy. The obligation of Cinergy to effect the Cinergy Merger is further subject to satisfaction or waiver of the following conditions:

(a) Representations and Warranties. The representations and warranties of Duke set forth herein shall be true and correct both when made and at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth therein) does not have, and could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Duke.

(b) Performance of Obligations of Duke. Duke shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date.

(c) Tax Opinion. Cinergy shall have received a written opinion from Wachtell, Lipton, Rosen & Katz, counsel to Cinergy, dated as of the Closing Date, to the effect that the Cinergy Merger will qualify as are organization under Section 368(a) of the Code. Such counsel shall be entitled to rely upon representation letters from each of the Company, Duke, Duke Power LLC, Cinergy, Merger Sub A, Merger Sub B and others, in each case, in form and substance reasonably satisfactory to such counsel. Each such representation letter shall be dated as of the date of such opinion. The opinion condition referred to in this Section 6.2(c) shall not be waivable after receipt of the Cinergy Shareholder Approval, unless further approval of the shareholders of Cinergy is obtained with appropriate disclosure.

(d) Statutory Approvals. The Cinergy Required Statutory Approvals and the Duke Required Statutory Approvals shall have been obtained (including, in each case, the expiration or termination of the waiting periods (and any extensions thereof) under the HSR Act applicable to the Mergers and the transactions contemplated by this Agreement) at or prior to the Effective Time, such approvals shall have become Final Orders (as defined below) and such Final Orders shall not impose terms or conditions that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on (i) the Company and its prospective subsidiaries taken as a whole, (ii) Cinergy and its subsidiaries taken as a whole, or (iii) Duke and its subsidiaries taken as a whole, provided that for the purposes of determining whether such terms and conditions could have a material adverse effect for the purposes of this Section 6.02(d), each of the Company, Cinergy and Duke and their respective subsidiaries, taken as a whole, shall each be deemed to be a consolidated group of entities of the size and scale of Cinergy and its subsidiaries, taken as a whole. A “Final Order” means action by the relevant Governmental Authority that has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which any waiting period prescribed by law before the transactions contemplated hereby may be consummated has expired (a “Final Order Waiting Period”), and as to which all conditions to the consummation of such transactions prescribed by law, regulation or order have been satisfied.

(e) No Material Adverse Effect. Except as disclosed in the Duke SEC Reports filed on or after January 1, 2004 and prior to the date hereof or in any specific section of the Duke Disclosure Letter corresponding to Section 3.02, since December 31, 2004, there shall not have been any change, event, occurrence or development that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on Duke.

(f) Closing Certificates. Cinergy shall have received a certificate signed by an executive officer of Duke, dated the Effective Time, to the effect that, to such officer’s knowledge, the conditions set forth in Sections 6.02(a), 6.02(b) and 6.02(e) have been satisfied.

Section 6.03 Conditions to Obligations of Duke. The obligation of Duke to effect the Duke Merger, the Duke Conversion and the Restructuring Transactions is further subject to satisfaction or waiver of the following conditions:

(a) Representations and Warranties. The representations and warranties of Cinergy set forth herein shall be true and correct both when made and at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth therein) does not have, and could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Cinergy.

(b) Performance of Obligations of Cinergy. Cinergy shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date.

(c) Tax Opinion. Duke shall have received a written opinion from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Duke, dated as of the Closing Date, to the effect that the Duke Reorganization will qualify as a reorganization under Section 368(a) of the Code and that the Cinergy Merger will qualify as a reorganization under Section 368(a) of the Code. Such counsel shall be entitled to rely upon representation letters from each of the Company, Duke, Duke Power LLC, Cinergy, Merger Sub A and Merger Sub B and others, in each case, in form and substance reasonably satisfactory to such counsel. Each such representation letter shall be dated as of the date of such opinion. The opinion condition referred to in this Section 6.3(c) shall not be waivable after receipt of the Duke Shareholder Approval, unless further approval of the shareholders of Duke is obtained with appropriate disclosure.

(d) Statutory Approvals. The Cinergy Required Statutory Approvals and the Duke Required Statutory Approvals shall have been obtained (including, in each case, the expiration or termination of the waiting periods (and any extensions thereof) under the HSR Act applicable to the Mergers and the transactions contemplated by this Agreement) at or prior to the Effective Time, such approvals shall have become Final Orders and such Final Orders shall not impose terms or conditions that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on (i) the Company and its prospective subsidiaries taken as a whole, (ii) Cinergy and its subsidiaries taken as a whole, or (iii) Duke and its subsidiaries taken as a whole, provided that for the purposes of determining whether such terms and conditions could have a material adverse effect for the purposes of this Section 6.03(d), each of the Company, Cinergy and Duke and their respective subsidiaries, taken as a whole, shall each be deemed to be a consolidated group of entities of the size and scale of Cinergy and its subsidiaries, taken as a whole.

(e) No Material Adverse Effect. Except as disclosed in the Cinergy SEC Reports filed on or after January 1, 2004 and prior to the date hereof or in any specific section of the Cinergy Disclosure Letter corresponding to Section 3.01, since December 31, 2004, there shall not have been any change, event, occurrence or development that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on Cinergy.

(f) Closing Certificates. Duke shall have received a certificate signed by an executive officer of Cinergy, dated the Effective Time, to the effect that, to such officer’s knowledge, the conditions set forth in Sections 6.03(a), 6.03(b) and 6.03(e) have been satisfied.

Section 6.04 Frustration of Closing Conditions. Neither Cinergy nor Duke may rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by such party’s failure to use reasonable best efforts to consummate the Mergers and the other transactions contemplated by this Agreement, to the extent required by and subject to Section 5.05.

ARTICLE VII

Termination, Amendment and Waiver

Section 7.01 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or (other than pursuant to clauses (d), (f), (g) or (h) below) after the Duke Shareholder Approval or the Cinergy Shareholder Approval:

(a) by mutual written consent of Cinergy and Duke;

(b) by either Cinergy or Duke:

(i) if the Mergers shall not have been consummated by the 12-month anniversary of the date of this Agreement (the “Initial Termination Date”); provided , howeve r, that the right to terminate this Agreement pursuant to this Section 7.01(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Mergers to be consummated by such time; and provided , further , that, (A) if on the Initial Termination Date the conditions to the Closing set forth in Sections 6.01(b), 6.02(d) and/or 6.03(d) shall not have been fulfilled but all other conditions to the Closing shall have been fulfilled or shall be capable of being fulfilled, then either party may (on one or more occasions) extend the Initial Termination Date up to the 15-month anniversary of the date of this Agreement and (B) if the Initial Termination Date (as it may be extended pursuant to clause (A) of this Section 7.01(b)(i)(A)) shall occur during any Final Order Waiting Period, the Initial Termination Date shall be extended until the third business day after the expiration of such Final Order Waiting Period;

(ii) if the Duke Shareholder Approval shall not have been obtained at a Duke Shareholders Meeting duly convened therefor or at any adjournment or postponement thereof;

(iii) if the Cinergy Shareholder Approval shall not have been obtained at a Cinergy Shareholders Meeting duly convened therefor or at any adjournment or postponement thereof;

(iv) if any Restraint having any of the effects set forth in Section 6.01(b) shall be in effect and shall have become final and nonappealable; provided that the party seeking to terminate this Agreement pursuant to this Section 7.01(b)(iv) shall have used its reasonable best efforts to prevent the entry of and to remove such Restraint; or

(v) if any condition to the obligation of such party to consummate the Cinergy Merger or the Duke Merger, as applicable, set forth in Section 6.02 (in the case of Cinergy) or in Section 6.03 (in the case of Duke) becomes incapable of satisfaction prior to the Initial Termination Date (or, if the Initial Termination Date is extended in accordance with the second proviso to Section 7.01(b)(i), such date as extended); provided , however , in the case of Section 6.02(d) and 6.03(d), the Initial Termination Date shall refer to such date as it may be extended pursuant to the second proviso to Section 7.01(b)(i); and provided further , that the failure of any such condition to be capable of satisfaction is not the result of a material breach of this Agreement by the party seeking to terminate this Agreement.

(c) by Cinergy, if Duke shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.02(a) or (b), and (B) is incapable of being cured by Duke or is not cured by Duke within 105 days following receipt of written notice from Cinergy of such breach or failure to perform;

(d) by Cinergy in accordance with Section 4.03(b); provided , that, in order for the termination of this Agreement pursuant to this paragraph (d) to be deemed effective, Cinergy shall have complied with Section 4.03 and with applicable requirements, including the payment of the Cinergy Termination Fee, of Section 5.09;

(e) by Duke, if Cinergy shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.03(a) or (b), and (B) is incapable of being cured by Cinergy or is not cured by Cinergy within 105 days following receipt of written notice from Duke of such breach or failure to perform;

(f) by Duke in accordance with Section 4.04(b); provided , that, in order for the termination of this Agreement pursuant to this paragraph (f) to be deemed effective, Duke shall have complied with Section 4.04 and with applicable requirements, including the payment of the Duke Termination Fee, of Section 5.09;

(g) by Cinergy, if the Board of Directors of Duke (or any committee thereof) (i) shall have withdrawn or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Duke Merger, (ii) shall fail to reaffirm such approval or recommendation within 15 business days of receipt of Cinergy’s written request at any time when a Duke Takeover Proposal shall have been made and not rejected by the Board of Directors of Duke, provided , that , such 15-business day period shall be extended for ten business days following any material modification to such Duke Takeover Proposal occurring after the receipt of Cinergy’s written request and provided , further , that such 15-business day period shall recommence each time a Duke Takeover Proposal has been made following the receipt of Cinergy’s written request by a person that had not made a Duke Takeover Proposal prior to the receipt of Cinergy’s written request, or (iii) shall have approved or recommended, or proposed to approve or recommend, a Duke Takeover Proposal; or

(h) by Duke, if the Board of Directors of Cinergy (or any committee thereof) (i) shall have withdrawn or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Cinergy Merger, (ii) shall fail to reaffirm such approval or recommendation within 15 business days of receipt of Duke’s written request at any time when a Cinergy Takeover Proposal shall have been made and not rejected by the Board of Directors of Cinergy, provided , that , such 15-business day period shall be extended for ten business days following any material modification to such Cinergy Takeover Proposal occurring after the receipt of Duke’s written request and provided , further , that such 15-business day period shall recommence each time a Cinergy Takeover Proposal has been made following the receipt of Duke’s written request by a person that had not made a Cinergy Takeover Proposal prior to the receipt of Duke’s written request, or (iii) shall have approved or recommended, or proposed to approve or recommend, a Cinergy Takeover Proposal.

Section 7.02 Effect of Termination.

(a) In the event of termination of this Agreement by either Duke or Cinergy as provided in Section 7.01, this Agreement shall forthwith become null and void and have no effect, without any liability or obligation on the part of Cinergy or Duke, other than the provisions of Section 5.09, this Section 7.02 and Article VIII, which provisions shall survive such termination, and except to the extent that such termination results from the willful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement, in which case such termination shall not relieve any party of any liability or damages resulting from its willful and material breach of this Agreement (including any such case in which a Cinergy Termination Fee or a Duke Termination Fee, as the case may be, is, or any expenses of Cinergy or Duke in connection with the transactions contemplated by this Agreement are, payable pursuant to Section 5.09 to Cinergy or Duke, as the case may be (the “Injured Party”), to the extent any such liability or damage suffered by the Injured Party exceeds the amount of the Cinergy Termination Fee, in the circumstance in which Duke is the Injured Party, or the Duke Termination Fee, in the circumstance in which Cinergy is the Injured Party and any expenses payable pursuant to Section 5.09 to the Injured Party, it being the intent that any Cinergy Termination Fee, Duke Termination Fee and any expenses paid to the Injured Party shall serve as a credit against and off-set any liability or damage suffered by the Injured Party to the extent of such payment).

(b) In the event Duke terminates this Agreement pursuant to Section 7.01(h)(i) as a result of the Board of Directors of Cinergy having withdrawn or modified, or proposed to publicly withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Cinergy Merger that was made primarily due to adverse conditions, events or actions of or relating to Duke, in any judicial, court or tribunal proceeding in which the payment of the Cinergy Termination Fee is at issue, whether brought or initiated by Duke or Cinergy, Cinergy shall have the burden of proving that the Board of Directors of Cinergy withdrew or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Cinergy Merger primarily due to adverse conditions, events or actions of or relating to Duke.

(c) In the event Cinergy terminates this Agreement pursuant to Section 7.01(g)(i) as a result of the Board of Directors of Duke having withdrawn or modified, or proposed to publicly withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Duke Merger that was made primarily due to adverse conditions, events or actions of or relating to Cinergy, in any judicial, court or tribunal proceeding in which the payment of the Duke Termination Fee is at issue, whether brought or initiated by Cinergy or Duke, Duke shall have the burden of proving that the Board of Directors of Duke withdrew or modified, or proposed publicly to withdraw or modify, the approval or recommendation by such Board of Directors of this Agreement or the Duke Merger primarily due to adverse conditions, events or actions of or relating to Cinergy.

Section 7.03 Amendment. This Agreement may be amended by the parties at any time before or after the Cinergy Shareholder Approval or the Duke Shareholder Approval; provided , however , that after any such approval, there shall not be made any amendment that by law requires further approval by the shareholders of Cinergy or Duke without the further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.

Section 7.04 Extension; Waiver. At any time prior to the Effective Time, a party may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 7.03, waive compliance by the other parties with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights.

ARTICLE VIII

General Provisions

Section 8.01 Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 8.01 shall not limit any covenant or agreement of the parties that by its terms contemplates performance after the Effective Time and such provisions shall survive the Effective Time.

Section 8.02 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given (as of the time of delivery or, in the case of a telecopied communication, of confirmation) if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

(a) if to Cinergy, to:

Cinergy Corp.

139 East 4th Street

Cincinnati, Ohio 45201

Telecopy No.: (513) 287-2433

Attention: Marc E. Manly

Executive Vice President

and Chief Legal Officer

with a copy to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Telecopy No.: (212) 403-2000

Attention: Steven A. Rosenblum

Stephanie J. Seligman

(b) if to Duke, to:

Duke Energy Corporation

526 S. Church Street

Charlotte, North Carolina 28202

Telecopy No.:

Attention: General Counsel

with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Telecopy No.: (212) 735-2000

Attention: Peter Allan Atkins

Sheldon S. Adler

Section 8.03 Definitions. For purposes of this Agreement:

(a) an “ affiliate ” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person, where “control” means the possession, directly or indirectly, of the power to director cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise;

(b) “ capital stock ” or “ shares of capital stock ” means (a) with respect to a corporation, as determined under the laws of the jurisdiction of organization of such entity, capital stock or such shares of capital stock; (b) with respect to a partnership, limited liability company, or similar entity, as determined under the laws of the jurisdiction of organization of such entity, units, interests, or other partnership or limited liability company interests; or (c) any other equity ownership or participation;

(c) “ material adverse change ” or “material adverse effect” means, when used in connection with Cinergy, Duke or the Company, as the case may be, any change, effect, event, occurrence or state of facts (i) that is materially adverse to the business, assets, properties, financial condition or results of operations of such person and its subsidiaries taken as a whole but excluding any of the foregoing resulting from (A) changes in international or national political or regulatory conditions generally (in each case, to the extent not disproportionately affecting the applicable person as compared to similarly situated persons), (B) changes or conditions generally affecting the U.S. economy or financial markets or generally affecting any of the segments of the industry in which the applicable person or any of its subsidiaries operates (in each case, to the extent not disproportionately affecting the applicable person as compared to similarly situated persons) or (C) the announcement or consummation of this Agreement or (ii) that prevents or materially delays such person from performing its material obligations under this Agreement or consummation of the transactions contemplated hereby;

(d) “ person ” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity; and

(e) “ subsidiary ” means, with respect to any person, any other person, whether incorporated or unincorporated, of which more than 50% of either the equity interests in, or the voting control of, such other person is, directly or indirectly through subsidiaries or otherwise, beneficially owned by such first person. Each of Ohio Sub and Indiana Sub shall be considered wholly-owned subsidiaries of Cinergy.

Section 8.04 Interpretation and Other Matters.

(a) When a reference is made in this Agreement to an Article, Section or Exhibit, such reference shall be to an Article or Section of, or an Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns.

(b) Each of the Cinergy and Duke has or may have set forth information in its respective disclosure letter in a section thereof that corresponds to the section of this Agreement to which it relates. A matter set forth in one section of a disclosure letter need not be set forth in any other section of the disclosure letter so long as its relevance to the latter section of the disclosure letter or section of the Agreement is readily apparent on the face of the information disclosed in the disclosure letter to the person to which such disclosure is being made. The fact that any item of information is disclosed in a disclosure letter to this Agreement shall not be construed to mean that such information is required to be disclosed by this Agreement. Such information and the dollar thresholds set forth herein shall not be used as a basis for interpreting the terms “material,” “material adverse effect” or other similar terms in this Agreement.

(c) Duke agrees to cause each of the Company, Merger Sub A and Merger Sub B to comply with its respective obligations under this Agreement.

Section 8.05 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other parties.

Section 8.06 Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein) and the Confidentiality Agreement (i) constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and (ii) except for the provisions of Section 5.08 (which shall be enforceable by the Indemnified Parties), are not intended to confer upon any person other than the parties any rights or remedies.

Section 8.07 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflict of laws, except that matters related to the Cinergy Merger and the fiduciary obligations of the Cinergy Board of Directors shall be governed by the laws of the State of Delaware and that matters related to the Duke Merger and the fiduciary obligations of the Duke Board of Directors shall be governed by the laws of the State of North Carolina.

Section 8.08 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other party. Any attempted or purported assignment in violation of the preceding sentence shall be null and void and of no effect whatsoever. Subject to the preceding two sentences, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

Section 8.09 Enforcement. The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal court located in the Borough of Manhattan in The City of New York, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of the Federal court located in the Borough of Manhattan in The City of New York in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal court sitting in the Borough of Manhattan in The City of New York.

Section 8.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

Section 8.11 Waiver of Jury Trial. Each party to this Agreement waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any action, suit or proceeding arising out of or relating to this Agreement.

Section 8.12 Alternative Structure

The parties agree that in the event that it becomes reasonably likely that it will not be possible to obtain any of the Cinergy Required Statutory Approvals or Duke Required Statutory Approvals in a manner that will result in the satisfaction of the conditions set forth in Section 6.02(d) and Section 6.03(d) prior to the Initial Termination Date (assuming the Initial Termination Date is extended in accordance with the second proviso to Section 7.01(b)(i)) or reasonably likely that it will not be possible for any other condition to the obligations of any of the parties to consummate the transactions contemplated hereby to be satisfied by the Initial Termination Date, the parties shall use reasonable best efforts to modify the structure of the Mergers, the Restructuring Transactions and the other transactions contemplated hereby in order to permit the Mergers to be consummated without altering the Duke Ratio, the Cinergy Ratio or the anticipated United States federal income tax consequences to Duke, Cinergy or their shareholders as promptly as practicable in accordance with their respective terms. The parties agree that completion of any Restructuring Transactions will not be a condition to consummation of the Mergers and that Duke will not effect any Restructuring Transactions that would prevent satisfaction of the conditions set forth in Article VI.

IN WITNESS WHEREOF, Duke, Cinergy, the Company, Merger Sub A and Merger Sub B have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.


DUKE ENERGY CORPORATION

By:
Name:		PAUL M. ANDERSON
Title:		Chairman and Chief Executive Officer

CINERGY CORP.

By:
Name:		JAMES E. ROGERS
Title:		Chairman, President and Chief Executive Officer

DEER HOLDING CORP.

By:
Name:		JIM W. MOGG
Title:		Director

DEER ACQUISITION CORP.

By:
Name:		B. KEITH TRENT
Title:		Director

COUGAR ACQUISITION CORP.

By:
Name:		B. KEITH TRENT
Title:		Director

SIGNATURE PAGE TO THE MERGER AGREEMENT

CONFIDENTIAL DISCLOSURE SCHEDULES


Duke Energy
Section 1.03(a)		The Restructuring Transactions
Section 1.03(c)		DENA Restructuring Transactions
Section 3.02(a)		Organization and Qualification
Section 3.02(a)(ii)		Duke Joint Ventures
Section 3.02(a)(iii)		Interests Other Than Subsidiaries of Duke or Duke Joint Ventures
Section 3.02(b)		Capital Stock
Section 3.02(b)(i)		Options
Section 3.02(b)(ii)		Voting, Trusts, Proxies, Other Commitments
Section 3.02(b)(iv)		Voting Debt
Section 3.02(d)		Conflicts; Approvals and Consents
Section 3.02(d)(i)		Potential Conflicts
Section 3.02(d)(ii)		Required Consents and Approvals
Section 3.02(f)		Certain Changes or Events
Section 3.02(g)		Undisclosed Liabilities
Section 3.02(h)		Legal Proceedings
Section 3.02(j)(i)		Permits
Section 3.02(j)(ii)		Compliance with Laws and Orders
Section 3.02(k)		Taxes
Section 3.02(k)(iii)		Tax Audits, Examinations, Deficiencies, Refund Litigation, Proposed Adjustments or Matter in Controversy

Section 3.02(k)(v)		Statutory Periods of Limitation and Power of Attorney
Section 3.02(k)(vi)		Agreements with State and Local Jurisdictions
Section 3.02(l)(i)		Employee Benefit Plans; ERISA
Section 3.02(l)(iii)		Discrimination Litigation
Section 3.02(l)(iv)		Employee Benefit Plans—Change of Control
Section 3.02(m)		Labor Matters
Section 3.02(n)		Environmental Matters
Section 3.02(o)		Operations of Nuclear Power Plants
Section 3.02(v)		Insurance
Section 3.02(w)		Trading
Section 4.02(a)		Exceptions from Ordinary Course
Section 4.02(b)		Amendments to Charter Documents
Exhibit A		Amendment to the Restated Articles of Incorporation of Duke
Exhibit B		Amendment to the By-Laws of Duke
Section 4.02(c)		Dividends—Redemption, Repurchase, Acquisition of Shares
Section 4.02(d)		Share Issuances
Section 4.02(e)		Acquisitions; Capital Expenditures
Section 4.02(f)		Dispositions
Section 4.02(g)		Indebtedness
Section 4.02(h)		Marketing of Energy; Trading
Section 4.02(i)		Employee Benefits
Section 4.02(j)		Regulatory Status
Section 4.02(k)		Accounting
Section 4.02(l)		Insurance
Section 4.02(m)		Taxes
Section 4.08		Transferred Assets
Section 5.05(b)		Crescent Resources Agreement I
Section 5.06(b)		Conversion of Duke Awards
Section 6.03(d)		Crescent Resources Agreement II
Cinergy
Section 3.01(a)		Organization and Qualification
Section 3.01(b)		Capital Stock
Section 3.01(b)(iv)		Capital Stock—Voting Debt
Section 3.01(d)		Conflicts; Approvals and Consents
Section 3.01(e)		SEC Reports, Financial Statements and Utility Reports


Section 3.01(f)		Absence of Certain Changes or Events
Section 3.01(g)		Absence of Undisclosed Liabilities
Section 3.01(h)		Legal Proceedings
Section 3.01(j)-1		Permits
Section 3.01(j)-2		Compliance with Laws and Orders
Section 3.01(k)		Taxes
Section 3.01(k)(iii)		Tax Audits
Section 3.01(k)(iv)		Audit History
Section 3.01(k)(v)		Waivers of Statutory Periods of Limitation
Section 3.01(k)(vi)		Agreements with State and Local Jurisdictions
Section 3.01(l)		Employee Benefit Plans; ERISA
Section 3.01(l)(i)		Employee Benefit Plans—Material Agreements
Section 3.01(l)(iv)		Employee Benefit Plans—Change of Control
Section 3.01(m)		Labor Matters
Section 3.01(n)		Environmental Matters
Section 3.01(r)		Ownership of Duke Capital Stock
Section 3.01(u)		Insurance
Section 3.01(v)		Trading
Section 4.01		Covenants of Cinergy
Section 4.01(a)		Exceptions from Ordinary Course
Section 4.01(c)		Dividends
Section 4.01(c)(iv)		Dividends—Redemption, Repurchase, Acquisition of Shares
Section 4.01(d)		Share Issuance
Section 4.01(e)		Acquisitions; Capital Expenditures
Section 4.01(f)		Dispositions
Section 4.01(g)		Indebtedness
Section 4.01(h)		Marketing of Energy; Trading
Section 4.01(i)		Employee Benefits
Section 4.01(j)		Regulatory Matters
Section 4.01(k)		Accounting
Section 4.01(l)		Insurance
Section 4.01(m)		Taxes
Section 5.06(a)		Conversion of Cinergy Awards
Section 6.02(d)		Conditions to Obligations of Cinergy

Exhibit A

To The Merger Agreement

FORM OF CERTIFICATE OF INCORPORATION OF THE

COMPANY AS OF THE EFFECTIVE TIME

RESTATED CERTIFICATE OF INCORPORATION

DUKE ENERGY CORPORATION

DUKE ENERGY CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY AS FOLLOWS:

1. The name of the corporation is Duke Energy Corporation and the name under which the corporation was originally incorporated was Deer Holding Corp. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 3, 2005.

2. This Restated Certificate of Incorporation, having been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”) and by the unanimous written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL, restates and integrates and further amends the provisions of the Certificate of Incorporation as amended or supplemented heretofore. As so restated and integrated and further amended, the Restated Certificate of Incorporation (hereinafter, this “Certificate of Incorporation”) reads as follows:

ARTICLE FIRST

Name

The name of the corporation is Duke Energy Corporation.

ARTICLE SECOND

Registered Office

The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company.

ARTICLE THIRD

Purpose

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the DGCL.

ARTICLE FOURTH

Capital Stock

(a) The aggregate number of shares of stock that the Corporation shall have authority to issue is [ ] shares, consisting of [ ] shares of Common Stock, par value $.001 per share (the “Common Stock”), and [ ] shares of Preferred Stock, par value $.001 per share (the “Preferred Stock”).

(b) The Board of Directors of the Corporation shall have the full authority permitted by law, at any time and from time to time, to divide the authorized and unissued shares of Preferred Stock into one or more classes or series and, with respect to each such class or series, to determine by resolution or resolutions the number of shares constituting such class or series and the designation of such class or series, the voting powers, if any, of the shares of such class or series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of any such class or series of Preferred Stock to the full extent now or hereafter permitted by the law of the State of Delaware. The powers, preferences and relative, participating, optional and other special rights of each class or series of Preferred Stock and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other classes or series at any time outstanding.

(c) Subject to applicable law and the rights, if any, of the holders of any class or series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the payment of dividends, dividends may be declared and paid on the Common Stock at such times and in such amounts as the Board of Directors of the Corporation in its discretion shall determine. Nothing in this ARTICLE FOURTH shall limit the power of the Board of Directors to create a class or series of Preferred Stock with dividends the rate of which is calculated by reference to, and the payment of which is concurrent with, dividends on shares of Common Stock.

(d) In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, subject to the rights of the holders of any class or series of the Preferred Stock, the net assets of the Corporation available for distribution to stockholders of the Corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interests. If the assets of the Corporation are not sufficient to pay the amounts, if any, owing to holders of shares of Preferred Stock in full, holders of all shares of Preferred Stock will participate in the distribution of assets ratably in proportion to the full amounts to which they are entitled or in such order or priority, if any, as will have been fixed in the resolution or resolutions providing for the issue of the class or series of Preferred Stock. Neither the merger or consolidation of the Corporation into or with any other corporation, nor a sale, transfer or lease of all or part of its assets, will be deemed a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph, except to the extent specifically provided in any certificate of designation for any class or series of Preferred Stock. Nothing in this ARTICLE FOURTH shall limit the power of the Board of Directors to create a class or series of Preferred Stock for which the amount to be distributed upon any liquidation, dissolution or winding up of the Corporation is calculated by reference to, and the payment of which is concurrent with, the amount to be distributed to the holders of shares of Common Stock.

(e) Except as otherwise required by law, as otherwise provided herein or as otherwise determined by the Board of Directors as to the shares of any class or series of Preferred Stock, the holders of Preferred Stock shall have no voting rights and shall not be entitled to any notice of meetings of stockholders.

(f) Except as otherwise required by law and subject to the rights of the holders of any class or series of Preferred Stock, with respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of any outstanding shares of Common Stock shall vote together as a class, and every holder of Common Stock shall be entitled to cast thereon one vote in person or by proxy for each share of Common Stock standing in such holder’s name on the books of the Corporation; provided , however , that, except as otherwise required by law, or unless provided in any certificate of designation for any class or series of Preferred Stock, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designations relating to any class or series of Preferred Stock) that relates solely to the terms of one or more outstanding classes or series of Preferred Stock if the holders of such affected class or series are entitled, either separately or together with the holders of one or more other such classes or series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designations relating to any class or series of Preferred Stock) or pursuant to applicable law. Subject to the rights of the holders of any class or series of Preferred Stock, stockholders of the Corporation shall not have any preemptive rights to subscribe for additional issues of stock of the Corporation and no stockholder will be permitted to cumulate votes at any election of directors.

ARTICLE FIFTH

Board of Directors

(a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

(b) Except as otherwise fixed by or pursuant to provisions of ARTICLE FOURTH relating to the rights of the holders of any series of Preferred Stock, the number of directors of the Corporation shall not be less than nine (9) nor more than eighteen (18), as may be fixed from time to time by the Board of Directors.

(c) A director may be removed from office with or without cause; provided, however, that, subject to applicable law, any director elected by the holders of any series of Preferred Stock may be removed without cause only by the holders of a majority of the shares of such series of Preferred Stock.

(d) Except as otherwise fixed by or pursuant to provisions of ARTICLE FOURTH relating to the rights of the holders of any series of Preferred Stock, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next succeeding annual meeting of shareholders and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

(e) Except as otherwise fixed by or pursuant to provisions of ARTICLE FOURTH relating to the rights of the holders of any series of Preferred Stock, the directors shall be elected by the holders of voting stock and shall hold office until the next annual meeting of shareholders and until their respective successors shall have been duly elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office.

(f) Election of directors need not be by written ballot unless the By-Laws so provide.

(g) In addition to the powers and authority herein before or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted.

ARTICLE SIXTH

Action by Stockholders; Books of the Corporation

(a) Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.

(b) Any action required or permitted to be taken at any Annual or Special Meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote only if consent in writing setting forth the action so taken is signed by all the holders of the Corporation’s issued and outstanding capital stock entitled to vote thereon.

ARTICLE SEVENTH

Amendment of Certificate of Incorporation

The Corporation reserves the right to supplement, amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware and this Certificate of Incorporation, and all rights conferred upon stockholders, directors and officers herein are granted subject to this reservation. Notwithstanding the foregoing, this ARTICLE SEVENTH and sections (b) and (d) of ARTICLE FIFTH may not be supplemented, amended, altered, changed, or repealed in any respect, nor may any provision inconsistent therewith be adopted, unless such supplement, amendment, alteration, change or repeal is approved by the affirmative vote of the holders of at least 80% of the combined voting power of the then outstanding shares of stock of all classes of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

ARTICLE EIGHTH

Amendment of By-laws

In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors of the Corporation is expressly authorized to adopt, repeal, alter or amend the By-laws of the Corporation. No By-laws may be adopted, repealed, altered or amended in any manner that would be inconsistent with this Restated Certificate of Incorporation (as it may be adopted, repealed, altered or amended from time to time in accordance with ARTICLE SEVENTH).

ARTICLE NINTH

Limitation of Liability

Except to the extent elimination or limitation of liability is not permitted by applicable law, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty in such capacity. Any repeal or modification of this ARTICLE NINTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.

ARTICLE TENTH

Liability of Stockholders

The holders of the capital stock of the Corporation shall not be personally liable for the payment of the Corporation’s debts, and the private property of the holders of the capital stock of the Corporation shall not be subject to the payment of debts of the Corporation to any extent whatsoever.

IN WITNESS WHEREOF, THE UNDERSIGNED, being the [INSERT TITLE], has executed this Restated Certificate of Incorporation as of the [ ] day of [ ], 200[ ], and DOES HEREBY CERTIFY under the penalties of perjury that the facts stated in this Restated Certificate of Incorporation are true.


By:

Name:
Title:

Exhibit B

To The Merger Agreement

FORM OF BY-LAWS OF THE COMPANY

AS OF THE EFFECTIVE TIME AMENDED AND RESTATED BY-LAWS of DUKE ENERGY CORPORATION Effective as of [ · ], [ · ]

TABLE OF CONTENTS


ARTICLE I Offices		82
Section 1.01.	Principal Office	82
Section 1.02.	Registered Office and Agent	82
Section 1.03.	Other Offices	82
ARTICLE II Stockholders		82
Section 2.01.	Place of Stockholders’ Meetings	82
Section 2.02.	Day and Time of Annual Meetings of Stockholders	82
Section 2.03.	Purposes of Annual Meetings	82
Section 2.04.	Special Meetings of Stockholders	83
Section 2.05.	Notice of Meetings of Stockholders	83
Section 2.06.	Quorum of Stockholders	84
Section 2.07.	Presiding Officer and Secretary of Meeting; Conduct of Meetings	85
Section 2.08.	Voting by Stockholders	85
Section 2.09.	Proxies	85
Section 2.10.	Inspector	86
Section 2.11.	List of Stockholders	86
Section 2.12.	Fixing of Record Date for Determination of Stockholders of Record	87
ARTICLE III Directors		87
Section 3.01.	Number and Qualifications	87
Section 3.02.	Board Representation	87
Section 3.03.	Election and Term of Directors	88
Section 3.04.	Newly Created Directorships; Vacancies	89
Section 3.05.	Resignation	89
Section 3.06.	Meetings of the Board	89
Section 3.07.	Quorum and Action	90
Section 3.08.	Presiding Officer and Secretary of Meeting	90
Section 3.09.	Action by Consent without Meeting	90
Section 3.10.	Compensation of Directors	90
Section 3.11.	Committees of the Board and Powers	90
Section 3.12.	Meetings of Committees	90
Section 3.13.	Quorum of Committee; Manner of Action	90
ARTICLE IV Officers		91
Section 4.01.	Elected Officers	91
Section 4.02.	Election and Term of Office	91
Section 4.03.	Chairman of the Board	91
Section 4.04.	Chief Executive Officer	91
Section 4.05.	President	92
Section 4.06.	Vice Presidents	92
Section 4.07.	Secretary	92
Section 4.08.	Treasurer	92
Section 4.09.	Controller	92
Section 4.10.	Assistant Secretaries, Assistant Treasurers and Assistant Controllers	93
Section 4.11.	Removal	93
Section 4.12.	Vacancies	93
ARTICLE V Indemnification		93
Section 5.01.	Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation	93
Section 5.02.	Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation	93
Section 5.03.	Authorization of Indemnification	94
Section 5.04.	Good Faith Defined	94
Section 5.05.	Indemnification by a Court	94
Section 5.06.	Expenses Payable in Advance	95
Section 5.07.	Nonexclusivity of Indemnification and Advancement of Expenses	95
Section 5.08.	Insurance	95
Section 5.09.	Certain Definitions	95
Section 5.10.	Survival of Indemnification and Advancement of Expenses	95


Section 5.11.	Limitation on Indemnification	96
Section 5.12.	Indemnification of Employees and Agents	96
ARTICLE VI Capital Stock		96
Section 6.01.	Stock Certificates	96
Section 6.02.	Record Ownership	96
Section 6.03.	Transfer of Record Ownership	96
Section 6.04.	Transfer Agent; Registrar; Rules Respecting Certificates	97
Section 6.05.	Lost, Stolen or Destroyed Certificates	97
ARTICLE VII Contracts, Checks and Drafts, Deposits and Proxies		97
Section 7.01.	Contracts	97
Section 7.02.	Checks and Drafts	97
Section 7.03.	Deposits	97
Section 7.04.	Proxies	97
ARTICLE VIII General Provisions		97
Section 8.01.	Dividends	97
Section 8.02.	Fiscal Year	98
Section 8.03.	Seal	98
Section 8.04.	Waivers of Notice	98
ARTICLE IX Amendment of By-Laws		98
Section 9.01.	Amendment	98
Section 9.02.	Entire Board of Directors	98
ARTICLE X Emergency Provisions		98
Section 10.01.	General	98
Section 10.02.	Unavailable Directors	98
Section 10.03.	Authorized Number of Directors	99
Section 10.04.	Quorum	99
Section 10.05.	Creation of Emergency Committee	99
Section 10.06.	Constitution of Emergency Committee	99
Section 10.07.	Powers of Emergency Committee	99
Section 10.08.	Directors Becoming Available	99
Section 10.09.	Election of Board of Directors	99
Section 10.10.	Termination of Emergency Committee	99
Section 10.11.	Nonexclusive Powers	99

AMENDED AND RESTATED BY-LAWS

DUKE ENERGY CORPORATION

(A CORPORATION ORGANIZED UNDER THE LAWS OF THE

STATE OF DELAWARE, THE “CORPORATION”)

(EFFECTIVE AS OF o, o)

ARTICLE I

Offices

Section 1.01. Principal Office. The principal office of the Corporation shall be located in Charlotte, North Carolina.

Section 1.02. Registered Office and Agent. The address of the registered office of the Corporation in the State of Delaware shall be 1209 Orange Street, Wilmington, Delaware 19801. The name of the registered agent is The Corporation Trust Company. Such registered agent has a business office identical with such registered office.

Section 1.03. Other Offices. The Corporation may have such other offices either within or without the State of Delaware as the Board of Directors (the “Board” and each member thereof, a “Director”) may designate or as the business of the Corporation may from time to time require.

ARTICLE II

Stockholders

Section 2.01. Place of Stockholders’ Meetings. All meetings of the stockholders of the Corporation shall be held at such place or places, within or outside the State of Delaware, as may be fixed by the Board from time to time or as shall be in the respective notices thereof. The Board may, in its sole discretion, determine that a meeting of the stockholders shall not be held at any place, but may instead be held solely by means of remote communication in the manner authorized by the General Corporation Law of the State of Delaware (the “DGCL”).

Section 2.02. Day and Time of Annual Meetings of Stockholders. An annual meeting of stockholders shall be held at such date and hour as shall be determined by the Board and designated in the notice thereof. Any previously scheduled annual meeting of stockholders may be postponed by action of the Board taken prior to the time previously scheduled for such annual meeting of stockholders.

Section 2.03. Purposes of Annual Meetings.

(a) Subject to the rights of the holders of any series of Preferred Stock of the Corporation, at each annual meeting, the stockholders shall elect the Directors. At any such annual meeting any other business properly brought before the meeting may be transacted.

business at the annual meeting, and, in the event that such business includes a proposal to amend either the Restated Certificate of Incorporation of the Corporation (the “Certificate”) or these By-Laws, the text of the proposed amendment; (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation that are beneficially owned by the stockholder; (iv) any material interest of the stockholder in such business, and (v) if the stockholder intends to solicit proxies in support of such stockholder’s proposal, a representation to that effect. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such stockholder’s proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided , however , that if such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. No business shall be conducted at an annual meeting of stockholders except in accordance with this Section 2.03(b), and the presiding officer of any annual meeting of stockholders may refuse to permit any business to be brought before an annual meeting without compliance with the foregoing procedures or if the stockholder solicits proxies in support of such stockholder’s proposal without such stockholder having made the representation required by clause (v) of the second preceding sentence.

Section 2.04. Special Meetings of Stockholders.

(a) Except as otherwise expressly required by the Certificate or applicable law and subject to the rights of the holders of any series of Preferred Stock of the Corporation, special meetings of the stockholders or of any class or series entitled to vote may be called for any purpose or purposes by the Chairman of the Board or by the Board of Directors pursuant to a resolution stating the purpose or purposes thereof, to be held at such place (within or without the State of Delaware), date and hour as shall be determined by the Chairman or the Board, as applicable, and designated in the notice thereof. At any such special meeting any business properly brought before the meeting may be transacted.

(b) To be properly brought before a special meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board or (ii) otherwise properly brought before the meeting by or at the direction of the Board. No business shall be conducted at a special meeting of stockholders except in accordance with this Section 2.04(b) or as required by applicable law.

Section 2.05. Notice of Meetings of Stockholders. Whenever stockholders are required or permitted to take any action at a meeting, unless notice is waived in writing by all stockholders entitled to vote at the meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called.

In lieu of and/or in addition to the foregoing, notice of any meeting of the stockholders of the Corporation may be given via electronic transmission, to the fullest extent permitted by Section 232 of the DGCL. To be valid, such electronic transmission notice must be in a form of electronic transmission to which the stockholder has consented. Any stockholder can revoke consent to receive notice by a form of electronic transmission by written notice to the Corporation. Such consent shall be deemed revoked after two consecutive electronic transmissions by the Corporation are returned as undeliverable; provided , however , the inadvertent failure to treat any such undeliverable notices as a revocation shall not invalidate any meeting or other action. “Electronic transmission” shall mean any form of communication, not directly involving the physical transmission of paper, that creates a record and that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

Unless otherwise provided by law, and except as to any stockholder duly waiving notice, the written notice of any meeting shall be given personally, by mail, or by a form of electronic transmission consented to by the stockholder to whom notice is given, not less than 10 days nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation. If by a form of electronic transmission, notice shall be deemed given when transmitted to the stockholder in accordance with the provisions set forth herein; provided, however, that if the electronic transmission notice is posted on an electronic network (e.g., a website or chatroom), notice shall be deemed given upon the later of (A) such posting and (B) the giving of separate notice of the posting to the stockholder.

Except as otherwise expressly required by applicable law, notice of any adjourned meeting of stockholders need not be given if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken.

Section 2.06. Quorum of Stockholders.

(a) Unless otherwise expressly required by the Certificate or applicable law, at any meeting of the stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of the votes entitled to be cast thereat shall constitute a quorum for the entire meeting, notwithstanding the withdrawal of stockholders entitled to cast a sufficient number of votes in person or by proxy to reduce the number of votes represented at the meeting below a quorum. Shares of the Corporation’s stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in an election of the directors of such other corporation is held by the Corporation, shall neither be counted for the purpose of determining the presence of a quorum nor be entitled to vote at any meeting of the stockholders; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including its own stock, held by it in a fiduciary capacity.

(b) At any meeting of the stockholders at which a quorum shall be present, a majority of those present in person or by proxy may adjourn the meeting from time to time. Whether or not a quorum is present, the officer presiding thereat shall have power to adjourn the meeting from time to time. Except as otherwise expressly required by applicable law, notice of any adjourned meeting other than announcement at the meeting at which an adjournment is taken shall not be required to be given.

(c) At any adjourned meeting, any business may be transacted that might have been transacted at the meeting originally called, but only those stockholders entitled to vote at the meeting as originally noticed shall been titled to vote at any adjournment or adjournments thereof unless a new record date is fixed by the Board.

Section 2.07. Presiding Officer and Secretary of Meeting; Conduct of Meetings.

(a) The Chairman of the Board or, in his or her absence, another officer of the Corporation designated by the Chairman of the Board, shall preside at meetings of the stockholders. The Secretary or an Assistant Secretary of the Corporation shall act as secretary of the meeting, or if neither is present, then the presiding officer may appoint a person to act as secretary of the meeting.

(b) The Board may to the extent not prohibited by law adopt such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the presiding officer of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the presiding officer of the meeting, may to the extent not prohibited by law include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding officer of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless, and to the extent, determined by the Board or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 2.08. Voting by Stockholders.

(a) Except as otherwise expressly required by the Certificate or applicable law, at every meeting of the stockholders each stockholder of record shall be entitled to the number of votes specified in the Certificate (or, with respect to any class or series of Preferred Stock, in the applicable certificate of designations providing for the creation of such class or series), in person or by proxy, for each share of stock standing in his or her name on the books of the Corporation on the date fixed pursuant to the provisions of Section 2.11 of these By-Laws as the record date for the determination of the stockholders who shall be entitled to receive notice of and to vote at such meeting.

(b) When a quorum is present at any meeting of the stockholders, all questions shall be decided by the vote of a majority of the total number of votes of the Corporation’s capital stock represented and entitled to vote at such meeting, unless the question is one upon which by express provision of law, the rules or regulations of any stock exchange or governmental or regulatory body applicable to the Corporation, the Certificate or these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Such votes may be cast in person or by proxy as provided in Section 209.

(c) Except as otherwise expressly required by applicable law, the vote at any meeting of stockholders on any question need not be by ballot, unless so directed by the presiding officer of the meeting.

Section 2.09. Proxies. Each stockholder entitled to vote at a meeting of the stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder as proxy, but no such proxy shall be voted upon after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:

(i) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.

(ii) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information on which they relied.

Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided , however , that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

Section 2.10. Inspector. In advance of any meeting of the stockholders, the Board or the Chairman of the Board shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the presiding officer of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law.

Section 2.11. List of Stockholders.

(a) At least ten days before every meeting of stockholders, the officer who has charge of the stock ledger of the Corporation shall cause to be prepared and made a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder.

(b) For such ten-day period through the conclusion of the meeting, such list shall be open to examination by any stockholder for any purpose germane to the meeting as required by applicable law (i) on a reasonably accessible electronic network provided that the information required to gain access to such list is provided with the notice of the meeting or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

(c) The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section 2.11 or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

Section 2.12. Fixing of Record Date for Determination of Stockholders of Record.

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 nor less than ten days before the date of such meeting.

If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which the meeting is held.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board, and prior action by the Board is required by law, the record date for determining the stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolutions taking such prior action.

(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

ARTICLE III

Directors

Section 3.01. Number and Qualifications. The number of Directors constituting the Board shall be not less than nine nor more than 18, as may be fixed from time to time by the Board in accordance with Section 3.07. A director must be a shareholder of the Corporation. On the effective date of these By-Laws, the number of Directors constituting the Board shall be 15 (the “Initial Board”). Notwithstanding any provision in these By-Laws or the Certificate to the contrary, prior to the first annual meeting of stockholders at which Directors are elected following the effective date of these By-Laws, the size of the Initial Board shall not be increased or decreased without the affirmative vote of at least 80% of the entire Board.

Section 3.02. Board Representation. On the effective date of these By-Laws, the Initial Board shall consist of ten Duke Directors and five Cinergy Directors (as such terms are defined below). The term “Duke Director” means any person serving as a director of Duke Energy Corporation prior to the Duke Effective Time and who becomes a Director of the Corporation on the effective date of these By-Laws and the term “Cinergy Director” means any person serving as a director of Cinergy Corp. prior to the Cinergy Effective Time and who becomes a Director of the Corporation on the effective date of these By-Laws. The terms “Cinergy Effective Time” and “Duke Effective Time” have the meanings ascribed to such terms in that certain Agreement and Plan of Merger, dated as of May 8, 2005, by and among the Corporation, Duke Energy Corporation, Cinergy, Deer Acquisition Corp. and Cougar Acquisition Corp. Other than the constitution of the Initial Board pursuant to Sections 3.01 and 3.02, the By-Laws shall apply without regard to whether a Director is a Cinergy Director or a Duke Director.

Section 3.03. Election and Term of Directors. Subject to the rights of the holders of any class or series of Preferred Stock of the Corporation, nominations of persons for election as Directors may be made by the Board or by any stockholder who is a stockholder of record at the time of giving of the notice of nomination provided for in this Section 3.03 and who is entitled to vote for the election of Directors. Any stockholder of record entitled to vote for the election of Directors at a meeting may nominate a person or persons for election as Directors only if written notice of such stockholder’s intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary at the principal executive offices of the Corporation, not later than (i) with respect to an election to be held at an annual meeting of stockholders, not less than 90 nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting provided , that the first such anniversary date occurring after the effective date of these By-Laws shall be deemed to be · , · and provided , further , that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so received not later than the tenth day following the day on which notice of the date of the annual meeting was mailed or public announcement of the date of such meeting is first made by the Corporation, whichever occurs first and (ii) with respect to an election to be held at a special meeting of stockholders for the election of Directors, not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public announcement of the date of the special meeting and of the nominees to be elected at such meeting is first made. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board; (e) the consent of each nominee to serve as a Director if so elected; and (f) if the stockholder intends to solicit proxies in support of such stockholder’s nominee(s), a representation to that effect. The presiding officer of any meeting of stockholders to elect Directors and the Board may refuse to acknowledge any attempted nomination of any person not made in compliance with the foregoing procedure or if the stockholder solicits proxies in support of such stockholder’s nominee(s) without such stockholder having made the representation required by clause (f) of the preceding sentence. Only such persons who are nominated in accordance with the procedures set forth in this Section 3.03 shall be eligible to serve as Directors of the Corporation.

At each meeting of the stockholders for the election of Directors at which a quorum is present, the persons receiving the greatest number of votes, up to the number of Directors to be elected, shall be the Directors. Each Director so elected shall hold office until the next annual meeting of stockholders and until such Director’s successor is duly elected and qualified or until such Director’s earlier death, resignation or removal.

Section 3.04. Newly Created Directorships; Vacancies. Subject to the rights of holders of any class or series of Preferred Stock and unless otherwise required by the Certificate, newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board, and any Director so chosen shall hold office until the next annual meeting of stockholders at which Directors are elected and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

Section 3.05. Resignation. Any Director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.

Section 3.06. Meetings of the Board.

(a) The Board may hold its meetings, both regular and special, either within or outside the State of Delaware, at such places as from time to time may be determined by the Board or as may be designated in the respective notices or waivers of notice thereof.

(b) Regular meetings of the Board shall be held at such times and at such places as from time to time shall be determined by the Board.

(c) The first meeting of each newly elected Board shall beheld as soon as practicable after the annual meeting of the stockholders and shall be for the election of officers and the transaction of such other business as may come before such meeting.

(d) Special meetings of the Board shall be held whenever called by direction of the Chairman of the Board or at the request of Directors constituting a majority of the number of Directors then in office.

(e) Members of the Board or any Committee of the Board may participate in a meeting of the Board or such Committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and by any other means of remote communication permitted by applicable law, and such participation shall constitute presence in person at such meeting.

(f) A regular meeting of the Board of Directors shall be held without other notice than this By-Law as soon as practicable after the annual meeting of shareholders. The Board of Directors may, by resolution, provide the time and place for the holding of additional regular meetings without other notice than such resolution. Notice of any special meeting of directors shall be given to each director at such director’s business or residence in writing by hand delivery, first-class or overnight mail or courier service, facsimile transmission or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least 5 calendar days before such meeting. If by overnight mail or courier service, such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail or courier service company at least 24 hours before such meeting. If by facsimile transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least 12 hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least 12 hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting. Any and all business may be transacted at any meeting of the Board. No notice of any adjourned meeting need be given. No notice to or waiver by any Director shall be required with respect to any meeting at which the Director is present except when such Director attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

Section 3.07. Quorum and Action. Except as otherwise expressly required by the Certificate, these By-Laws or applicable law, at any meeting of the Board, the presence of at least a majority of the number of Directors fixed pursuant to these By-Laws shall constitute a quorum for the transaction of business; but if there shall be less than a quorum at any meeting of the Board, a majority of those present may adjourn the meeting from time to time. Unless otherwise provided by applicable law, the Certificate or these By-Laws, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be necessary for the approval and adoption of any resolution or the approval of any act of the Board.

Section 3.08. Presiding Officer and Secretary of Meeting. The Chairman of the Board or, in the absence of the Chairman of the Board, the Lead Director, or in the absence of the Chairman of the Board and the Lead Director, the Chief Executive Officer, or

in the absence of the Chairman of the Board, the Lead Director and the Chief Executive Officer, a member of the Board selected by the members present, shall preside at meetings of the Board. The Secretary shall act as secretary of the meeting, but in the Secretary’s absence the presiding officer may appoint a secretary of the meeting.

Section 3.09. Action by Consent without Meeting. Any action required or permitted to be taken at any meeting of the Board or of any Committee thereof may be taken without a meeting if all of the Directors or members of such Committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board or such Committee.

Section 3.10. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board, fixed fees and other compensation for their services as Directors, including, without limitation, their services as members of a Committee of the Board.

Section 3.11. Committees of the Board and Powers. The Board may designate one or more Committees of the Board, which shall consist of two or more Directors. Any such Committee may to the extent permitted by applicable law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. A Committee of the Board may not (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by law to be submitted to stockholders for approval or (ii) adopt, amend or repeal any bylaw of the corporation. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such Committee. Nothing herein shall be deemed to prevent the Board from appointing one or more Committees consisting in whole or in part of persons who are not Directors; provided, however, that no such Committee shall have or may exercise any authority of the Board.

Section 3.12. Meetings of Committees. Regular meetings of any Committee may be held without notice at such time and at such place, within or outside the State of Delaware, as from time to time shall be determined by such Committee. The Chairman of the Board, the Board or the Committee by vote at a meeting, or by two members of any Committee in writing without a meeting, may call a special meeting of any such Committee by giving notice to each member of the Committee in the manner provided for in Section 3.06(f) hereof. Unless otherwise provided in the Certificate, these By-Laws or by applicable law, neither business to be transacted at, nor the purpose of, any regular or special meeting of any such Committee need be specified in the notice or any waiver of notice.

Section 3.13. Quorum of Committee; Manner of Action. At all meetings of any Committee a majority of the total number of its members shall constitute a quorum for the transaction of business. Except in cases in which it is by applicable law, by the Certificate, by these By-Laws, or by resolution of the Board otherwise provided, a majority of such quorum shall decide any questions that may come before the meeting. In the absence of a quorum, the members of the Committee present by majority vote may adjourn the meeting from time to time, without notice other than by verbal announcement at the meeting, until a quorum shall attend. A Committee may also act by the written consent of all members thereof although not convened in a meeting provided that such written consent is filed with the minute books of the Committee.

ARTICLE IV

Officers

Section 4.01. Elected Officers. The elected officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer, a Controller and such other officers (including, without limitation, Executive Vice Presidents and Senior Vice Presidents and Vice Presidents) as the Board may deem proper. The Chairman of the Board shall be chosen from among the Directors. Any two or more offices may be held simultaneously by the same person, except as otherwise expressly required by applicable law. The Board may if the positions of Chairman of the Board and Chief Executive Officer are held by the same individual elect a Lead Director from among the independent (as such term is defined by applicable SEC rule or regulation) members of the Board, who will serve as a liaison between the Board and the Chairman of the Board and Chief Executive Officer. Elected officers shall have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board or by any Committee thereof. The Board or the Chief Executive Officer may from time to time appoint such other officers (including one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers), as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these By-Laws or, to the extent consistent with these By-Laws, as may be prescribed by the Board or the Chief Executive Officer. The Executive Officers of the Corporation shall consist of such officers as the Board may designate as Executive Officers from time to time, who may or may not be “executive officers” as defined under rules of the Securities and Exchange Commission.

Section 4.02. Election and Term of Office. Executive Officers of the Corporation shall be elected by the Board at the regular meeting of the Board held after the annual meeting of stockholders and at such other times as the Board may deem necessary. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as practicable. Officers who are not Executive Officers may be elected from time to time by the Board or appointed by the Chief Executive Officer. Each officer shall hold office until such person’s successor shall have been duty elected and shall have qualified or until such person’s death or until he or she shall resign or shall be removed pursuant to Section 4.11.

Section 4.03. Chairman of the Board. The Chairman of the Board shall perform all duties incidental to such person’s office which may be required by law and all such other duties as are properly required of the Chairman of the Board by the Board. The Chairman of the Board shall preside at all meetings of shareholders and of the Board and shall make reports to the Board and the shareholders, and shall see that all orders and resolutions of the Board and of any Committee thereof are carried into effect. The Chairman of the Board shall have such other duties and Executive Officers reporting directly to him as set forth in a resolution of the Board.

Section 4.04. Chief Executive Officer. The Chief Executive Officer shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to such person’s office which may be required by law and all such other duties as are properly required of the Chief Executive Officer by the Board. The Chief Executive Officer shall report to the Board of Directors. The Chief Executive Officer shall, in the absence or inability to act of the Chairman of the Board and the Lead Director (if elected), perform all duties of the Chairman of the Board and preside at all meetings of shareholders and of the Board.

Section 4.05. President. The President shall act in a general executive capacity and shall assist the Chief Executive Officer and the Chairman of the Board, if so designated by the Board, in the administration and operation of the Corporation’s business and general supervision of its policies and affairs.

Section 4.06. Vice Presidents. The Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents shall have such powers and duties as may be prescribed for them, respectively, by the Board of Directors or the Chief Executive Officer. Each of such officers shall report to the Chief Executive Officer or such other officer as the Chief Executive Officer shall direct or to the Chairman of the Board, if so designated by the Board.

Section 4.07. Secretary. The Secretary shall attend all meetings of the shareholders and of the Board, shall keep a true and faithful record thereof in proper books and shall have the custody and care of the corporate seal, records, minute books and stock books of the Corporation and of such other books and papers as in the practical business operations of the Corporation shall naturally belong in the office or custody of the Secretary or as shall be placed in the Secretary’s custody by order of the Board. The Secretary shall cause to be kept a suitable record of the addresses of shareholders and shall, except as may be otherwise required by statute or these By-Laws, sign and issue all notices required for meetings of shareholders or of the Board. The Secretary shall sign all papers to which the Secretary’s signature may be necessary or appropriate, shall affix and attest the seal of the Corporation to all instruments requiring the seal, shall have the authority to certify the By-Laws, resolutions of the shareholders and the Board and other documents of the Corporation as true and correct copies thereof and shall have such other powers and duties as are commonly incidental to the office of Secretary and as may be prescribed by the Board or the Chief Executive Officer.

Section 4.08. Treasurer. The Treasurer shall have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation; cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositories as shall be selected in accordance with resolutions adopted by the Board; cause the funds of the Corporation to be disbursed by checks or drafts upon the authorized depositories of the Corporation, and cause to be taken and preserved proper vouchers for all moneys disbursed; render to the proper officers and to the Board and any duly constituted committee of the Board responsible for financial matters, whenever requested, a statement of the financial condition of the Corporation and of all his or her transactions as Treasurer; cause to be kept at the principal executive offices of the Corporation correct books of account of all its business and transactions; and, in general, perform all duties incident to the office of Treasurer and such other duties as are given to him or her by the By-Laws or as may be assigned to him or her by the Chief Executive Officer or the Board.

Section 4.09. Controller. The Controller shall be the chief accounting officer of the Corporation; shall keep full and accurate accounts of all assets, liabilities, commitments, revenues, costs and expenses, and other financial transactions of the Corporation in books belonging to the Corporation, and conform them to sound accounting principles with adequate internal control; shall cause regular audits of these books and records to be made; shall see that all expenditures are made in accordance with procedures duly established, from time to time, by the Corporation; shall render financial statements upon the request of the Board; and, in general, shall perform all the duties ordinarily connected with the office of Controller and such other duties as may be assigned to him or her by the Chief Executive Officer or the Board.

Section 4.10. Assistant Secretaries, Assistant Treasurers and Assistant Controllers. Assistant Secretaries, Assistant Treasurers and Assistant Controllers, when elected or appointed, shall respectively assist the Secretary, the Treasurer and the Controller in the performance of the respective duties assigned to such principal officers, and in assisting such principal officer, each of such assistant officers shall for such purpose have the powers of such principal officer; and, in case of the absence, disability, death, resignation or removal from office of any principal officer, such principal officer’s duties shall, except as otherwise ordered by the Board, temporarily devolve upon such assistant officer as shall be designated by the Chief Executive Officer.

Section 4.11. Removal. Any officer or agent may be removed by the affirmative vote of a majority of the directors then in office whenever, in their judgment, the best interests of the Corporation would be served thereby. In addition, any officer or agent appointed by the Chief Executive Officer may be removed by the Chief Executive Officer whenever, in his or her judgment, the best interests of the Corporation would be served thereby. Any removal shall be without prejudice to the contract rights, if any, of the person so removed.

Section 4.12. Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation or removal may be filled by the Board for the unexpired portion of the term at any meeting of the Board. Any vacancy in an office appointed by the Chief Executive Officer because of death, resignation or removal may be filled by the Chief Executive Officer.

ARTICLE V

Indemnification

Section 5.01. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 5.03, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a Director or officer of the Corporation, or is or was a Director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

Section 5.02. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 5.03, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a Director or officer of the Corporation, or is or was a Director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 5.03. Authorization of Indemnification. Any indemnification under this Article V (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former Director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 5.01 or Section 5.02, as the case may be. Such determination shall be made, with respect to a person who is a Director or officer at the time of such determination, (i) by a majority vote of the Directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such Directors designated by a majority vote of such Directors, even though less than a quorum, or (iii) if there are no such Directors, or if such Directors so direct, by

independent legal counsel in a written opinion, or (iv) by the stockholders. Such determination shall be made, with respect to former Directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former Director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

Section 5.04. Good Faith Defined. For purposes of any determination under Section 5.03, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 5.04 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 5.01 or Section 5.02, as the case may be.

Section 5.05. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 5.03, and notwithstanding the absence of any determination thereunder, any Director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Section 5.01 or Section 5.02. The basis of such indemnification by a court shall be a determination by such court that indemnification of the Director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 5.01 or Section 5.02, as the case may be. Neither a contrary determination in the specific case under Section 5.03 nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the Director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5.05 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the Director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

Section 5.06. Expenses Payable in Advance. Expenses (including attorneys’ fees) incurred by a Director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suitor proceeding upon receipt of an undertaking by or on behalf of such Director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article V. Such expenses (including attorneys’ fees) incurred by former Directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.

Section 5.07. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 5.01 and Section 5.02 shall be made to the fullest extent permitted by law. The provisions of this Article V shall not be deemed to preclude the indemnification of any person who is not specified in Section 5.01or Section 5.02 but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise.

Section 5.08. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director or officer of the Corporation, or is or was a Director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article V.

Section 5.09. Certain Definitions. For purposes of this Article V, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this

Article V with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. The term “another enterprise” as used in this Article V shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this Article V, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such direct or or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article V.

Section 5.10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 5.11. Limitation on Indemnification. Notwithstanding anything contained in this Article V to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5.05), the Corporation shall not be obligated to indemnify any Director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board.

Section 5.12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation and employees or agents of the Corporation that are or were serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, similar to those conferred in this Article V to Directors and officers of the Corporation.

ARTICLE VI

Capital Stock

Section 6.01. Stock Certificates. The shares of the Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated shares. If shares are represented by certificates, each certificate shall be signed by, or in the name of, the Corporation by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President, and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary. In addition, such certificates may be signed by a transfer agent of a registrar (other than the Corporation itself) and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures on such certificates may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of its issuance.

Each certificate representing shares shall state upon the face thereof: the name of the Corporation; that the Corporation is organized under the laws of Delaware; the name of the person or persons to whom issued; the number and class of shares and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate or a statement that the shares are without par value.

Section 6.02. Record Ownership. A record of the name of the person, firm or corporation and address of such holder of each certificate, the number of shares represented thereby and the date of issue thereof shall be made on the Corporation’s books. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any person, whether or not it shall have express or other notice thereof, except as otherwise expressly required by applicable law.

Section 6.03. Transfer of Record Ownership. Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate or such person’s attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and transferee request the Corporation to do so.

Section 6.04. Transfer Agent; Registrar; Rules Respecting Certificates. The Corporation shall maintain one or more transfer offices or agencies (which may include the Corporation) where stock of the Corporation shall be transferable. The Corporation shall also maintain one or more registry offices (which may include the Corporation) where such stock shall be registered. The Board may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates in accordance with applicable law.

Section 6.05. Lost, Stolen or Destroyed Certificates. No certificate for shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board or any financial officer may in its or such person’s discretion require. A new certificate may be issued without requiring any bond if the Board or such financial officer so determines.

ARTICLE VII

Contracts, Checks and Drafts, Deposits and Proxies

Section 7.01. Contracts. The Board may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances.

Section 7.02. Checks and Drafts. All checks, drafts or other orders for the payment of money, issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by the Board.

Section 7.03. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such depositories as may be selected by or under the authority of the Board.

Section 7.04. Proxies. Unless otherwise provided by the Board, the Chairman of the Board, the Chief Executive Officer, the President or any Executive Vice President, Senior Vice President or Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises.

ARTICLE VIII

General Provisions

Section 8.01. Dividends. Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate, if any, may be declared by the Board at any regular or special meeting of the Board (or any action by written consent in lieu thereof in accordance with Section 3.09 hereof), and may be paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board may modify or abolish any such reserve.

Section 8.02. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January in each year and shall end on the thirty-first day of December of such year.

Section 8.03. Seal. The corporate seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board, the name of the Corporation, the year of its incorporation and the words “Corporate Seal” and “Delaware”. The corporate seal may be used by causing it or a facsimile thereof to be impressed or reproduce or otherwise.

Section 8.04. Waivers of Notice. Whenever any notice is required by applicable law, the Certificate or these By-Laws, to be given to any Director, member of a Committee or stockholder, a waiver thereof in writing, signed by the person or persons

entitled to notice, or a waiver by electronic transmission by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of stockholders or any regular or special meeting of the Board or members of a Committee of the Board need be specified in any written waiver of notice unless so required by law, the Certificate or these By-Laws.

ARTICLE IX

Amendment of By-Laws

Section 9.01. Amendment. Except as otherwise expressly provided in the Certificate, these By-Laws, or any of them, may from time to time be supplemented, amended or repealed, or new By-Laws may be adopted, by the Board at any regular or special meeting of the Board, if such supplement, amendment, repeal or adoption is approved by a majority of the entire Board.

Section 9.02. Entire Board of Directors. As used in this Article IX and in these By-Laws generally, the terms “entire Board” or “entire Board of Directors” mean the total number of Directors which the Corporation would have if there were no vacancies.

ARTICLE X

Emergency Provisions

Section 10.01. General. The provisions of this Article X shall be operative only during a national emergency declared by the President of the United States or the person performing the President’s functions, or in the event of a nuclear, atomic or other attack on the United States or on a locality in which the Corporation conducts its principal business or customarily holds meetings of its Board or its stockholders, or during the existence of any other catastrophic event or similar emergency, as a result of which a quorum of the Board cannot readily be assembled for action. Said provisions in such event shall override all other By-Laws of the Corporation in conflict with any provisions of this Article X and shall remain operative during such emergency, but thereafter shall be inoperative; provided , that , all actions taken in good faith pursuant to such provisions shall thereafter remain in full force and effect unless and until revoked by action taken pursuant to the provisions of the By-Laws other than those contained in this Article X.

Section 10.02. Unavailable Directors. All Directors who are not available to perform their duties as Directors by reason of physical or mental incapacity or for any other reason or who arc unwilling to perform their duties or whose whereabouts are unknown shall automatically cease to be Directors, with like effect as if such persons had resigned as Directors, so long as such unavailability continues.

Section 10.03. Authorized Number of Directors. The authorized number of Directors shall be the number of Directors remaining after eliminating those who have ceased to be Directors pursuant to Section 10.02, or the minimum number required by applicable law, whichever number is greater.

Section 10.04. Quorum. The number of Directors necessary to constitute a quorum shall be one-third of the authorized number of Directors as specified in Section 10.03, or such other minimum number as, pursuant to the law or lawful decree then in force, it is possible for the by-laws of a corporation to specify.

Section 10.05. Creation of Emergency Committee. In the event the number of Directors remaining after eliminating those who have ceased to be directors pursuant to Section 10.02 is less than the minimum number of authorized directors required by law, then until the appointment of additional Directors to make up such required minimum, all the powers and authorities which the Board could by law delegate, including all powers and authorities which the Board could delegate to a Committee, shall be automatically vested in an emergency committee, and the emergency committee shall thereafter manage the affairs of the Corporation pursuant to such powers and authorities and shall have all other powers and authorities as may by law or lawful decree be conferred on any person or body of persons during a period of emergency.

Section 10.06. Constitution of Emergency Committee. The emergency committee shall consist of all the Directors remaining after eliminating those who have ceased to be directors pursuant to Section 10.02, provided that such remaining Directors are not less than three in number. In the event such remaining Directors are less than three in number, the emergency committee shall consist of three persons, who shall be the remaining Director or Directors and either one or two officers or employees of the Corporation, as the remaining Director or Directors may in writing designate. If there is no remaining Director, the emergency committee shall consist of the three most senior officers of the Corporation who are available to serve, and if and to the extent that officers are not available, the most senior employees of the Corporation. Seniority shall be determined in accordance with any designation of seniority in the minutes of the proceedings of the Board, and in the absence of such designation, shall be determined by rate of remuneration.

Section 10.07. Powers of Emergency Committee. The emergency committee, once appointed, shall govern its own procedures and shall have power to increase the number of members thereof beyond the original number, and in the event of a vacancy or vacancies therein, arising at any time, the remaining member or members of the emergency committee shall have the power to fill such vacancy or vacancies. In the event at any time after its appointment all members of the emergency committee shall die or resign or become unavailable to act for any reason whatsoever, a new emergency committee shall be appointed in accordance with the foregoing provisions of this Article X.

Section 10.08. Directors Becoming Available. Any person who has ceased to be a Director pursuant to the provisions of Section 10.02 and who thereafter becomes available to serve as a Director shall automatically become a member of the emergency committee.

Section 10.09. Election of Board of Directors. The emergency committee shall, as soon after its appointment as is practicable, take all requisite action to secure the election of Directors, and upon such election all the powers and authorities of the emergency committee shall cease.

Section 10.10. Termination of Emergency Committee. In the event, after the appointment of an emergency committee, a sufficient number of persons who ceased to be Directors pursuant to Section 10.02 become available to serve as Directors, so that if they had not ceased to be Directors as aforesaid, there would be sufficient Directors to constitute the minimum number of Directors required by law, then all such persons shall automatically be deemed to be reappointed as Directors and the powers and authorities of the emergency committee shall terminate.

Section 10.11. Nonexclusive Powers. The emergency powers provided in this Article X shall be in addition to any powers provided by applicable law.

Exhibit C

To The Merger Agreement

Board of Directors of the Company

As of the Effective Time, in accordance with the By-Laws of the Company to be effective as of the Effective Time set forth on Exhibit B to the Merger Agreement (the “Company By-Laws”), the number of Directors constituting the Board of Directors shall be 15, comprised of ten Duke Directors (as defined in the Company By-Laws) and five Cinergy Directors (as defined in the Company By-Laws).

Chairman of the Board of Directors and President and Chief Executive Officer of the Company

Chairman of the Board of Directors: Paul M. Anderson. In addition to the duties of the Chairman of the Board of Directors attendant to such position set forth in the Company By-Laws, Mr. Anderson shall have management responsibilities for analyzing potential strategic alternatives regarding the separation of the Company’s gas and electric businesses, and, if approved by the Board of Directors of the Company, the implementation thereof, and in such capacity the President or other chief officer of the gas business shall report directly to the Chairman of the Board of Directors of the Company (as well as to the President and Chief Executive Officer). Any employment or other agreement or arrangement between Mr. Anderson and the Company consistent with the terms of this Exhibit C and the Company By-Laws shall contain such other terms and conditions as are agreed to by Mr. Anderson and the Company.

President and Chief Executive Officer: James E. Rogers

Selection of Senior Officers of the Company

From the date of the Agreement to immediately prior to the Closing, as necessary, Mr. Anderson and Mr. Rogers will consult with one another and cooperate to select officers of the Company as of the Effective Time. With respect to the 25 most senior officers (the “Senior Management Team”), in the event Mr. Anderson and Mr. Rogers are unable to agree on the appointment of a particular person to any office included in the Senior Management Team, Mr. Rogers’ appointment to such office shall control. Upon the completion of the selection process set forth in this Exhibit C , Mr. Anderson and Mr. Rogers shall submit their selection of the Senior Management Team to the 15 individuals who will comprise the Board of Directors of the Company as of the Effective Time (the “Pro Forma Board”) as and when the Pro Forma Board has been identified. Notwithstanding the foregoing selection process, the Senior Management Team, as an entirety, will be subject to the review and approval by the Pro Forma Board. In the event the Pro Forma Board does not approve any Senior Management Team submitted by Mr. Anderson and Mr. Rogers, the Pro Forma Board may suggest changes to the Senior Management Team and Mr. Anderson and Mr. Rogers will consult with one another and cooperate to submit a revised Senior Management Team for the review and approval of the Pro Forma Board in accordance with the foregoing procedures on one or more occasions until a Senior Management Team is approved by the Pro Forma Board. The selection process set forth in this Exhibit C shall terminate as of the Effective Time.

Exhibit D

To The Merger Agreement

EMPLOYMENT AGREEMENT

TERM SHEET

JAMES E. ROGERS

1. Basic premise—No changes to be made to Mr. Rogers’ existing agreement unless:

(a) required to reflect changes mandated by the transactions (the “Merger”) contemplated by the Agreement and Plan of Merger by and among Duke Energy Corporation, Cinergy Corp., Deer Holding Corp., Deer Acquisition Corp. and Cougar Acquisition Corp. (the “Merger Agreement”)

(b) as specifically reflected in this term sheet

2. Changes mandated by the corporate transaction

(a) References to Cinergy Corp. (“Cinergy”) shall automatically refer to Deer Holding Corp. (“Holdco”) as of the Closing Date

(b) Required move to Charlotte

(i) principal executive offices in Charlotte to be specified as the principal place of performance post-closing (§.2(b) ⁽¹⁾ )

(ii) will not constitute a “Good Reason” trigger (§§.2(b) and 4(d)(iii))

(i) Duties and Powers—modify the current positions, duties and responsibilities of Mr. Rogers (§.2(a)) to reflect post-closing status as Holdco President and CEO, subject to Exhibit C to the Merger Agreement

(d) Compensation

(i) Unless otherwise agreed by the parties, Mr. Rogers’ compensation arrangements will remain in place post-closing

(ii) The parties will negotiate in good faith to restructure the current compensation arrangements to provide that Mr. Rogers will be paid substantially in the form of equity compensation by which Duke Energy Corporation CEO is presently compensated; it being understood that Mr. Rogers’ restructured compensation will be no less favorable in economic value than his existing compensation arrangements. The valuation determination will be made by an independent nationally recognized human resources consulting firm mutually selected by Holdco and Mr. Rogers, or, in the absence of agreement on the firm to be selected, such consulting firm as shall be selected by an arbitrator appointed in accordance with the rules of the American Arbitration Association then in effect

(iii) SERP benefit—The present value of the SERP benefit (§.3(b)(ii)) will be quantified immediately prior to the closing of the Merger and will be deferred, with market-based earnings credited thereon, in compliance with §.409A of the Internal Revenue Code. If it is determined at any time prior to or following the closing that the SERP benefit should fail to comply with §.409A for any reason, Mr. Rogers and Cinergy or Holdco (as applicable) in good faith shall negotiate to restructure the SERP benefit so as to make it compliant, provided that, in no event will such restructuring adversely affect such pre-tax present value of the SERP benefit

⁽¹⁾	Note that section references are to Mr. Rogers’ existing agreement

(e) Arbitration clause (§.8) should be modified to provide for any proceeding to take place in Charlotte, NC

(f) Governing law (§.12(a))—change from Ohio to North Carolina

(g) Notice provision—update to reflect Charlotte address of Holdco

3. Other changes/Comments

(a) Three-year term of employment commencing upon closing of the Merger, with back-end consecutive one-year “evergreen” renewals if neither party gives notice prior to a specified date (e.g., six months) prior to the end of the three-year employment term (or extended one-year term, as applicable)

(b) Severance—Unless otherwise agreed by the parties, if Mr. Rogers is involuntarily terminated without Cause or quits for Good Reason on or prior to the second anniversary of the closing of the Merger or within two years following a change in control of Holdco, then he will receive an amount no less than the economic value to which he would otherwise be entitled under his existing employment agreement had he terminated employment under such circumstances immediately following the closing of the transaction; provided, however, that if his termination of employment occurs at any time following the second anniversary of the closing of the Merger (other than within two years following a change in control of Holdco), then he will receive an amount no less than the economic value to which he would otherwise be entitled under his existing employment agreement had he terminated employment immediately prior to the occurrence of a change in control of Cinergy (and, in either case, such economic value shall be determined without regard to the form of his then restructured compensation arrangements)

(d) Stock sale limitations—remove limitation on the sale, during employment, of Cinergy shares acquired upon exercise of stock options (§.4(g)), such removal to be effective as of the closing of the transaction (but Mr. Rogers shall remain subject to Duke Energy Corporation/Holdco stock ownership guidelines which have been represented to Mr. Rogers as being a 100,000 share minimum)

As soon as reasonably practicable following the execution of this term sheet but in any event prior to the closing of the corporate transaction, Cinergy, Duke Energy Corporation and Holdco will each take such action (or cause their respective affiliates to take such action) as may be necessary and appropriate to effectuate the foregoing in a new or amended employment agreement to be entered into or assumed by Holdco for Mr. Rogers, which agreement shall take effect as of the effective date of the closing of the mergers contemplated by the Merger Agreement; provided, however, that §.2(d)(iii) hereof shall take effect immediately upon the execution of this term sheet. Until such time as a new or amended employment agreement becomes effective, this term sheet shall govern the respective parties’ rights and obligations and shall constitute an amendment of Mr. Rogers’ employment agreement when deemed effective as provided hereinabove.

IN WITNESS WHEREOF, the parties signing hereinbelow have executed this term sheet this 8th day of May, 2005, intending to be legally bound thereby.


CINERGY CORP.

By:		/s/ Marc E. Manly MARC E. MANLY

DUKE ENERGY CORPORATION

By:		/s/ Paul M. Anderson PAUL M. ANDERSON

DEER HOLDING CORP.

By:		/s/ Jim W. Mogg JIM W. MOGG

		/s/ James E. Rogers JAMES E. ROGERS

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

DUKE ENERGY HOLDING CORP.

DUKE ENERGY HOLDING CORP., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY AS FOLLOWS:

1. The name of the corporation is Duke Energy Holding Corp. The name under which the corporation was originally incorporated was Deer Holding Corp. The name of the corporation was changed to Duke Energy Holding Corp. on June 21, 2005. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 3, 2005.

2. This Amended and Restated Certificate of Incorporation, having been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”) and by the unanimous written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL, restates and integrates and further amends the provisions of the Certificate of Incorporation as amended or supplemented heretofore. As so restated and integrated and further amended, the Amended and Restated Certificate of Incorporation (hereinafter, this “Certificate of Incorporation”) reads as follows:

ARTICLE FIRST

Name

The name of the corporation is Duke Energy Corporation.

ARTICLE SECOND

Registered Office

ARTICLE THIRD

Purpose

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the DGCL.

ARTICLE FOURTH

Capital Stock

(a) The aggregate number of shares of stock that the Corporation shall have authority to issue is two billion forty-four million (2,044,000,000) shares, consisting of two billion (2,000,000,000) shares of Common Stock, par value $0.001 per share (the “Common Stock”), and forty-four million (44,000,000) shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”).

distribution of assets ratably in proportion to the full amounts to which they are entitled or in such order or priority, if any, as will have been fixed in the resolution or resolutions providing for the issue of the class or series of Preferred Stock. Neither the merger or consolidation of the Corporation into or with any other corporation, nor a sale, transfer or lease of all or part of its assets, will be deemed a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph, except to the extent specifically provided in any certificate of designation for any class or series of Preferred Stock. Nothing in this ARTICLE FOURTH shall limit the power of the Board of Directors to create a class or series of Preferred Stock for which the amount to be distributed upon any liquidation, dissolution or winding up of the Corporation is calculated by reference to, and the payment of which is concurrent with, the amount to be distributed to the holders of shares of Common Stock.

ARTICLE FIFTH

Board of Directors

(a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

(c) A director may be removed from office with or without cause; provided , however , that, subject to applicable law, any director elected by the holders of any series of Preferred Stock may be removed without cause only by the holders of a majority of the shares of such series of Preferred Stock.

(d) Except as otherwise fixed by or pursuant to provisions of ARTICLE FOURTH relating to the rights of the holders of any series of Preferred Stock, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next succeeding annual meeting of stockholders and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

(e) Except as otherwise fixed by or pursuant to provisions of ARTICLE FOURTH relating to the rights of the holders of any series of Preferred Stock, the directors shall be elected by the holders of voting stock and shall hold office until the next annual meeting of stockholders and until their respective successors shall have been duly elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office.

(f) Election of directors need not be by written ballot unless the By-Laws so provide.

(g) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted.

ARTICLE SIXTH

Action by Stockholders; Books of the Corporation

ARTICLE SEVENTH

Amendment of Certificate of Incorporation

ARTICLE EIGHTH

Amendment of By-Laws

In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors of the Corporation is expressly authorized to adopt, repeal, alter or amend the By-Laws of the Corporation. No By-Laws may be adopted, repealed, altered or amended in any manner that would be inconsistent with this Amended and Restated Certificate of Incorporation (as it may be adopted, repealed, altered or amended from time to time in accordance with ARTICLE SEVENTH).

ARTICLE NINTH

Limitation of Liability

ARTICLE TENTH

Liability of Stockholders

ARTICLE ELEVENTH

Effectiveness

This Amended and Restated Certificate of Incorporation is to become effective at 8:30 a.m. on April 3, 2006.

IN WITNESS WHEREOF, THE UNDERSIGNED, being the Assistant Secretary, has executed this Amended and Restated Certificate of Incorporation as of the thirty-first day of March, 2006, and DOES HEREBY CERTIFY under the penalties of perjury that the facts stated in this Amended and Restated Certificate of Incorporation are true.


By:		/s/ Robert T. Lucas, III
Name:		Robert T. Lucas, III
Title:		Assistant Secretary

Exhibit 3.2

AMENDED AND RESTATED

BY-LAWS

DUKE ENERGY CORPORATION

A Delaware corporation

Effective as of April 3, 2006

TABLE OF CONTENTS


		Page
ARTICLE I Offices		1
Section 1.01.	Principal Office	1
Section 1.02.	Registered Office and Agent	1
Section 1.03.	Other Offices	1

ARTICLE II Stockholders		1
Section 2.01.	Place of Stockholders' Meetings	1
Section 2.02.	Day and Time of Annual Meetings of Stockholders	2
Section 2.03.	Purposes of Annual Meetings	2
Section 2.04.	Special Meetings of Stockholders	3
Section 2.05.	Notice of Meetings of Stockholders	3
Section 2.06.	Quorum of Stockholders	4
Section 2.07.	Presiding Officer and Secretary of Meeting; Conduct of Meetings.	5
Section 2.08.	Voting by Stockholders	5
Section 2.09.	Proxies	6
Section 2.10.	Inspector	6
Section 2.11.	List of Stockholders	7
Section 2.12.	Fixing of Record Date for Determination of Stockholders of Record	7

ARTICLE III Directors		8
Section 3.01.	Number and Qualifications	8
Section 3.02.	Board Representation	8
Section 3.03.	Election and Term of Directors	9
Section 3.04.	Newly Created Directorships; Vacancies	10
Section 3.05.	Resignation	10
Section 3.06.	Meetings of the Board	10
Section 3.07.	Quorum and Action	11
Section 3.08.	Presiding Officer and Secretary of Meeting	11
Section 3.09.	Action by Consent without Meeting	11
Section 3.10.	Compensation of Directors	12
Section 3.11.	Committees of the Board and Powers	12
Section 3.12.	Meetings of Committees	12
Section 3.13.	Quorum of Committee; Manner of Action	12

ARTICLE IV Officers		12
Section 4.01.	Elected Officers	12
Section 4.02.	Election and Term of Office	13
Section 4.03.	Chairman of the Board	13
Section 4.04.	Chief Executive Officer	13
Section 4.05.	President	14
Section 4.06.	Vice Presidents	14
Section 4.07.	Secretary	14


Section 4.08.	Treasurer	14
Section 4.09.	Controller	14
Section 4.10.	Assistant Secretaries, Assistant Treasurers and Assistant Controllers	15
Section 4.11.	Removal	15
Section 4.12.	Vacancies	15

ARTICLE V Indemnification		16
Section 5.01.	Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation	16
Section 5.02.	Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation	16
Section 5.03.	Authorization of Indemnification	17
Section 5.04.	Good Faith Defined	17
Section 5.05.	Indemnification by a Court	17
Section 5.06.	Expenses Payable in Advance	18
Section 5.07.	Nonexclusivity of Indemnification and Advancement of Expenses	18
Section 5.08.	Insurance	18
Section 5.09.	Certain Definitions	18
Section 5.10.	Survival of Indemnification and Advancement of Expenses	19
Section 5.11.	Limitation on Indemnification	19
Section 5.12.	Indemnification of Employees and Agents	19

ARTICLE VI Capital Stock		19
Section 6.01.	Stock Certificates	19
Section 6.02.	Record Ownership	20
Section 6.03.	Transfer of Record Ownership	20
Section 6.04.	Transfer Agent; Registrar; Rules Respecting Certificates	20
Section 6.05.	Lost, Stolen or Destroyed Certificates	20

ARTICLE VII Contracts, Checks and Drafts, Deposits and Proxies		20
Section 7.01.	Contracts	20
Section 7.02.	Checks and Drafts	20
Section 7.03.	Deposits	21
Section 7.04.	Proxies	21

ARTICLE VIII General Provisions		21
Section 8.01.	Dividends	21
Section 8.02.	Fiscal Year	21
Section 8.03.	Seal	21
Section 8.04.	Waivers of Notice	21

ARTICLE IX Amendment of By-Laws		22
Section 9.01.	Amendment	22
Section 9.02.	Entire Board of Directors	22

ARTICLE X Emergency Provisions		22
Section 10.01.	General	22


Section 10.02.	Unavailable Directors	22
Section 10.03.	Authorized Number of Directors	22
Section 10.04.	Quorum	23
Section 10.05.	Creation of Emergency Committee	23
Section 10.06.	Constitution of Emergency Committee	23
Section 10.07.	Powers of Emergency Committee	23
Section 10.08.	Directors Becoming Available	23
Section 10.09.	Election of Board of Directors	23
Section 10.10.	Termination of Emergency Committee	24
Section 10.11.	Nonexclusive Powers	24

iii

AMENDED AND RESTATED BY-LAWS

DUKE ENERGY CORPORATION

(A CORPORATION ORGANIZED UNDER THE LAWS OF THE

STATE OF DELAWARE, THE “CORPORATION”)

(EFFECTIVE AS OF APRIL 3, 2006)

ARTICLE I

Offices

Section 1.01. Principal Office . The principal office of the Corporation shall be located in Charlotte, North Carolina.

Section 1.02. Registered Office and Agent . The address of the registered office of the Corporation in the State of Delaware shall be 1209 Orange Street, Wilmington, Delaware 19801. The name of the registered agent is The Corporation Trust Company. Such registered agent has a business office identical with such registered office.

Section 1.03. Other Offices . The Corporation may have such other offices either within or without the State of Delaware as the Board of Directors (the “Board” and each member thereof, a “Director”) may designate or as the business of the Corporation may from time to time require.

ARTICLE II

Stockholders

Section 2.01. Place of Stockholders’ Meetings . All meetings of the stockholders of the Corporation shall be held at such place or places, within or outside the State of Delaware, as may be fixed by the Board from time to time or as shall be in the respective notices thereof. The Board may, in its sole discretion, determine that a meeting of the stockholders shall not be held at any place, but may instead be held solely by means of remote communication in the manner authorized by the General Corporation Law of the State of Delaware (the “DGCL”).

Section 2.02. Day and Time of Annual Meetings of Stockholders . An annual meeting of stockholders shall be held at such date and hour as shall be determined by the Board and designated in the notice thereof. Any previously scheduled annual meeting of stockholders may be postponed by action of the Board taken prior to the time previously scheduled for such annual meeting of stockholders.

Section 2.03. Purposes of Annual Meetings .

(b) To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the meeting by or at the direction of the Board or (iii) otherwise properly brought before the meeting by a stockholder who is a holder of record at the time of the giving of notice provided for in this Section 2.03(b), who is entitled to vote at the meeting and who complies with the procedures set forth in this Section 2.03(b). For business to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action under applicable law and the stockholder must have given written notice thereof, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation at the principal executive offices of the Corporation, not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting provided , that the first such anniversary date occurring after the effective date of these By-Laws shall be deemed to be May 1, 2006 and provided , further , that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so received not later than the tenth day following the day on which notice of the date of the annual meeting was mailed or public announcement of the date of such meeting is first made by the Corporation, whichever occurs first. In no event shall the public announcement of an adjournment of an annual meeting of stockholders commence a new time period for the giving of a stockholder’s notice as described above. Any such notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, and, in the event that such business includes a proposal to amend either the Restated Certificate of Incorporation of the Corporation (the “Certificate”) or these By-Laws, the text of the proposed amendment, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation that are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) if the stockholder intends to solicit proxies in support of such stockholder’s proposal, a representation to that effect. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such stockholder’s proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided , however , that if such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that

proxies in respect of such vote may have been received by the Corporation. No business shall be conducted at an annual meeting of stockholders except in accordance with this Section 2.03(b), and the presiding officer of any annual meeting of stockholders may refuse to permit any business to be brought before an annual meeting without compliance with the foregoing procedures or if the stockholder solicits proxies in support of such stockholder’s proposal without such stockholder having made the representation required by clause (v) of the second preceding sentence.

Section 2.04. Special Meetings of Stockholders .

Section 2.05. Notice of Meetings of Stockholders . Whenever stockholders are required or permitted to take any action at a meeting, unless notice is waived in writing by all stockholders entitled to vote at the meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called.

In lieu of and/or in addition to the foregoing, notice of any meeting of the stockholders of the Corporation may be given via electronic transmission, to the fullest extent permitted by Section 232 of the DGCL. To be valid, such electronic transmission notice must be in a form of electronic transmission to which the stockholder has consented. Any stockholder can revoke consent to receive notice by a form of electronic transmission by written notice to the Corporation. Such consent shall be deemed revoked if (i) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (ii) such inability becomes known to the Secretary or an Assistant Secretary or to the transfer agent or other person responsible for the giving of notice; provided , however , the inadvertent failure to treat any such undeliverable notices as a revocation shall not invalidate any meeting or other action. “Electronic transmission” shall mean any form of communication, not directly involving the physical transmission of paper, that creates a record and that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

Unless otherwise provided by law, and except as to any stockholder duly waiving notice, the written notice of any meeting shall be given personally, by mail, or by a form of electronic transmission consented to by the stockholder to whom notice is given, not less than 10 days nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation. If by a form of electronic transmission, notice shall be deemed given when transmitted to the stockholder in accordance with the provisions set forth herein; provided , however , that if the electronic transmission notice is posted on an electronic network (e.g., a website or chatroom), notice shall be deemed given upon the later of (A) such posting and (B) the giving of separate notice of the posting to the stockholder.

Section 2.06. Quorum of Stockholders .

(a) Unless otherwise expressly required by the Certificate or applicable law, at any meeting of the stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of the votes entitled to be cast thereat shall constitute a quorum for the entire meeting, notwithstanding the withdrawal of stockholders entitled to cast a sufficient number of votes in person or by proxy to reduce the number of votes represented at the meeting below a quorum. Shares of the Corporation’s stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in an election of the directors of such other corporation is held by the Corporation, shall neither be counted for the purpose of determining the presence of a quorum nor be entitled to vote at any meeting of the stockholders; provided , however , that the foregoing shall not limit the right of the Corporation to vote stock, including its own stock, held by it in a fiduciary capacity.

(c) At any adjourned meeting, any business may be transacted that might have been transacted at the meeting originally called, but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof unless a new record date is fixed by the Board.

Section 2.07. Presiding Officer and Secretary of Meeting; Conduct of Meetings .

(b) The Board may to the extent not prohibited by law adopt such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the presiding officer of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the presiding officer of the meeting, may to the extent not prohibited by law include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting, (ii) rules and procedures for maintaining order at the meeting and the safety of those present, (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding officer of the meeting shall determine, (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof and (v) limitations on the time allotted to questions or comments by participants. Unless, and to the extent, determined by the Board or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 2.08. Voting by Stockholders .

(a) Except as otherwise expressly required by the Certificate or applicable law, at every meeting of the stockholders each stockholder of record shall be entitled to the number of votes specified in the Certificate (or, with respect to any class or series of Preferred Stock, in the applicable certificate of designations providing for the creation of such class or series), in person or by proxy, for each share of stock standing in his or her name on the books of the Corporation on the date fixed pursuant to the provisions of Section 2.12 of these By-Laws as the record date for the determination of the stockholders who shall be entitled to receive notice of and to vote at such meeting.

Section 2.09. Proxies . Each stockholder entitled to vote at a meeting of the stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder as proxy, but no such proxy shall be voted upon after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:

Section 2.10. Inspector . In advance of any meeting of the stockholders, the Board or the Chairman of the Board shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the presiding officer of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the

discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law.

Section 2.11. List of Stockholders .

Section 2.12. Fixing of Record Date for Determination of Stockholders of Record .

ARTICLE III

Directors

Section 3.01. Number and Qualifications . The number of Directors constituting the Board shall be not less than nine nor more than 18, as may be fixed from time to time by the Board in accordance with Section 3.07. A Director must be a stockholder of the Corporation. On the effective date of these By-Laws, the number of Directors constituting the Board shall be 15 (the “Initial Board”). Notwithstanding any provision in these By-Laws or the Certificate to the contrary, prior to the first annual meeting of stockholders at which Directors are elected following the effective date of these By-Laws, the size of the Initial Board shall not be increased or decreased without the affirmative vote of at least 80% of the entire Board.

Section 3.02. Board Representation . On the effective date of these By-Laws, the Initial Board shall consist of ten Duke Directors and five Cinergy Directors (as such terms are defined below). The term “Duke Director” means any person serving as a director of Duke Energy Corporation prior to the Duke Effective Time and who becomes a Director of the Corporation on the effective date of these By-Laws and the term “Cinergy Director” means any

person serving as a director of Cinergy Corp. prior to the Cinergy Effective Time and who becomes a Director of the Corporation on the effective date of these By-Laws. The terms “Cinergy Effective Time” and “Duke Effective Time” have the meanings ascribed to such terms in that certain Agreement and Plan of Merger, dated as of May 8, 2005, as amended, by and among the Corporation, Duke Energy Corporation, Cinergy, Deer Acquisition Corp. and Cougar Acquisition Corp. Other than the constitution of the Initial Board pursuant to Sections 3.01 and 3.02, the By-Laws shall apply without regard to whether a Director is a Cinergy Director or a Duke Director.

Section 3.03. Election and Term of Directors . Subject to the rights of the holders of any class or series of Preferred Stock of the Corporation, nominations of persons for election as Directors may be made by the Board or by any stockholder who is a stockholder of record at the time of giving of the notice of nomination provided for in this Section 3.03 and who is entitled to vote for the election of Directors. Any stockholder of record entitled to vote for the election of Directors at a meeting may nominate a person or persons for election as Directors only if written notice of such stockholder’s intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary at the principal executive offices of the Corporation, (i) with respect to an election to be held at an annual meeting of stockholders, not less than 90 nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting provided , that the first such anniversary date occurring after the effective date of these By-Laws shall be deemed to be May 1, 2006 and provided , further , that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so received not later than the tenth day following the day on which notice of the date of the annual meeting was mailed or public announcement of the date of such meeting is first made by the Corporation, whichever occurs first and (ii) with respect to an election to be held at a special meeting of stockholders for the election of Directors, not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public announcement of the date of the special meeting and of the nominees to be elected at such meeting is first made. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board; (e) the consent of each nominee to serve as a Director if so elected and (f) if the stockholder intends to solicit proxies in support of such stockholder’s nominee(s), a representation to that effect. The presiding officer of any meeting of stockholders to elect Directors and the Board may refuse to acknowledge any attempted nomination of any person not made in compliance with the foregoing procedure or if the stockholder solicits proxies in support of such stockholder’s nominee(s) without such stockholder having made the representation required by clause (f) of the preceding sentence. Only such persons who are nominated in accordance with the procedures set forth in this Section 3.03 shall be eligible to serve as Directors of the Corporation.

Section 3.04. Newly Created Directorships; Vacancies . Subject to the rights of holders of any class or series of Preferred Stock and unless otherwise required by the Certificate, newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board, and any Director so chosen shall hold office until the next annual meeting of stockholders at which Directors are elected and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

Section 3.05. Resignation . Any Director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.

Section 3.06. Meetings of the Board .

(b) Regular meetings of the Board shall be held at such times and at such places as from time to time shall be determined by the Board.

(c) The first meeting of each newly elected Board shall be held as soon as practicable after the annual meeting of the stockholders and shall be for the election of officers and the transaction of such other business as may come before such meeting.

(f) A regular meeting of the Board of Directors shall be held without other notice than this By-Law as soon as practicable after the annual meeting of stockholders. The Board may, by resolution, provide the time and place for the holding of additional regular meetings without other notice than such resolution. Notice of any special meeting of the Board shall be given to each Director at such Director’s business or residence in writing by hand delivery, first-class or overnight mail or courier service, facsimile transmission or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five calendar days before such meeting. If by overnight mail or courier service, such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail or courier service company at least 24 hours before such meeting. If by facsimile transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least 12 hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least 12 hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice of such meeting. Any and all business may be transacted at any meeting of the Board. No notice of any adjourned meeting need be given. No notice to or waiver by any Director shall be required with respect to any meeting at which the Director is present except when such Director attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

Section 3.07. Quorum and Action . Except as otherwise expressly required by the Certificate, these By-Laws or applicable law, at any meeting of the Board, the presence of at least a majority of the number of Directors fixed pursuant to these By-Laws shall constitute a quorum for the transaction of business; but if there shall be less than a quorum at any meeting of the Board, a majority of those present may adjourn the meeting from time to time. Unless otherwise provided by applicable law, the Certificate or these By-Laws, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be necessary for the approval and adoption of any resolution or the approval of any act of the Board.

Section 3.08. Presiding Officer and Secretary of Meeting . The Chairman of the Board or, in the absence of the Chairman of the Board, the Lead Director, or in the absence of the Chairman of the Board and the Lead Director, the Chief Executive Officer, or in the absence of the Chairman of the Board, the Lead Director and the Chief Executive Officer, a member of the Board selected by the members present, shall preside at meetings of the Board. The Secretary shall act as secretary of the meeting, but in the Secretary’s absence the presiding officer may appoint a secretary of the meeting.

Section 3.09. Action by Consent without Meeting . Any action required or permitted to be taken at any meeting of the Board or of any Committee thereof may be taken without a meeting if all of the Directors or members of such Committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board or such Committee.

Section 3.10. Compensation of Directors . Directors, as such, may receive, pursuant to resolution of the Board, fixed fees and other compensation for their services as Directors, including, without limitation, their services as members of a Committee of the Board.

Section 3.11. Committees of the Board and Powers . The Board may designate one or more Committees of the Board, which shall consist of two or more Directors. Any such Committee may to the extent permitted by applicable law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. A Committee of the Board may not (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by law to be submitted to stockholders for approval or (ii) adopt, amend or repeal any bylaw of the corporation. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such Committee. Nothing herein shall be deemed to prevent the Board from appointing one or more Committees consisting in whole or in part of persons who are not Directors; provided , however , that no such Committee shall have or may exercise any authority of the Board.

Section 3.12. Meetings of Committees . Regular meetings of any Committee may be held without notice at such time and at such place, within or outside the State of Delaware, as from time to time shall be determined by such Committee. The Chairman of the Board, the Board or the Committee by vote at a meeting, or by two members of any Committee in writing without a meeting, may call a special meeting of any such Committee by giving notice to each member of the Committee in the manner provided for in Section 3.06(f) hereof. Unless otherwise provided in the Certificate, these By-Laws or by applicable law, neither business to be transacted at, nor the purpose of, any regular or special meeting of any such Committee need be specified in the notice or any waiver of notice.

Section 3.13. Quorum of Committee; Manner of Action . At all meetings of any Committee a majority of the total number of its members shall constitute a quorum for the transaction of business. Except in cases in which it is by applicable law, by the Certificate, by these By-Laws, or by resolution of the Board otherwise provided, a majority of such quorum shall decide any questions that may come before the meeting. In the absence of a quorum, the members of the Committee present by majority vote may adjourn the meeting from time to time, without notice other than by verbal announcement at the meeting, until a quorum shall attend. A Committee may also act by the written consent of all members thereof although not convened in a meeting provided that such written consent is filed with the minute books of the Committee.

ARTICLE IV

Officers

Section 4.01. Elected Officers . The elected officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer, a Controller and such other officers (including, without limitation, Executive Vice Presidents and Senior Vice Presidents and Vice Presidents) as the Board may deem proper. The Chairman of the Board shall be chosen from among the Directors. Any two or more offices may be held simultaneously by the same person, except as otherwise expressly prohibited by applicable law. The Board may elect a Lead Director from among the independent (as such term is defined by applicable SEC or self-regulatory organization rule or regulation) members of the Board.

Elected officers shall have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board or by any Committee thereof. The Board or the Chief Executive Officer may from time to time appoint such other officers (including one or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents Assistant Secretaries, Assistant Treasurers and Assistant Controllers), as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these By-Laws or, to the extent consistent with these By-Laws, as may be prescribed by the Board or the Chief Executive Officer. The Executive Officers of the Corporation shall consist of such officers as the Board may designate as Executive Officers from time to time, who may or may not be “executive officers” as defined under rules of the Securities and Exchange Commission.

Section 4.02. Election and Term of Office . Executive Officers of the Corporation shall be elected by the Board at the regular meeting of the Board held after the annual meeting of stockholders and at such other times as the Board may deem necessary. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as practicable. Officers who are not Executive Officers may be elected from time to time by the Board or appointed by the Chief Executive Officer. Each officer shall hold office until such person’s successor shall have been duty elected and shall have qualified or until such person’s death or until he or she shall resign or shall be removed pursuant to Section 4.11.

Section 4.03. Chairman of the Board . The Chairman of the Board shall perform all duties incidental to such person’s office which may be required by law and all such other duties as are properly required of the Chairman of the Board by the Board. The Chairman of the Board shall preside at all meetings of stockholders and of the Board and shall make reports to the Board and the stockholders, and shall see that all orders and resolutions of the Board and of any Committee thereof are carried into effect. The Chairman of the Board shall have such other duties and Executive Officers reporting directly to him as set forth in a resolution of the Board.

Section 4.04. Chief Executive Officer . The Chief Executive Officer shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to such person’s office which may be required by law and all such other duties as are properly required of the Chief Executive Officer by the Board. The Chief Executive Officer shall report to the Board. The Chief Executive Officer shall, in the absence or inability to act of the Chairman of the Board and the Lead Director (if elected), perform all duties of the Chairman of the Board and preside at all meetings of stockholders and of the Board.

Section 4.05. President . The President shall act in a general executive capacity and shall assist the Chief Executive Officer and the Chairman of the Board, if so designated by the Board, in the administration and operation of the Corporation’s business and general supervision of its policies and affairs.

Section 4.06. Vice Presidents . The Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents shall have such powers and duties as may be prescribed for them, respectively, by the Board or the Chief Executive Officer. Each of such officers shall report to the Chief Executive Officer or such other officer as the Chief Executive Officer shall direct or to the Chairman of the Board, if so designated by the Board.

Section 4.07. Secretary . The Secretary shall attend all meetings of the stockholders and of the Board, shall keep a true and faithful record thereof in proper books and shall have the custody and care of the corporate seal, records, minute books and stock books of the Corporation and of such other books and papers as in the practical business operations of the Corporation shall naturally belong in the office or custody of the Secretary or as shall be placed in the Secretary’s custody by order of the Board. The Secretary shall cause to be kept a suitable record of the addresses of stockholders and shall, except as may be otherwise required by statute or these By-Laws, sign and issue all notices required for meetings of stockholders or of the Board. The Secretary shall sign all papers to which the Secretary’s signature may be necessary or appropriate, shall affix and attest the seal of the Corporation to all instruments requiring the seal, shall have the authority to certify the By-Laws, resolutions of the stockholders and the Board and other documents of the Corporation as true and correct copies thereof and shall have such other powers and duties as are commonly incidental to the office of Secretary and as may be assigned to him or her by the Board or the Chief Executive Officer.

Section 4.08. Treasurer . The Treasurer shall have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation; cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositories as shall be selected in accordance with resolutions adopted by the Board; cause the funds of the Corporation to be disbursed by checks or drafts upon the authorized depositories of the Corporation, and cause to be taken and preserved proper vouchers for all moneys disbursed; render to the proper officers and to the Board and any duly constituted committee of the Board responsible for financial matters, whenever requested, a statement of the financial condition of the Corporation and of all his or her transactions as Treasurer; cause to be kept at the principal executive offices of the Corporation correct books of account of all its business and transactions; and, in general, perform all duties incident to the office of Treasurer and such other duties as are given to him or her by the By-Laws or as may be assigned to him or her by the Chief Executive Officer or the Board.

Section 4.09. Controller . The Controller shall be the chief accounting officer of the Corporation; shall keep full and accurate accounts of all assets, liabilities, commitments, revenues, costs and expenses, and other financial transactions of the Corporation in books belonging to the Corporation, and conform them to sound accounting principles with adequate internal control; shall cause regular audits of these books and records to be made; shall see that all expenditures are made in accordance with procedures duly established, from time to time, by

the Corporation; shall render financial statements upon the request of the Board; and, in general, shall perform all the duties ordinarily connected with the office of Controller and such other duties as may be assigned to him or her by the Chief Executive Officer or the Board.

Section 4.10. Assistant Secretaries, Assistant Treasurers and Assistant Controllers . Assistant Secretaries, Assistant Treasurers and Assistant Controllers, when elected or appointed, shall respectively assist the Secretary, the Treasurer and the Controller in the performance of the respective duties assigned to such principal officers, and in assisting such principal officer, each of such assistant officers shall for such purpose have the powers of such principal officer; and, in case of the absence, disability, death, resignation or removal from office of any principal officer, such principal officer’s duties shall, except as otherwise ordered by the Board, temporarily devolve upon such assistant officer as shall be designated by the Chief Executive Officer.

Section 4.11. Removal . Any officer or agent may be removed by the affirmative vote of a majority of the Directors then in office whenever, in their judgment, the best interests of the Corporation would be served thereby. In addition, any officer or agent appointed by the Chief Executive Officer may be removed by the Chief Executive Officer whenever, in his or her judgment, the best interests of the Corporation would be served thereby. Any removal shall be without prejudice to the contract rights, if any, of the person so removed.

Section 4.12. Vacancies . A newly created elected office and a vacancy in any elected office because of death, resignation or removal may be filled by the Board for the unexpired portion of the term at any meeting of the Board. Any vacancy in an office appointed by the Chief Executive Officer because of death, resignation or removal may be filled by the Chief Executive Officer.

ARTICLE V

Indemnification

Section 5.01. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation . Subject to Section 5.03, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a Director or officer of the Corporation, or is or was a Director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

Section 5.02. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation . Subject to Section 5.03, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a Director or officer of the Corporation, or is or was a Director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 5.03. Authorization of Indemnification . Any indemnification under this Article V (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former Director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 5.01 or Section 5.02, as the case may be. Such determination shall be made, with respect to a person who is a Director or officer at the time of such determination, (i) by a majority vote of the Directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such Directors designated by a majority vote of such Directors, even though less than a quorum, or (iii) if there are no such Directors, or if such Directors so direct, by independent legal counsel in a written opinion, or (iv) by the stockholders. Such determination shall be made, with respect to former Directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however , that a present or former Director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

Section 5.04. Good Faith Defined . For purposes of any determination under Section 5.03, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 5.04 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 5.01 or Section 5.02, as the case may be.

Section 5.05. Indemnification by a Court . Notwithstanding any contrary determination in the specific case under Section 5.03, and notwithstanding the absence of any determination thereunder, any Director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Section 5.01 or Section 5.02. The basis of such indemnification by a court shall be a determination by such court that indemnification of the Director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 5.01 or Section 5.02, as the case may be. Neither a contrary determination in the specific case under Section 5.03 nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the Director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5.05 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the Director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

Section 5.06. Expenses Payable in Advance . Expenses (including attorneys’ fees) incurred by a Director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article V. Such expenses (including attorneys’ fees) incurred by former Directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.

Section 5.07. Nonexclusivity of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate, these By-Laws, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 5.01 and Section 5.02 shall be made to the fullest extent permitted by law. The provisions of this Article V shall not be deemed to preclude the indemnification of any person who is not specified in Section 5.01 or Section 5.02 but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise.

Section 5.08. Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director or officer of the Corporation, or is or was a Director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article V.

Section 5.09. Certain Definitions . For purposes of this Article V, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. The term “another enterprise” as used in this Article V shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this Article V, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent

of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article V.

Section 5.10. Survival of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 5.11. Limitation on Indemnification . Notwithstanding anything contained in this Article V to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5.05), the Corporation shall not be obligated to indemnify any Director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board.

Section 5.12. Indemnification of Employees and Agents . The Corporation may, to the extent authorized from time to time by the Board, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation and employees or agents of the Corporation that are or were serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, similar to those conferred in this Article V to Directors and officers of the Corporation.

ARTICLE VI

Capital Stock

Section 6.01. Stock Certificates . The shares of the Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated shares. If shares are represented by certificates, each certificate shall be signed by, or in the name of, the Corporation by (i) the Chairman of the Board, the Chief Executive Officer, the President or any Vice President, and (ii) the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary. In addition, such certificates may be signed by a transfer agent of a registrar (other than the Corporation itself) and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures on such certificates may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of its issuance.

Each certificate representing shares shall state upon the face thereof: the name of the Corporation; that the Corporation is organized under the laws of Delaware; the name of the

person or persons to whom issued; the number and class of shares and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate or a statement that the shares are without par value.

Section 6.02. Record Ownership . A record of the name of the person, firm or corporation and address of such holder of each certificate, the number of shares represented thereby and the date of issue thereof shall be made on the Corporation’s books. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any person, whether or not it shall have express or other notice thereof, except as otherwise expressly required by applicable law.

Section 6.03. Transfer of Record Ownership . Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate or such person’s attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and transferee request the Corporation to do so.

Section 6.04. Transfer Agent; Registrar; Rules Respecting Certificates . The Corporation shall maintain one or more transfer offices or agencies (which may include the Corporation) where stock of the Corporation shall be transferable. The Corporation shall also maintain one or more registry offices (which may include the Corporation) where such stock shall be registered. The Board may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates in accordance with applicable law.

Section 6.05. Lost, Stolen or Destroyed Certificates . No certificate for shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board or any financial officer may in its or such person’s discretion require. A new certificate may be issued without requiring any bond if the Board or such financial officer so determines.

ARTICLE VII

Contracts, Checks and Drafts, Deposits and Proxies

Section 7.01. Contracts . The Board may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances.

Section 7.02. Checks and Drafts . All checks, drafts or other orders for the payment of money, issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by the Board.

Section 7.03. Deposits . All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such depositories as may be selected by or under the authority of the Board.

Section 7.04. Proxies . Unless otherwise provided by the Board, the Chairman of the Board, the Chief Executive Officer, the President or any Executive Vice President, Senior Vice President or Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises.

ARTICLE VIII

General Provisions

Section 8.01. Dividends . Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate, if any, may be declared by the Board at any regular or special meeting of the Board (or any action by written consent in lieu thereof in accordance with Section 3.09 hereof), and may be paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board may modify or abolish any such reserve.

Section 8.02. Fiscal Year . The fiscal year of the Corporation shall begin on the first day of January in each year and shall end on the thirty-first day of December of such year.

Section 8.03. Seal . The corporate seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board, the name of the Corporation, the year of its incorporation and the words “Corporate Seal” and “Delaware”. The corporate seal may be used by causing it or a facsimile thereof to be impressed or reproduced or otherwise.

Section 8.04. Waivers of Notice . Whenever any notice is required by applicable law, the Certificate or these By-Laws, to be given to any Director, member of a Committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to notice, or a

waiver by electronic transmission by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of stockholders or any regular or special meeting of the Board or members of a Committee of the Board need be specified in any written waiver of notice unless so required by law, the Certificate or these By-Laws.

ARTICLE IX

Amendment of By-Laws

Section 9.01. Amendment . Except as otherwise expressly provided in the Certificate, these By-Laws, or any of them, may from time to time be supplemented, amended or repealed, or new By-Laws may be adopted, by the Board at any regular or special meeting of the Board, if such supplement, amendment, repeal or adoption is approved by a majority of the entire Board.

Section 9.02. Entire Board of Directors . As used in this Article IX and in these By-Laws generally, the terms “entire Board” or “entire Board of Directors” mean the total number of Directors which the Corporation would have if there were no vacancies.

ARTICLE X

Emergency Provisions

Section 10.01. General . The provisions of this Article X shall be operative only during a national emergency declared by the President of the United States or the person performing the President’s functions, or in the event of a nuclear, atomic or other attack on the United States or on a locality in which the Corporation conducts its principal business or customarily holds meetings of its Board or its stockholders, or during the existence of any other catastrophic event or similar emergency, as a result of which a quorum of the Board cannot readily be assembled for action. Said provisions in such event shall override all other By-Laws of the Corporation in conflict with any provisions of this Article X and shall remain operative during such emergency, but thereafter shall be inoperative; provided , that , all actions taken in good faith pursuant to such provisions shall thereafter remain in full force and effect unless and until revoked by action taken pursuant to the provisions of the By-Laws other than those contained in this Article X.

Section 10.02. Unavailable Directors . All Directors who are not available to perform their duties as Directors by reason of physical or mental incapacity or for any other reason or who are unwilling to perform their duties or whose whereabouts are unknown shall automatically cease to be Directors, with like effect as if such persons had resigned as Directors, so long as such unavailability continues.

Section 10.03. Authorized Number of Directors . The authorized number of Directors shall be the number of Directors remaining after eliminating those who have ceased to be Directors pursuant to Section 10.02, or the minimum number required by applicable law, whichever number is greater.

Section 10.04. Quorum . The number of Directors necessary to constitute a quorum shall be one-third of the authorized number of Directors as specified in Section 10.03, or such other minimum number as, pursuant to the law or lawful decree then in force, it is possible for the by-laws of a corporation to specify.

Section 10.05. Creation of Emergency Committee . In the event the number of Directors remaining after eliminating those who have ceased to be Directors pursuant to Section 10.02 is less than the minimum number of authorized Directors required by law, then until the appointment of additional Directors to make up such required minimum, all the powers and authorities which the Board could by law delegate, including all powers and authorities which the Board could delegate to a Committee, shall be automatically vested in an emergency committee, and the emergency committee shall thereafter manage the affairs of the Corporation pursuant to such powers and authorities and shall have all other powers and authorities as may by law or lawful decree be conferred on any person or body of persons during a period of emergency.

Section 10.06. Constitution of Emergency Committee . The emergency committee shall consist of all the Directors remaining after eliminating those who have ceased to be Directors pursuant to Section 10.02, provided that such remaining Directors are not less than three in number. In the event such remaining Directors are less than three in number, the emergency committee shall consist of three persons, who shall be the remaining Director or Directors and either one or two officers or employees of the Corporation, as the remaining Director or Directors may in writing designate. If there is no remaining Director, the emergency committee shall consist of the three most senior officers of the Corporation who are available to serve, and if and to the extent that officers are not available, the most senior employees of the Corporation. Seniority shall be determined in accordance with any designation of seniority in the minutes of the proceedings of the Board, and in the absence of such designation, shall be determined by rate of remuneration.

Section 10.07. Powers of Emergency Committee . The emergency committee, once appointed, shall govern its own procedures and shall have power to increase the number of members thereof beyond the original number, and in the event of a vacancy or vacancies therein, arising at any time, the remaining member or members of the emergency committee shall have the power to fill such vacancy or vacancies. In the event at any time after its appointment all members of the emergency committee shall die or resign or become unavailable to act for any reason whatsoever, a new emergency committee shall be appointed in accordance with the foregoing provisions of this Article X.

Section 10.08. Directors Becoming Available . Any person who has ceased to be a Director pursuant to the provisions of Section 10.02 and who thereafter becomes available to serve as a Director shall automatically become a member of the emergency committee.

Section 10.09. Election of Board of Directors . The emergency committee shall, as soon after its appointment as is practicable, take all requisite action to secure the election of Directors, and upon such election all the powers and authorities of the emergency committee shall cease.

Section 10.10. Termination of Emergency Committee . In the event, after the appointment of an emergency committee, a sufficient number of persons who ceased to be Directors pursuant to Section 10.02 become available to serve as Directors, so that if they had not ceased to be Directors as aforesaid, there would be sufficient Directors to constitute the minimum number of Directors required by law, then all such persons shall automatically be deemed to be reappointed as Directors and the powers and authorities of the emergency committee shall terminate.

Section 10.11. Nonexclusive Powers . The emergency powers provided in this Article X shall be in addition to any powers provided by applicable law.

Exhibit 10.1

PHANTOM STOCK AWARD AGREEMENT

This Phantom Stock Award Agreement (the “Agreement”) has been made as of (the “Date of Grant”) between Duke Energy Corporation , a Delaware corporation, with its principal offices in Charlotte, North Carolina (the “Corporation”), and (the “Grantee”).

RECITALS

Under the [ ] as it may, from time to time, be amended (the “Plan”), the Compensation Committee of the Board of Directors of the Corporation (the “Committee”), or its delegatee, has determined the form of this Agreement and selected the Grantee, as an Employee, to receive the award evidenced by this Agreement (the “Award”) and the Phantom Stock units and tandem Dividend Equivalents that are subject hereto. The applicable provisions of the Plan are incorporated in this Agreement by reference, including the definitions of terms contained in the Plan (unless such terms are otherwise defined herein).

AWARD

In accordance with the Plan, the Corporation has made this Award, effective as of the Date of Grant and upon the following terms and conditions:

Section 1. Number and Nature of Phantom Stock Units and Tandem Dividend Equivalents . The number of Phantom Stock units and the number of tandem Dividend Equivalents subject to this Award are each ( ). Each Phantom Stock unit, upon becoming vested before its expiration, represents a right to receive payment in the form of one (1) share of Common Stock. Each tandem Dividend Equivalent represents a right to receive cash payments equivalent to the amount of cash dividends declared and paid on one (1) share of Common Stock after the Date of Grant and before the Dividend Equivalent expires. Phantom Stock units and Dividend Equivalents are used solely as units of measurement, and are not shares of Common Stock and the Grantee is not, and has no rights as, a shareholder of the Corporation by virtue of this Award.

Section 2. Vesting of Phantom Stock Units . The specified percentage of the Phantom Stock units subject to this Award, and not previously forfeited, shall vest, with such percentage considered satisfied to the extent such Phantom Stock units have previously vested, as follows:

(a) Upon Grantee remaining continuously employed by the Corporation, including Subsidiaries, through the specified anniversary of the Date of Grant,


Vesting Percentage		Anniversary

For purposes of vesting under this Section 2(a), if such employment terminates at a time when Grantee is eligible for an immediately payable early or normal retirement benefit under the Duke Energy Retirement Cash Balance Plan or Cinergy Corp. Non-Union Employees’ Pension Plan, or under another retirement plan of the Corporation or Subsidiary which plan the Committee, or the delegatee, in its sole discretion, determines to be the functional equivalent of the Duke Energy Retirement Cash Balance Plan or Cinergy Corp. Non-Union Employees’ Pension Plan, Grantee shall be considered to have “retired” and such employment shall be considered to continue, with continued vesting under this Section 2(a), unless the Committee or its delegatee, in its sole discretion, determines that Grantee is in violation of any obligation identified in Section 3, in which case any such Phantom Stock units not previously vested, or vested by application of the following sentence shall be forfeited, or unless the Grantee dies, in which case the Phantom Stock units subject to this Award shall vest in accordance with the following sentence. If such employment terminates (i) as the result of Grantee’s death, (ii) as the result of Grantee’s permanent and total disability within the meaning of Code Section 22(e)(3), (iii) as the result of termination of such employment by the Corporation, or employing Subsidiary, other than for cause, as determined by the Committee or its delegatee, or (iv) as the direct and sole result, as determined by the Committee or its delegatee, in its sole discretion, of the divestiture of assets, a business or a company, by the Corporation or a Subsidiary, the Phantom Stock units subject to this Award shall vest at such vesting percentage determined by the Committee or its delegatee, in its sole discretion, by prorating from the above schedule to reflect only that portion of the period beginning on the Date of Grant and ending with the anniversary of the Date of Grant during which such employment continued while Grantee was entitled to payment of salary (including any period that employment was deemed to continue prior to the Grantee’s death as a result of his or her “retirement”), and any such Phantom Stock units not then or previously vested shall be forfeited.

In the event that at a time when vesting would otherwise occur under this Section 2(a), Grantee is on an employer-approved, personal leave of absence, then, unless prohibited by law, vesting shall be postponed and shall not occur unless and until Grantee returns to active service in accordance with the terms of the approved personal leave of absence and before the tenth anniversary of the Date of Grant.

(b) 100%, if, following the occurrence of a Change in Control and before the anniversary of such occurrence, such employment is terminated involuntarily, and not for cause, by the Corporation, or employing Subsidiary, or their successor, as determined by the Committee or its delegate, or their successor, in its sole discretion, other than under circumstances described in the second sentence of Section 2(a).

Section 3 . Violation of Grantee Obligation . In consideration of the continued vesting opportunity provided under Section 2 following the termination of Grantee’s continuous employment by the Corporation, including Subsidiaries, if Grantee is considered “retired”, Grantee agrees that during the period beginning with such termination of employment and ending with the fifth anniversary of the Date of Grant (“Restricted Period”), Grantee shall not (i) without the prior written consent of the Corporation, or its delegatee, become employed by, serve as a principal, partner, or member of the board of directors of, or in any similar capacity with, or otherwise provide service to, a competitor, to the detriment, of the Corporation or any Subsidiary, or (ii) violate any of Grantee’s other noncompetition obligations, or any of Grantee’s nonsolicitation or nondisclosure obligations, to the Corporation or any Subsidiary. The noncompetition obligations of clause (i) of the preceding sentence shall be limited in scope and shall be effective only to competition with the Corporation or any Subsidiary in the businesses of: production, transmission, distribution, or retail or wholesale marketing or selling of electricity; gathering, processing or transmission of natural gas, resale or arranging for the purchase or for the resale, brokering, marketing, or trading of natural gas, electricity or derivatives thereof; energy management and the provision of energy solutions; gathering, compression, treating, processing, fractionation, transportation, trading, marketing of natural gas components, including natural gas liquids; management of land holdings and development of commercial, residential and multi-family real estate projects; development and management of fiber optic communications systems; development and operation of power generation facilities, and sales and marketing of electric power and natural gas, domestically and abroad; and any other business in which the Corporation, including Subsidiaries, is engaged at the termination of Grantee’s continuous employment by the Corporation, including Subsidiaries; and within the following geographical areas (i) any country in the world where the Corporation, including Subsidiaries, has at least US$25 million in capital deployed as of termination of Grantee’s continuous employment by Corporation, including Subsidiaries; (ii) the continent of North America; (iii) the United States of America and Canada; (iv) the United States of America; (v) the states of North Carolina, South Carolina, Virginia, Georgia, Florida, Texas, California, Massachusetts, Illinois, Michigan, New York, Colorado, Oklahoma and Louisiana; (vi) the states of North Carolina, South Carolina, Texas and Colorado; (vii) following consummation of the transactions contemplated by the Merger Agreement, the states of Ohio, Colorado, Kentucky, and Indiana; and (viii) any state or states with respect to which was conducted a business of the Corporation, including Subsidiaries, which business constituted a substantial portion of Grantee’s employment. The Corporation and Grantee intend the above restrictions on competition in geographical areas to be entirely severable and independent, and any invalidity or enforceability of this provision with respect to any one or more of such restrictions, including areas, shall not render this provision unenforceable as applied to any one or more of the other restrictions, including areas. If any part of this provision is held to be unenforceable because of the duration, scope or area covered, the Corporation and Grantee agree to modify such part, or that the court making such holding shall have the power to modify such part, to reduce its duration, scope or area, including deletion of specific words and phrases, i.e.,

“blue penciling”, and in its modified, reduced or blue pencil form, such part shall become enforceable and shall be enforced. Nothing in Section 3 shall be construed to prohibit Grantee being retained during the Restricted Period in a capacity as an attorney licensed to practice law, or to restrict Grantee providing advice and counsel in such capacity, in any jurisdiction where such prohibition or restriction is contrary to law.

Section 4. Forfeiture/Expiration . Any Phantom Stock unit subject to this Award shall be forfeited upon the termination of Grantee’s continuous employment by the Corporation, including Subsidiaries, from the Date of Grant, except to the extent otherwise provided in Section 2, and, if not previously vested and paid, or deferred, or forfeited, shall expire immediately before the tenth anniversary of the Date of Grant. Any Dividend Equivalent subject to this Award shall expire at the time the unit of Phantom Stock with respect to which the Dividend Equivalent is in tandem (i) is vested and paid, or deferred, (ii) is forfeited, or (iii) expires.

Section 5. Dividend Equivalent Payments . Payments with respect to any Dividend Equivalent subject to this Award shall be paid in cash to the Grantee as soon as practicable following any time cash dividends are declared and paid with respect to the Common Stock on or after the Date of Grant and before the Dividend Equivalent expires. However, should the timing of a particular payment under Section 6 to the Grantee in shares of Common Stock in conjunction with the timing of a particular cash dividend declared and paid on Common Stock be such that the Grantee receives such shares without the right to receive such dividend and the Grantee would not otherwise be entitled to payment under the expiring Dividend Equivalent with respect to such dividend, the Grantee, nevertheless, shall be entitled to such payment. Dividend Equivalent payments shall be subject to withholding for taxes.

Section 6. Payment of Phantom Stock Units . Payment of Phantom Stock units subject to this Award shall be made to the Grantee as soon as practicable following the time such units become vested in accordance with Section 2 prior to their expiration but in no event later than 30 days following such vesting, except to the extent deferred by Grantee in accordance with such procedure as the Committee, or its delegatee, may prescribe. Payment shall be subject to withholding for taxes. Payment shall be in the form of one (1) share of Common Stock for each full vested unit of Phantom Stock and any fractional vested unit of Phantom Stock shall not be payable unless and until subsequent vesting results in a full unit of Phantom Stock becoming vested. Notwithstanding the foregoing, to the extent that Grantee fails to timely tender to the Corporation sufficient cash to satisfy withholding for tax requirements, the number of shares of Common Stock that would otherwise be paid (valued at Fair Market Value on the date the respective unit of Phantom Stock became vested, or if later, payable) shall be reduced by the Committee, or its delegatee, in its sole discretion, to fully satisfy such requirements. In the event that payment, after any such reduction in the number of shares of Common Stock to satisfy withholding for tax requirements, would be less than ten (10) shares of Common Stock, then, if so determined by the Committee, or its delegatee, in its sole discretion, payment, instead of being made in shares of Common Stock, shall be made in a cash amount equal in value to the shares of Common Stock that would otherwise be paid, valued at Fair Market Value on the date the respective Phantom Stock units became vested, or if later, payable.

Section 7. No Employment Rights . Nothing in this Agreement or in the Plan shall confer upon the Grantee the right to continued employment by the Corporation or any Subsidiary, or affect the right of the Corporation or any Subsidiary to terminate the employment or service of the Grantee at any time for any reason.

Section 8. Nonalienation . The Phantom Stock units and Dividend Equivalents subject to this Award are not assignable or transferable by the Grantee. Upon any attempt to transfer, assign, pledge, hypothecate, sell or otherwise dispose of any such Phantom Stock unit or Dividend Equivalent, or of any right or privilege conferred hereby, or upon the levy of any attachment or similar process upon such Phantom Stock unit or Dividend Equivalent, or upon such right or privilege, such Phantom Stock unit or Dividend Equivalent or right or privilege, shall immediately become null and void.

Section 9. Determinations . Determinations by the Committee, or its delegatee, shall be final and conclusive with respect to the interpretation of the Plan and this Agreement.

Section 10. Governing Law . The validity and construction of this Agreement shall be governed by the laws of the state of Delaware applicable to transactions taking place entirely within that state.

Section 11. Certain Definitions . The following shall apply notwithstanding anything in this Agreement or the Plan to the contrary. The term “Change in Control” has the meaning given such term in Section 12.2 of the Duke Energy Corporation 1998 Long-Term Incentive Plan, as amended; provided , however , that no Change in Control shall be deemed to occur in respect of any transactions or events resulting from the separation of the Corporation’s gas and electric businesses. The term “Merger Agreement” shall mean the Agreement and Plan of Merger dated as of May 8, 2005 by and among the Duke Energy Corporation, Cinergy Corp., Deer Holding Corp., Deer Acquisition Corp. and Cougar Acquisition Corp., as it may be amended. The term “Subsidiaries” shall mean any entity that is wholly owned, directly or indirectly, by the Corporation, or any other affiliate of the Corporation that is so designated, from time to time, by the Committee. For purposes of this Agreement, the Grantee shall be considered to be eligible for an early retirement benefit under the Cinergy Corp. Non-Union Employees’ Pension Plan only if the Grantee has attained age 55 and satisfied all other applicable requirements of such plan.

Section 12. Conflicts with Plan, Correction of Errors, and Grantee’s Consent . In the event that any provision of this Agreement conflicts in any way with a provision of the Plan, such Plan provision shall be controlling and the applicable provision of this Agreement shall be without force and effect to the extent necessary to cause such Plan provision to be controlling. In the event that, due to administrative error, this Agreement does not accurately reflect a Phantom Stock Award properly granted to Grantee

pursuant to the Plan, the Corporation, acting through its Executive Compensation and Benefits Department, reserves the right to cancel any erroneous document and, if appropriate, to replace the cancelled document with a corrected document. It is the intention of the Corporation and the Grantee that this Award not result in unfavorable tax consequences to Grantee under Code Section 409A. Accordingly, Grantee consents to such amendment of this Agreement as the Corporation may reasonably make in furtherance of such intention, and the Corporation shall promptly provide, or make available to, Grantee a copy of any such amendment.

Notwithstanding the foregoing, this Award is subject to cancellation by the Corporation in its sole discretion unless the Grantee, by not later than , has signed a duplicate of this Agreement, in the space provided below, and returned the signed duplicate to the Executive Compensation and Benefits Department - Phantom Stock [(ST05F)], Duke Energy Corporation, P. O. Box 1007, Charlotte, NC 28201-1007, which, if, and to the extent, permitted by the Executive Compensation and Benefits Department, may be accomplished by electronic means.

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed and granted in Charlotte, North Carolina, to be effective as of the Date of Grant.

Acceptance of Phantom Stock Award

IN WITNESS OF Grantee’s acceptance of this Award and Grantee’s agreement to be bound by the provisions of this Agreement and the Plan, Grantee has signed this Agreement this day of .

Grantee’s Signature

(print name)

(social security number)

(address)

Exhibit 10.2

PERFORMANCE AWARD AGREEMENT

This Performance Award Agreement (the “Agreement”) has been made as of (the “Date of Grant”) between Duke Energy Corporation , a Delaware corporation, with its principal offices in Charlotte, North Carolina (the “Corporation”), and (the “Grantee”).

RECITALS

Under the [ ] as it may, from time to time, be amended (the “Plan”), the Compensation Committee of the Board of Directors of the Corporation (the “Committee”), or its delegatee, has determined the form of this Agreement and selected the Grantee, as an Employee, to receive the award evidenced by this Agreement (the “Award”) and the Performance Shares and tandem Dividend Equivalents that are subject hereto. The applicable provisions of the Plan are incorporated in this Agreement by reference, including the definitions of terms contained in the Plan (unless such terms are otherwise defined herein).

AWARD

In accordance with the Plan, the Corporation has made this Award, effective as of the Date of Grant and upon the following terms and conditions:

Section 1. Number and Nature of Performance Shares and Tandem Dividend Equivalents . The number of Performance Shares and the number of tandem Dividend Equivalents subject to this Award are each ( ) . The number of such Performance Shares that may become vested upon determination of achievement of the Performance Goal at Target, as provided in Section 2(a), is ( ). Each Performance Share, upon becoming vested before its expiration, represents a right to receive payment in the form of one (1) share of Common Stock. Each tandem Dividend Equivalent, after its tandem Performance Share vests, represents a right to receive a cash payment equivalent in amount to the aggregate cash dividends declared and paid on one (1) share of Common Stock for the period beginning on the Date of the Award and ending on the date the vested, tandem Performance Share is paid or deferred. Performance Shares and Dividend Equivalents are used solely as units of measurement, and are not shares of Common Stock and the Grantee is not, and has no rights as, a shareholder of the Corporation by virtue of this Award.

Section 2. Vesting of Performance Shares . (a) Provided Grantee’s continuous employment by the Corporation, including Subsidiaries, has not terminated, or as otherwise provided in Sections 2(b) or 2(c), Performance Shares subject to this Award

shall become vested upon the written determination by the Committee, or its delegatee, in its sole discretion, of the achievement of the Performance Goal, which is the Corporation’s Total Shareholder Return (“TSR”) percentile ranking among Standard & Poor’s 500 companies, with higher percentile ranking from more positive/less negative TSR, for the period beginning and ending (“Performance Period”), at, or above, the ^th percentile, in accordance with the applicable vesting percentage specified for such percentile ranking in the following schedule:


Percentile Ranking		Vesting Percentage

When such determination is of a percentile ranking between those specified, the Committee, or its delegatee, in its sole discretion, shall interpolate to determine the applicable vesting percentage.

and such Performance Shares that do not so become vested shall be forfeited. Notwithstanding the foregoing, should the Committee, or its delegatee, in its sole discretion, determine that the Corporation’s TSR percentile ranking among Standard & Poor’s 500 Utilities Index companies, with higher percentile ranking for more positive/less negative TSR, for the Performance Period, was lower than the ^th percentile, then the Committee, or its delegatee, in its sole discretion, may reduce, or eliminate in its entirety, any vesting of Performance Shares subject to this Award that would have otherwise occurred. For purposes of this Agreement, TSR means the change in fair market value over a specified period of time, expressed as a percentage, of an initial investment in specified common stock, with dividends reinvested, all as determined utilizing such methodology as the Committee, or its delegatee, shall approve, with the average TSR for the final 30 business days of the period considered the TSR at the end of the period and with Common Stock valued for the beginning of the period as of the last preceding business day. In the event that the Committee, or its delegatee, determines that a separation of the Corporation’s gas and electric businesses has occurred during the Performance Period, then, beginning with such occurrence, measurement of the Corporation’s TSR shall be based upon two equity components, weighed 50% each, consisting of (i) the Corporation’s post-separation equity, and (ii) the equity of the separated entity, or entities, or successor(s), using the initial, respective equity value at such occurrence as the basis of measurement, all as determined by the Committee, or its delegatee, in its sole discretion.

(b) In the event that, prior to the date that the determination of the achievement of the Performance Goal is made, the Grantee’s continuous employment by the Corporation, including Subsidiaries, terminates, the Performance Shares subject to this Award are thereupon forfeited, except that if such employment terminates (i) at a time when Grantee is eligible for an immediately payable early or normal retirement benefit under the Duke Energy Retirement Cash Balance Plan or Cinergy Corp. Non-Union Employees’ Pension Plan, or under another retirement plan of the Corporation or a Subsidiary which plan the Committee, or its delegatee, in its sole discretion, determines to be the functional equivalent of the Duke Energy Retirement Cash Balance Plan or the

Cinergy Corp. Non-Union Employees’ Pension Plan (“Functional Equivalent Plan”), unless the Committee, or its delegatee, in its sole discretion, determines that Grantee is in violation of any obligation identified in Section 3, (ii) as the result of the Grantee’s death, (iii) as the result of the Grantee’s permanent and total disability within the meaning of Code Section 22(e)(3), (iv) as the result of the termination of such employment by the Corporation, or employing Subsidiary, other than for cause, as determined by the Corporation or employing Subsidiary, in its sole discretion, or (v) as the direct and sole result, as determined by the Corporation, or employing Subsidiary, in its sole discretion, of the divestiture of assets, a business, or a company, by the Corporation or a Subsidiary, the Performance Shares subject to this Award shall vest upon such determination of the achievement of the Performance Goal, at such vesting percentage determined by the Committee, or its delegatee, in its sole discretion, by prorating on the basis of the portion of the Performance Period that such employment continued while Grantee was entitled to payment of salary (unless such termination occurs after the end of the Performance Period, in which event the number of Performance Shares earned, if any, shall not be prorated).

In the event that Grantee is on an employer-approved, personal leave of absence on the date that the determination of the achievement of the Performance Goal is made, then, unless prohibited by law, vesting shall be postponed and shall not occur unless and until Grantee returns to active service in accordance with the terms of the approved personal leave of absence and before the tenth anniversary of the Date of Grant. Further, in the event that such determination is made and during any portion of the Performance Period the Grantee was on employer-approved, personal leave of absence, the applicable vesting percentage shall be determined by the Committee, or its delegatee, in its sole discretion, to reflect only that portion of the Performance Period during which such employment continued while the Grantee was entitled to payment of salary.

(c) In the event that a Change in Control occurs before the Performance Period has ended and (i) before the Grantee’s continuous employment by the Corporation, including Subsidiaries, terminates, or (ii) after such employment terminates during the Performance Period, (A) at a time when Grantee is eligible for an immediately payable, early or normal retirement benefit under the Duke Energy Retirement Cash Balance Plan or Cinergy Corp. Non-Union Employees’ Pension Plan, or Functional Equivalent Plan, unless the Corporation, in its sole discretion, determines that Grantee is in violation of any obligation identified in Section 3, or (B) as the result of an event listed in items (ii) – (v) of the first sentence of Section 2(b), the Performance Shares subject to this Award shall vest upon such occurrence, at such vesting percentage determined by the Committee, or its delegatee, in its sole discretion, by prorating down, assuming a TSR at the percentile (i.e., target performance), on the basis of the portion of the Performance Period that has elapsed prior to the time of such occurrence (or such earlier termination of employment), and the remaining Performance Shares shall be forfeited, irrespective of any subsequent determination of the achievement of the Performance Goal.

Section 3 . Violation of Grantee Obligation . In consideration of the continued vesting opportunity provided under Section 2 following the termination of Grantee’s continuous employment by the Corporation, including Subsidiaries, if, at any time of such termination of employment, Grantee is eligible for an immediately payable early or normal retirement benefit under the Duke Energy Retirement Cash Balance Plan or Cinergy Corp. Non-Union Employees’ Pension Plan or Functional Equivalent Plan, Grantee agrees that during the period beginning with such termination of employment and ending with the third anniversary of the Date of Grant (“Restricted Period”), Grantee shall not (i) without the prior written consent of the Corporation, or its delegatee, become employed by, serve as a principal, partner, or member of the board of directors of, or in any similar capacity with, or otherwise provide service to, a competitor, to the detriment, of the Corporation or any Subsidiary, or (ii) violate any of Grantee’s other noncompetition obligations, or any of Grantee’s nonsolicitation or nondisclosure obligations, to the Corporation or any Subsidiary. The noncompetition obligations of clause (i) of the preceding sentence shall be limited in scope and shall be effective only to competition with the Corporation or any Subsidiary in the businesses of: production, transmission, distribution, or retail or wholesale marketing or selling of electricity; gathering, processing or transmission of natural gas, resale or arranging for the purchase or for the resale, brokering, marketing, or trading of natural gas, electricity or derivatives thereof; energy management and the provision of energy solutions; gathering, compression, treating, processing, fractionation, transportation, trading, marketing of natural gas components, including natural gas liquids; management of land holdings and development of commercial, residential and multi-family real estate projects; development and management of fiber optic communications systems; development and operation of power generation facilities, and sales and marketing of electric power and natural gas, domestically and abroad; and any other business in which the Corporation, including Subsidiaries, is engaged at the termination of Grantee’s continuous employment by the Corporation, including Subsidiaries; and within the following geographical areas (i) any country in the world where the Corporation, including Subsidiaries, has at least US$25 million in capital deployed as of termination of Grantee’s continuous employment by Corporation, including Subsidiaries; (ii) the continent of North America; (iii) the United States of America and Canada; (iv) the United States of America; (v) the states of North Carolina, South Carolina, Virginia, Georgia, Florida, Texas, California, Massachusetts, Illinois, Michigan, New York, Colorado, Oklahoma and Louisiana; (vi) the states of North Carolina, South Carolina, Texas and Colorado; (vii) following consummation of the transactions contemplated by the Merger Agreement, the states of Ohio, Colorado, Kentucky, and Indiana; and (viii) any state or states with respect to which was conducted a business of the Corporation, including Subsidiaries, which business constituted a substantial portion of Grantee’s employment. The Corporation and Grantee intend the above restrictions on competition in geographical areas to be entirely severable and independent, and any invalidity or enforceability of this provision with respect to any one or more of such restrictions, including areas, shall not render this provision unenforceable as applied to any one or more of the other restrictions, including areas. If any part of this provision is held to be unenforceable because of the duration, scope or area covered, the Corporation and Grantee agree to modify such part, or that the court making such holding shall have the

power to modify such part, to reduce its duration, scope or area, including deletion of specific words and phrases, i.e., “blue penciling”, and in its modified, reduced or blue pencil form, such part shall become enforceable and shall be enforced. Nothing in Section 3 shall be construed to prohibit Grantee being retained during the Restricted Period in a capacity as an attorney licensed to practice law, or to restrict Grantee providing advice and counsel in such capacity, in any jurisdiction where such prohibition or restriction is contrary to law.

Section 4. Forfeiture/Expiration . Any Performance Share subject to this Award shall be forfeited upon the termination of the Grantee’s continuous employment by the Corporation, including Subsidiaries, from the Date of Grant, except to the extent otherwise provided in Section 2, and, if not previously vested and paid, or deferred, or forfeited, shall expire immediately before the tenth (10 ^th ) anniversary of the Date of Grant. Any Dividend Equivalent subject to this Award shall expire at the time its tandem Performance Share (i) is vested and paid, or deferred, (ii) is forfeited, or (iii) expires.

Section 5. Dividend Equivalent Payment . Payment with respect to any Dividend Equivalent subject to this Award that is in tandem with a Performance Share that is vested and paid shall be paid in cash to the Grantee as soon as practicable following the vesting and payment of the Performance Share, or, if the vested Performance Share is deferred by Grantee as provided in Section 6, payment with respect to the tandem Dividend Equivalent shall likewise be deferred. The Dividend Equivalent payment amount shall equal the aggregate cash dividends declared and paid with respect to one (1) share of Common Stock for the period beginning on the Date of the Award and ending on the date the vested, tandem Performance Share is paid or deferred and before the Dividend Equivalent expires. However, should the timing of a particular payment under Section 6 to the Grantee in shares of Common Stock in conjunction with the timing of a particular cash dividend declared and paid on Common Stock be such that the Grantee receives such shares without the right to receive such dividend and the Grantee would not otherwise be entitled to payment under the expiring Dividend Equivalent with respect to such dividend, the Grantee, nevertheless, shall be entitled to such payment. Dividend Equivalent payments shall be subject to withholding for taxes.

Section 6. Payment of Performance Shares . Payment of Performance Shares subject to this Award shall be made to the Grantee as soon as practicable following the time such Performance Shares become vested in accordance with Section 2 prior to their expiration but in no event later than 30 days following such vesting event, except to the extent deferred by the Grantee in accordance with such procedure as the Committee, or its designee, may prescribe. Payment shall be subject to withholding for taxes. Payment shall be in the form of one (1) share of Common Stock for each full vested Performance Share, and any fractional vested Performance Share shall be rounded up to the next whole share for purposes of both vesting under Section 2 and payment under Section 6. Notwithstanding the foregoing, to the extent Grantee fails to timely tender to the Corporation sufficient cash to satisfy withholding for tax requirements, such unsatisfied withholding shall be applied to reduce the number of

shares of Common Stock that would otherwise be paid (valued at Fair Market Value on the date the respective Performance Shares became vested). In the event that payment, after any such reduction in the number of shares of Common Stock to satisfy withholding for tax requirements, would be for less than ten (10) shares of Common Stock, then, if so determined by the Committee, or its delegatee, in its sole discretion, payment, instead of being made in shares of Common Stock, shall be made in a cash amount equal in value to the shares of Common Stock that would otherwise be paid, valued at Fair Market Value on the date the respective Performance Shares became vested.

Section 7. No Employment Right . Nothing in this Agreement or in the Plan shall confer upon the Grantee the right to continued employment with the Corporation or any Subsidiary, or affect the right of the Corporation or any Subsidiary to terminate the employment or service of the Grantee at any time for any reason.

Section 8. Nonalienation . The Performance Shares and Dividend Equivalents subject to this Award are not assignable or transferable by Grantee. Upon any attempt to transfer, assign, pledge, hypothecate, sell or otherwise dispose of any such Performance Share or Dividend Equivalent, or of any right or privilege conferred hereby, or upon the levy of any attachment or similar process upon such Performance Share or Dividend Equivalent, or upon such right or privilege, such Performance Share or Dividend Equivalent, or such right or privilege, shall immediately become null and void.

Section 9. Determinations . Determinations by the Committee, or its delegatee, shall be final and conclusive with respect to the interpretation of the Plan and this Agreement.

Section 10. Governing Law . This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Delaware applicable to transactions that take place entirely within that state.

Section 12 . Conflicts with Plan, Correction of Errors, and Grantee’s Consent . In the event that any provision of this Agreement conflicts in any way with a provision of the Plan, such Plan provision shall be controlling and the applicable provision of this Agreement shall be without force and effect to the extent necessary to cause such Plan provision to be controlling. In the event that, due to administrative error, this Agreement does not accurately reflect an Award properly granted to the Grantee pursuant to the Plan, the Corporation, acting through its Executive Compensation and Benefits Department, reserves the right to cancel any erroneous document and, if appropriate, to replace the cancelled document with a corrected document. It is the intention of the Corporation and the Grantee that this Award not result in unfavorable tax consequences to Grantee under Code Section 409A. Accordingly, Grantee consents to such amendment of this Agreement as the Corporation may reasonably make in furtherance of such intention, and the Corporation shall promptly provide, or make available to, Grantee a copy of any such amendment.

Notwithstanding the foregoing, this Award is subject to cancellation by the Corporation in its sole discretion unless the Grantee, by not later than , has signed a duplicate of this Agreement, in the space provided below, and returned the signed duplicate to the Executive Compensation and Benefits Department - Performance Award [(ST05F)], Duke Energy Corporation, P. O. Box 1007, Charlotte, NC 28201-1007, which, if, and to the extent, permitted by the Executive Compensation and Benefits Department, may be accomplished by electronic means.

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed and granted in Charlotte, North Carolina, to be effective as of the Date of Grant.

Acceptance of Performance Award

IN WITNESS OF Grantee’s acceptance of this Performance Award and Grantee’s agreement to be bound by the provisions of this Agreement and the Plan, Grantee has signed this Agreement this day of .

Grantee’s Signature

(print name)

(social security number)

(address)

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Current Report on Form 8-K under the Securities Exchange Act of 1934 of Duke Energy Corporation dated April 3, 2006 of (1) our report dated February 17, 2006, relating to the financial statements and financial statement schedule of Cinergy Corp. (which report expresses an unqualified opinion and includes an explanatory paragraph referring to Cinergy Corp.’s adoption of Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” effective December 31, 2005, Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations” effective January 1, 2003, Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities” effective July 1, 2003 and the fair value recognition provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” effective January 1, 2003) appearing in the Annual Report on Form 10-K of Cinergy Corp. for the year ended December 31, 2005 and (2) our report dated February 17, 2006 relating to management’s report on the effectiveness of internal control over financial reporting, appearing in the Annual Report on Form 10-K of Cinergy Corp. for the year ended December 31, 2005 and incorporated by reference in Registration Statement No. 333-126318 of Duke Energy Holding Corporation under the Securities Act of 1933.

/s/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio

April 3, 2006

Exhibit 99.1

LOGO


April 3, 2006	Media Contact:	Peter Sheffield
	Phone:	980/373-4503
	24-Hour:	704/382-8333

	Analyst Contact:	Julie Dill
	Phone:	980/373-4332

Duke Energy, Cinergy Complete Merger

CHARLOTTE, N.C. – Duke Energy and Cinergy announced today the completion of their planned merger, effective April 3, 2006.

The combination creates one of North America’s largest energy companies with approximately $36 billion in market capitalization, assets totaling more than $70 billion, and 5.5 million retail electric and gas customers in Ohio, Kentucky, Indiana, North Carolina, South Carolina and Ontario, Canada. The company will be known as Duke Energy.

With the close, Cinergy stockholders receive 1.56 shares of new Duke Energy common stock for each share of Cinergy common stock. Duke Energy stock will continue to trade on the New York Stock Exchange under the ticker symbol DUK. Both Duke Energy and Cinergy shareholders holding physical stock certificates will receive share exchange instructions in the next few weeks.

“Today we begin an exciting new chapter in Duke Energy’s history,” said Paul M. Anderson, chairman of the board and formerly chief executive officer. “Our newly combined power business now joins our natural gas businesses to rank among the largest in North America. Investors and customers alike will share in the efficiencies, cost savings and opportunities that our greater size and scope provide.”

LOGO

- more -

“We’ve worked hard to reach this important milestone and our team is prepared to hit the ground running to deliver on the promise of the new Duke Energy,” said James E. Rogers, president and chief executive officer, formerly Cinergy chairman and chief executive officer. “The merger positions Duke Energy to meet future energy challenges and to grow.

“We’ll stay focused on delivering merger cost savings and solid returns for our shareholders while maintaining the quality and reliability of service our customers expect and deserve,” Rogers added.

The merger was announced May 9, 2005, and received all regulatory and shareholder approvals in less than 11 months. The combination was approved by both companies’ shareholders March 10, 2006, and received approvals from regulators in five states — Ohio, Kentucky, Indiana, North Carolina and South Carolina – and from the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. The companies also satisfied Federal Trade Commission and U.S. Department of Justice review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Effective today, Duke Energy’s U.S. franchised electric and gas utilities – formerly Duke Power in the Carolinas; Cincinnati Gas & Electric in Ohio; Union Light, Heat and Power in Kentucky; and PSI Energy in Indiana – will be known as Duke Energy.

Analysts’ webcast

As previously announced, Anderson, Rogers, and David Hauser, group executive and chief financial officer, will discuss the closing during a luncheon with analysts today, at noon ET, at the Ritz Carlton at Battery Park in New York City. The discussion will be webcast and can be accessed via the Investor’s Section of Duke Energy’s Web site:

LOGO

- more -

- 2 -

www.duke-energy.com/investors . A replay and transcript also will be available by accessing the Investor’s Section of the company’s Web site. You also may call in to the discussion by dialing 800/967-7135 in the United States or 719/457-2626 outside the United States. The confirmation code is 5129647. Replay numbers are 888/203-1112 in the United States and 719/457-0820 outside the United States with a replay code of 5129647.

Duke Energy Fact Sheet

http://www.duke-energy.com/about/fact_sheet.pdf

Duke Energy is a diversified energy company with a portfolio of natural gas and electric businesses, both regulated and unregulated, and an affiliated real estate company. Duke Energy supplies, delivers and processes energy for customers in the Americas. Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: http:// www.duke-energy.com .

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. Although Duke Energy believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors could cause actual results to differ materially from those in the forward-looking statements; for example problems may arise in successfully integrating the businesses of the companies, which may result in the company not operating as effectively and efficiently as expected; the company may be unable to achieve cost-cutting synergies or it may take longer than expected to achieve those synergies; the transaction may involve unexpected costs or unexpected liabilities, or the effects of purchase accounting may be different from the company’s expectations; the credit ratings of the company or its subsidiaries may be different than expected; the

LOGO

- more -

- 3 -

industry may be subject to future regulatory or legislative actions that could adversely affect the company; and the company may be adversely affected by other economic, business, and/or competitive factors; and other factors discussed in Duke Energy’s 2005 Form 10-K and other filings with the Securities and Exchange Commission.

LOGO

###

- 4 -

Exhibit 99.2

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Cinergy Corp.

Cincinnati, Ohio

We have audited the accompanying consolidated balance sheets and statements of capitalization of Cinergy Corp. and subsidiaries as of December 31, 2005 and 2004, 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, 2005. Our audits also included the financial statement schedule included in Item 15 of this Annual Report. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cinergy Corp. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the financial statements, in 2005, Cinergy Corp. adopted Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.” In 2003, Cinergy Corp. adopted Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations;” Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities;” and the fair value recognition provisions of SFAS No. 123 “Accounting for Stock-Based Compensation.”

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

LOGO

Cincinnati, Ohio

February 17, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of The Cincinnati Gas & Electric Company

Cincinnati, Ohio

We have audited the accompanying consolidated balance sheets and statements of capitalization of The Cincinnati Gas & Electric Company and subsidiaries as of December 31, 2005 and 2004, 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, 2005. Our audits also included the financial statement schedule included in Item 15 of this Annual Report. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements present fairly, in all material respects, the financial position of The Cincinnati Gas & Electric Company and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the financial statements, in 2005, The Cincinnati Gas & Electric Company adopted Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.” In 2003, The Cincinnati Gas & Electric Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.”

LOGO

Cincinnati, Ohio

February 17, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of PSI Energy, Inc.

Plainfield, IN

We have audited the accompanying consolidated balance sheets and statements of capitalization of PSI Energy, Inc. and subsidiary as of December 31, 2005 and 2004, 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, 2005. Our audits also included the financial statement schedule included in Item 15 of this Annual Report. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PSI Energy, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the financial statements, in 2005, PSI Energy, Inc. adopted Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.” In 2003, PSI Energy, Inc. adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.”

LOGO

Cincinnati, Ohio

February 17, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of The Union Light, Heat and Power Company

Cincinnati, Ohio

We have audited the accompanying balance sheets and statements of capitalization of The Union Light, Heat and Power Company as of December 31, 2005 and 2004, and the related statements of income, changes in common stock equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule included in Item 15 of this Annual Report. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

In our opinion, such financial statements present fairly, in all material respects, the financial position of the Union Light, Heat and Power Company as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the financial statements, in 2005, The Union Light, Heat and Power Company adopted Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.” In 2003, The Union Light, Heat and Power Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.”

LOGO

Cincinnati, Ohio

February 17, 2006

CINERGY CORP.

AND SUBSIDIARY COMPANIES

CINERGY CORP.

CONSOLIDATED STATEMENTS OF INCOME


	2005			2004			2003
	*(in thousands, except per share amounts)*
Operating Revenues (Note 1(f))
Electric	$	4,070,972		$	3,510,525		$	3,297,180
Gas		816,781			783,316			835,507
Other (Note 1(f)( iii ))		522,095			333,988			230,926

Total Operating Revenues		5,409,848			4,627,829			4,363,613

Operating Expenses
Fuel, emission allowances, and purchased power		1,535,088			1,233,311			1,127,078
Gas purchased		513,690			428,087			503,834
Costs of fuel resold		443,132			280,891			196,974
Operation and maintenance		1,348,554			1,230,618			1,080,283
Depreciation		510,438			453,765			392,672
Taxes other than income taxes		272,009			253,934			249,746

Total Operating Expenses		4,622,911			3,880,606			3,550,587

Operating Income		786,937			747,223			813,026

Equity in Earnings of Unconsolidated Subsidiaries		33,777			48,249			15,201
Miscellaneous Income (Expense) - Net		51,001			(3,577	)		38,811
Interest Expense		283,353			275,000			270,213
Preferred Dividend Requirement of Subsidiary Trust (Note 5(b))		—			—			11,940
Preferred Dividend Requirements of Subsidiaries		2,643			3,432			3,433

Income Before Taxes		585,719			513,463			581,452

Income Taxes (Note 12)		95,597			103,064			144,483

Income Before Discontinued Operations and Cumulative Effect of Changes in Accounting Principles		490,122			410,399			436,969

Discontinued operations, net of tax (Note 16)		2,575			(9,531	)		6,341
Cumulative effect of changes in accounting principles, net of tax (Note 1(s)( iv ))		(3,044	)		—			26,462

Net Income	$	489,653		$	400,868		$	469,772


Average Common Shares Outstanding - Basic		198,199			180,965			176,535

Earnings Per Common Share - Basic (Note 19)
Income before discontinued operations and cumulative effect of changes in accounting principles	$	2.47		$	2.27		$	2.47
Discontinued operations, net of tax (Note 16)		0.01			(0.05	)		0.04
Cumulative effect of changes in accounting principles, net of tax (Note 1(s)( iv ))		(0.01	)		—			0.15

Net Income	$	2.47		$	2.22		$	2.66

Average Common Shares Outstanding - Diluted		199,172			183,531			178,473

Earnings Per Common Share - Diluted (Note 19)
Income before discontinued operations and cumulative effect of changes in accounting principles	$	2.46		$	2.23		$	2.45
Discontinued operations, net of tax (Note 16)		0.01			(0.05	)		0.03
Cumulative effect of changes in accounting principles, net of tax (Note 1(s)( iv ))		(0.01	)		—			0.15

Net Income	$	2.46		$	2.18		$	2.63

Cash Dividends Declared Per Common Share	$	1.92		$	1.88		$	1.84

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

CINERGY CORP.

CONSOLIDATED BALANCE SHEETS


	December 31
	2005		2004
	*(dollars in thousands)*
ASSETS
Current Assets
Cash and cash equivalents	$	146,056	$	162,526
Notes receivable, current		287,502		214,513
Accounts receivable less accumulated provision for doubtful accounts of $4,767 at December 31, 2005, and $5,059 at December 31, 2004 (Note 5(c))		1,371,909		1,036,119
Fuel, emission allowances, and supplies (Note 1(i))		589,152		442,951
Energy risk management current assets (Note 1(m)( i ))		991,252		381,146
Prepayments and other		408,975		173,203

Total Current Assets		3,794,846		2,410,458

Property, Plant, and Equipment - at Cost
Utility plant in service (Note 21 and 22)		10,714,000		10,076,468
Construction work in progress		501,294		333,687

Total Utility Plant		11,215,294		10,410,155
Non-regulated property, plant, and equipment (Note 22)		4,775,570		4,549,128
Accumulated depreciation (Note 1(j)( i ))		5,477,782		5,147,556

Net Property, Plant, and Equipment		10,513,082		9,811,727

Other Assets
Regulatory assets (Note 1(e))		1,069,854		1,030,333
Investments in unconsolidated subsidiaries		479,466		513,675
Energy risk management non-current assets (Note 1(m)( i ))		306,959		138,787
Notes receivable, non-current		171,325		193,857
Other investments		128,150		125,367
Goodwill and other intangible assets		169,081		118,619
Restricted funds held in trust		301,800		358,006
Other		185,062		117,870

Total Other Assets		2,811,697		2,596,514

Assets of Discontinued Operations (Note 16)		34,215		163,618

Total Assets	$	17,153,840	$	14,982,317

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

CINERGY CORP.

CONSOLIDATED BALANCE SHEETS


	December 31
	2005			2004
	*(dollars in thousands)*
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	1,879,567		$	1,344,780
Accrued taxes		219,469			217,106
Accrued interest		64,725			54,473
Notes payable and other short-term obligations (Note 7)		923,600			948,327
Long-term debt due within one year		352,589			219,967
Energy risk management current liabilities (Note 1(m)( i ))		1,010,585			310,741
Other		193,323			168,734

Total Current Liabilities		4,643,858			3,264,128

Non-Current Liabilities
Long-term debt (Note 6)		4,393,442			4,227,475
Deferred income taxes (Note 12)		1,523,070			1,587,557
Unamortized investment tax credits		90,852			99,723
Accrued pension and other postretirement benefit costs (Note 11)		729,221			688,277
Regulatory liabilities (Note 1(e))		546,047			557,419
Energy risk management non-current liabilities (Note 1(m)( i ))		338,514			127,340
Other		250,822			219,439

Total Non-Current Liabilities		7,871,968			7,507,230

Liabilities of Discontinued Operations (Note 16)		28,876			32,219


Commitments and Contingencies (Note 13)

Total Liabilities		12,544,702			10,803,577

Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption		31,743			62,818

Common Stock Equity (Note 3)
Common stock - $.01 par value; authorized shares - 600,000,000; issued shares – 199,707,338 at December 31, 2005, and 187,653,506 at December 31, 2004; outstanding shares – 199,565,684 at December 31, 2005, and 187,524,229 at December 31, 2004		1,997			1,877
Paid-in capital		2,982,625			2,559,715
Retained earnings		1,721,716			1,613,340
Treasury shares at cost – 141,654 shares at December 31, 2005, and 129,277 shares at December 31, 2004		(4,823	)		(4,336	)
Accumulated other comprehensive loss (Note 20)		(124,120	)		(54,674	)

Total Common Stock Equity		4,577,395			4,115,922

Total Liabilities and Shareholders’ Equity	$	17,153,840		$	14,982,317

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

CINERGY CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY


	Common Stock		Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Common Stock Equity
	*(dollars in thousands, except per share amounts)*
2003
Beginning balance (168,663,115 shares)	$	1,687	$	1,918,136	$	1,403,453		$	—		$	(29,800	)	$	3,293,476

Comprehensive income:
Net income						469,772									469,772
Other comprehensive income (loss), net of tax effect of $11,700 (Note 20)
Foreign currency translation adjustment, net of reclassification adjustments (Note 1(t))												10,528			10,528
Minimum pension liability adjustment												(33,846	)		(33,846	)
Unrealized gain on investment trusts												6,757			6,757
Cash flow hedges												1,526			1,526

Total comprehensive income															454,737

Issuance of common stock - net (9,775,254 shares)		97		269,977											270,074
Treasury shares purchased (101,515 shares – net)									(3,255	)					(3,255	)
Dividends on common stock ($1.84 per share)						(322,371	)								(322,371	)
Other				7,872		149									8,021

Ending balance (178,336,854 shares)	$	1,784	$	2,195,985	$	1,551,003		$	(3,255	)	$	(44,835	)	$	3,700,682

2004
Comprehensive income:
Net income						400,868									400,868
Other comprehensive income (loss), net of tax effect of $8,259 (Note 20)
Foreign currency translation adjustment, net of reclassification adjustments (Note 1(t))												14,953			14,953
Minimum pension liability adjustment												(31,752	)		(31,752	)
Unrealized gain on investment trusts												2,418			2,418
Cash flow hedges												4,542			4,542

Total comprehensive income															391,029

Issuance of common stock - net (9,215,137 shares)		93		350,433											350,526
Treasury shares purchased (27,762 shares – net)									(1,081	)					(1,081	)
Dividends on common stock ($1.88 per share)						(338,630	)								(338,630	)
Other				13,297		99									13,396

Ending balance (187,524,229 shares)	$	1,877	$	2,559,715	$	1,613,340		$	(4,336	)	$	(54,674	)	$	4,115,922

2005
Comprehensive income:
Net income						489,653									489,653
Other comprehensive income (loss), net of tax effect of $30,941 (Note 20)
Foreign currency translation adjustment, net of reclassification adjustment (Note 1(t))												(38,400	)		(38,400	)
Minimum pension liability adjustment												(42,238	)		(42,238	)
Unrealized gain on investment trusts												257			257
Cash flow hedges												10,935			10,935

Total comprehensive income															420,207

Issuance of common stock - net (12,053,832 shares)		120		415,511											415,631
Treasury shares purchased (12,377 shares – net)									(487	)					(487	)
Dividends on common stock ($1.92 per share)						(378,256	)								(378,256	)
Other				7,399		(3,021	)								4,378

Ending balance (199,565,684 shares)	$	1,997	$	2,982,625	$	1,721,716		$	(4,823	)	$	(124,120	)	$	4,577,395

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

CINERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	2005			2004			2003
	*(dollars in thousands)*
Cash Flows from Continuing Operations
Operating Activities
Net income	$	489,653		$	400,868		$	469,772
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		510,438			453,765			392,672
(Income) Loss of discontinued operations, net of tax		(2,575	)		9,531			(6,341	)
(Income) Loss on impairment or disposal of subsidiaries and investments, net		9,542			48,144			(93	)
Cumulative effect of changes in accounting principles, net of tax		3,044			—			(26,462	)
Change in net position of energy risk management activities		93,194			(40,443	)		(11,723	)
Deferred income taxes and investment tax credits - net		(41,088	)		(3,783	)		85,144
Equity in earnings of unconsolidated subsidiaries		(33,777	)		(48,249	)		(15,201	)
Return on equity investments		42,956			—			—
Allowance for equity funds used during construction		(8,315	)		(2,269	)		(7,532	)
Regulatory asset/liability deferrals		(256,510	)		(46,746	)		(81,791	)
Regulatory asset amortization		180,820			92,422			89,931
Accrued pension and other postretirement benefit costs		46,114			11,275			48,371
Cost of removal		(20,249	)		(17,763	)		(16,598	)
Changes in current assets and current liabilities:
Accounts and notes receivable		(410,658	)		(22,524	)		110,189
Fuel, emission allowances, and supplies		(145,941	)		(86,651	)		1,695
Prepayments		(220,206	)		(88,484	)		9,026
Accounts payable		535,304			111,478			(58,001	)
Accrued taxes and interest		11,659			(17,581	)		(35,424	)
Other assets		(87,583	)		(1,826	)		6,142
Other liabilities		(27,917	)		71,443			(23,216	)

Ÿ Net cash provided by operating activities		667,905			822,607			930,560

Financing Activities
Change in short-term debt		(74,732	)		547,646			(380,910	)
Issuance of long-term debt		398,126			39,361			688,166
Redemption of long-term debt		(150,488	)		(828,502	)		(487,901	)
Retirement of preferred stock of subsidiaries		(31,075	)		—			—
Issuance of common stock		415,631			350,526			270,074
Dividends on common stock		(378,256	)		(338,630	)		(322,371	)

Ÿ Net cash provided by (used in) financing activities		179,206			(229,599	)		(232,942	)

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)		(1,049,723	)		(691,444	)		(702,705	)
Proceeds from notes receivable		19,996			17,460			9,187
Withdrawal of restricted funds held in trust		164,171			25,273			—
Acquisitions and other investments		(108,551	)		(2,975	)		(87,873	)
Proceeds from distributions by investments and sale of investments and subsidiaries		110,526			54,173			51,252

Ÿ Net cash used in investing activities		(863,581	)		(597,513	)		(730,139	)

Net decrease in cash and cash equivalents from continuing operations		(16,470	)		(4,505	)		(32,521	)

Cash and cash equivalents from continuing operations at beginning of period		162,526			167,031			199,552

Cash and cash equivalents from continuing operations at end of period	$	146,056		$	162,526		$	167,031


Cash Flows from Discontinued Operations
Operating activities	$	2,022		$	3,304		$	9,242
Financing activities		(9,866	)		2,811			(27,084	)
Investing activities		5,829			(6,189	)		(1,600	)

Net decrease in cash and cash equivalents from discontinued operations		(2,015	)		(74	)		(19,442	)

Cash and cash equivalents from discontinued operations at beginning of period		2,015			2,089			21,531

Cash and cash equivalents from discontinued operations at end of period	$	—		$	2,015		$	2,089


Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	287,033		$	298,142		$	263,228
Income taxes	$	121,359		$	73,197		$	92,175
Non-cash financing & investing activities:
Restricted cash proceeds from the issuance of debt securities	$	99,725		$	302,271		$	80,339

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

CINERGY CORP.

CONSOLIDATED STATEMENTS OF CAPITALIZATION


	December 31
	2005			2004
	*(dollars in thousands)*
Long-term Debt
Cinergy Corp.
Other Long-term Debt:
6.53% Debentures due December 16, 2008	$	200,000		$	200,000
6.90% Note Payable due February 16, 2007		326,032			326,032

Ÿ Total Other Long-term Debt		526,032			526,032
Unamortized Premium and Discount - Net		(1,913	)		(3,980	)

Ÿ Total – Cinergy Corp.		524,119			522,052

Cinergy Global Resources, Inc.
Other Long-term Debt:
6.20% Debentures due November 3, 2008		150,000			150,000
Variable interest rate of Euro Inter-Bank Offered Rate plus 1.2%, maturing November 2016		80,386			89,391

Ÿ Total Other Long-term Debt		230,386			239,391
Unamortized Premium and Discount - Net		(94	)		(126	)

Ÿ Total – Cinergy Global Resources, Inc.		230,292			239,265

Cinergy Investments, Inc.
Other Long-term Debt:
9.23% Notes Payable, due November 5, 2016		105,950			107,142
7.81% Notes Payable, due August 2009		76,354			93,041
Other		20,778			18,055

Ÿ Total – Cinergy Investments, Inc.		203,082			218,238

Operating Companies
The Cincinnati Gas & Electric Company ( CG&E ) and subsidiaries
First Mortgage Bonds		94,700			94,700
Other Long-term Debt		1,535,721			1,535,721
Unamortized Premium and Discount - Net		(35,488	)		(36,753	)

Ÿ Total Long-term Debt		1,594,933			1,593,668
PSI Energy, Inc. ( PSI )
First Mortgage Bonds		540,720			620,720
Secured Medium-term Notes		77,500			77,500
Other Long-term Debt		1,584,647			1,185,813
Unamortized Premium and Discount - Net		(9,262	)		(9,814	)

Ÿ Total Long-term Debt		2,193,605			1,874,219

Total Consolidated Debt	$	4,746,031		$	4,447,442
Less: Current Portion		352,589			219,967

Total Long-term Debt	$	4,393,442		$	4,227,475

Cumulative Preferred Stock of Subsidiaries

CG&E and subsidiaries	$	20,485		$	20,485
PSI		11,258			42,333

Ÿ Total Cumulative Preferred Stock of Subsidiaries	$	31,743		$	62,818

Common Stock Equity	$	4,577,395		$	4,115,922

Ÿ Total Consolidated Capitalization	$	9,002,580		$	8,406,215

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

THE CINCINNATI GAS & ELECTRIC COMPANY

AND SUBSIDIARY COMPANIES

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF INCOME


	2005			2004		2003
	*(dollars in thousands)*
Operating Revenues (Note 1(f))
Electric	$	2,042,730		$	1,689,683	$	1,691,353
Gas		779,616			690,675		627,720
Other (Note 1(f)( iii ))		238,819			130,365		62,876

Total Operating Revenues		3,061,165			2,510,723		2,381,949

Operating Expenses
Fuel, emission allowances, and purchased power		700,761			521,959		496,041
Gas purchased		513,690			427,585		382,310
Costs of fuel resold		188,516			98,898		54,661
Operation and maintenance		695,263			594,381		499,556
Depreciation		182,368			179,487		186,819
Taxes other than income taxes		214,119			198,445		199,818

Total Operating Expenses		2,494,717			2,020,755		1,819,205

Operating Income		566,448			489,968		562,744

Miscellaneous Income - Net		18,122			16,228		30,660
Interest Expense		99,355			90,836		115,215

Income Before Taxes		485,215			415,360		478,189

Income Taxes (Note 12)		184,218			158,518		178,077

Income Before Cumulative Effect of Changes in Accounting Principles		300,997			256,842		300,112

Cumulative effect of changes in accounting principles, net of tax (Note 1(s)( iv ))		(3,044	)		—		30,938

Net Income	$	297,953		$	256,842	$	331,050

Preferred Dividend Requirement		846			845		846

Net Income Applicable to Common Stock	$	297,107		$	255,997	$	330,204

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

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS


	December 31
	2005		2004
	*(dollars in thousands)*
ASSETS
Current Assets
Cash and cash equivalents	$	9,674	$	4,154
Notes receivable from affiliated companies		177,256		121,559
Accounts receivable less accumulated provision for doubtful accounts of $3,518 at December 31, 2005, and $722 at December 31, 2004 (Note 5(c))		207,188		145,105
Accounts receivable from affiliated companies		37,718		30,916
Fuel, emission allowances, and supplies (Note 1(i))		225,982		199,769
Energy risk management current assets (Note 1(m)( i ))		543,787		148,866
Prepayments and other		177,417		54,650

Total Current Assets		1,379,022		705,019

Property, Plant, and Equipment - at Cost
Utility plant in service (Note 22)
Electric		2,320,546		2,249,352
Gas		1,270,075		1,179,764
Common		265,412		249,576

Total Utility Plant In Service		3,856,033		3,678,692
Construction work in progress		69,269		45,762

Total Utility Plant		3,925,302		3,724,454
Non-regulated property, plant, and equipment (Note 22)		3,850,463		3,660,226
Accumulated depreciation (Note 1(j)( i ))		2,815,852		2,694,708

Net Property, Plant, and Equipment		4,959,913		4,689,972

Other Assets
Regulatory assets (Note 1(e))		555,798		609,550
Energy risk management non-current assets (Note 1(m)( i ))		180,197		47,276
Restricted funds held in trust		58,189		93,671
Other		100,724		86,871

Total Other Assets		894,908		837,368

Total Assets	$	7,233,843	$	6,232,359

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

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS


	December 31
	2005			2004
	*(dollars in thousands)*
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	562,887		$	332,316
Accounts payable to affiliated companies		243,793			85,127
Accrued taxes		177,551			149,010
Accrued interest		24,438			19,408
Notes payable and other short-term obligations (Note 7)		112,100			112,100
Notes payable to affiliated companies (Note 7)		114,252			180,116
Long-term debt due within one year		—			150,000
Energy risk management current liabilities (Note 1(m)( i ))		552,105			120,204
Other		40,837			33,712

Total Current Liabilities		1,827,963			1,181,993

Non-Current Liabilities
Long-term debt (Note 6)		1,594,933			1,443,668
Deferred income taxes (Note 12)		1,055,093			1,090,897
Unamortized investment tax credits		67,229			73,120
Accrued pension and other postretirement benefit costs (Note 11)		245,950			228,058
Regulatory liabilities (Note 1(e))		151,670			164,846
Energy risk management non-current liabilities (Note 1(m)( i ))		183,678			40,184
Other		111,410			70,395

Total Non-Current Liabilities		3,409,963			3,111,168

Commitments and Contingencies (Note 13)

Total Liabilities		5,237,926			4,293,161

Cumulative Preferred Stock
Not subject to mandatory redemption		20,485			20,485

Common Stock Equity (Note 3)
Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares – 89,663,086 at December 31, 2005 and December 31, 2004		762,136			762,136
Paid-in capital		603,249			584,176
Retained earnings		657,254			610,232
Accumulated other comprehensive loss (Note 20)		(47,207	)		(37,831	)

Total Common Stock Equity		1,975,432			1,918,713

Total Liabilities and Shareholder’s Equity	$	7,233,843		$	6,232,359

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

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)*
2003
Beginning balance	$	762,136	$	586,292		$	487,652		$	(25,746	)	$	1,810,334

Comprehensive income:
Net income							331,050						331,050
Other comprehensive income (loss), net of tax effect of $4,321 (Note 20)
Minimum pension liability adjustment										(8,017	)		(8,017	)
Unrealized gain on investment trusts										1			1
Cash flow hedges										1,298			1,298

Total comprehensive income													324,332

Dividends on preferred stock							(846	)					(846	)
Dividends on common stock							(227,863	)					(227,863	)
Contribution from parent company for reallocation of taxes				236									236

Ending balance	$	762,136	$	586,528		$	589,993		$	(32,464	)	$	1,906,193

2004
Comprehensive income:
Net income							256,842						256,842
Other comprehensive income (loss), net of tax effect of $3,453 (Note 20)
Minimum pension liability adjustment										(9,666	)		(9,666	)
Cash flow hedges										4,299			4,299

Total comprehensive income													251,475

Dividends on preferred stock							(845	)					(845	)
Dividends on common stock							(235,758	)					(235,758	)
Contribution from parent company for reallocation of taxes				(2,352	)								(2,352	)

Ending balance	$	762,136	$	584,176		$	610,232		$	(37,831	)	$	1,918,713

2005
Comprehensive income:
Net income							297,953						297,953
Other comprehensive income (loss), net of tax effect of $1,050 (Note 20)
Minimum pension liability adjustment										(13,426	)		(13,426	)
Cash flow hedges										4,050			4,050

Total comprehensive income													288,577

Dividends on preferred stock							(845	)					(845	)
Dividends on common stock							(250,086	)					(250,086	)
Contribution from parent company for reallocation of taxes				19,073									19,073

Ending balance	$	762,136	$	603,249		$	657,254		$	(47,207	)	$	1,975,432

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

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS


	2005			2004			2003
	*(dollars in thousands)*
Operating Activities
Net income	$	297,953		$	256,842		$	331,050
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		182,368			179,487			186,819
Deferred income taxes and investment tax credits - net		(43,661	)		53,519			82,228
Cumulative effect of changes in accounting principles, net of tax		3,044			—			(30,938	)
Change in net position of energy risk management activities		47,554			(15,797	)		(20,593	)
Allowance for equity funds used during construction		(1,042	)		(458	)		(2,749	)
Regulatory asset/liability deferrals		(31,482	)		(24,227	)		(40,510	)
Regulatory asset amortization		96,501			48,649			36,824
Accrued pension and other postretirement benefit costs		21,685			(447	)		21,694
Cost of removal		(7,023	)		(7,875	)		—
Changes in current assets and current liabilities:
Accounts and notes receivable		(124,582	)		(25,348	)		23,453
Fuel, emission allowances, and supplies		(26,213	)		(63,835	)		(14,061	)
Prepayments		(122,760	)		(39,586	)		(6,393	)
Accounts payable		389,237			63,928			9,608
Accrued taxes and interest		33,571			938			(14,283	)
Other assets		(5,535	)		4,323			16,729
Other liabilities		9,439			15,508			(21,117	)

Net cash provided by operating activities		719,054			445,621			557,761

Financing Activities
Change in short-term debt, including net affiliate notes		(65,864	)		134,460			104,114
Issuance of long-term debt		—			39,361			256,198
Redemption of long-term debt		—			(110,000	)		(394,899	)
Dividends on preferred stock		(845	)		(845	)		(846	)
Dividends on common stock		(250,086	)		(235,758	)		(227,863	)

Net cash used in financing activities		(316,795	)		(172,782	)		(263,296	)

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)		(434,034	)		(299,751	)		(323,959	)
Withdrawal of restricted funds held in trust		37,630			—			—
Other investments		(335	)		59			—
Proceeds from disposition of subsidiaries and investments		—			15,165			—

Net cash used in investing activities		(396,739	)		(284,527	)		(323,959	)

Net increase (decrease) in cash and cash equivalents		5,520			(11,688	)		(29,494	)

Cash and cash equivalents at beginning of period		4,154			15,842			45,336

Cash and cash equivalents at end of period	$	9,674		$	4,154		$	15,842


Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	98,183		$	92,542		$	103,339
Income taxes	$	204,209		$	102,502		$	45,937
Non-cash financing & investing activities:
Restricted cash proceeds from the issuance of debt securities	$	—		$	93,671		$	—

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

THE CINCINNATI GAS & ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CAPITALIZATION


	December 31
	2005			2004
	*(dollars in thousands)*
Long-term Debt
CG&E
First Mortgage Bonds:
5.45% Series due January 1, 2024 (Pollution Control)	$	46,700		$	46,700
5 ¹ / 2 % Series due January 1, 2024 (Pollution Control)		48,000			48,000

Ÿ Total First Mortgage Bonds		94,700			94,700
Other Long-term Debt:
Liquid Asset Notes with Coupon Exchange due October 1, 2007 (Executed interest rate swap to fix the rate at 6.87% through maturity)		100,000			100,000
6.40 % Debentures due April 1, 2008		100,000			100,000
6.90 % Debentures due June 1, 2025		150,000			150,000
5.70 % Debentures due September 15, 2012, effective interest rate of 6.42%		500,000			500,000
5.40 % Debentures due June 15, 2033, effective interest rate of 6.90%		200,000			200,000
5 ³ / 8 % Debentures due June 15, 2033		200,000			200,000
Series 2002A, Ohio Air Quality Development Revenue Refunding Bonds, due September 1, 2037 (Pollution Control)		42,000			42,000
Series 2002B, Ohio Air Quality Development Revenue Refunding Bonds, due September 1, 2037 (Pollution Control)		42,000			42,000
Series 2004A, Ohio Air Quality Development Revenue Bonds, due November 1, 2039 (Pollution Control) (Note 6)		47,000			47,000
Series 2004B, Ohio Air Quality Development Revenue Bonds, due November 1, 2039 (Pollution Control) (Note 6)		47,000			47,000
Series 1992A, 6.50% Collateralized Pollution Control Revenue Refunding Bonds, due November 15, 2022		12,721			12,721

Ÿ Total Other Long-term Debt		1,440,721			1,440,721

Unamortized Premium and Discount - Net		(34,897	)		(36,093	)

Total Long-term Debt		1,500,524			1,499,328
The Union Light, Heat and Power Company
Other Long-term Debt		95,000			95,000
Unamortized Premium and Discount - Net		(591	)		(660	)

Total Long-term Debt		94,409			94,340

Total Consolidated Debt	$	1,594,933		$	1,593,668
Less: Current Portion		—			150,000

Total Long-term Debt	$	1,594,933		$	1,443,668


Cumulative Preferred Stock
	Par/Stated Value	Authorized Shares	Shares Outstanding at December 31, 2005	Series	Mandatory Redemption
	$100	6,000,000	204,849	4% - 4 ³ / 4 %	No	$	20,485	$	20,485

Common Stock Equity						$	1,975,432	$	1,918,713

• Total Consolidated Capitalization						$	3,590,850	$	3,382,866

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

PSI ENERGY, INC.

AND SUBSIDIARY COMPANY

PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME


	2005		2004		2003
	*(dollars in thousands)*
Operating Revenues (Note 1(f))
Electric	$	1,974,963	$	1,753,699	$	1,603,019

Operating Expenses
Fuel, emission allowances, and purchased power		765,917		651,086		630,216
Operation and maintenance		480,111		474,517		448,668
Depreciation		266,230		221,596		163,938
Taxes other than income taxes		50,013		47,152		46,200

Total Operating Expenses		1,562,271		1,394,351		1,289,022

Operating Income		412,692		359,348		313,997

Miscellaneous Income - Net		21,877		9,348		6,288
Interest Expense		109,557		91,481		85,843

Income Before Taxes		325,012		277,215		234,442

Income Taxes (Note 12)		127,217		112,213		100,567

Income Before Cumulative Effect of a Change in Accounting Principle		197,795		165,002		133,875

Cumulative effect of a change in accounting principle, net of tax (Note 1(s)( iv ))		—		—		(494	)

Net Income	$	197,795	$	165,002	$	133,381

Preferred Dividend Requirement		1,797		2,587		2,587

Net Income Applicable to Common Stock	$	195,998	$	162,415	$	130,794

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

PSI ENERGY, INC.

CONSOLIDATED BALANCE SHEETS


	December 31
	2005		2004
	*(dollars in thousands)*
ASSETS
Current Assets
Cash and cash equivalents	$	31,860	$	10,794
Restricted deposits		32,649		22,063
Notes receivable from affiliated companies		87,714		72,958
Accounts receivable less accumulated provision for doubtful accounts of $137 at December 31, 2005, and $171 at December 31, 2004 (Note 5(c))		54,566		31,177
Accounts receivable from affiliated companies		75,698		437
Fuel, emission allowances, and supplies (Note 1(i))		170,345		108,793
Prepayments and other		42,415		11,804

Total Current Assets		495,247		258,026

Property, Plant, and Equipment - at Cost
Utility plant in service (Note 21)		6,857,968		6,397,776
Construction work in progress		431,584		287,925

Total Utility Plant		7,289,552		6,685,701
Accumulated depreciation (Note 1(j)( i ))		2,456,183		2,284,932

Net Property, Plant, and Equipment (Note 21)		4,833,369		4,400,769

Other Assets
Regulatory assets (Note 1(e))		514,056		420,783
Other investments		75,615		73,396
Restricted funds held in trust		243,612		264,335
Other		80,283		32,587

Total Other Assets		913,566		791,101

Total Assets	$	6,242,182	$	5,449,896

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

PSI ENERGY, INC.

CONSOLIDATED BALANCE SHEETS


	December 31
	2005			2004
	*(dollars in thousands)*
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	116,996		$	65,151
Accounts payable to affiliated companies		53,455			38,292
Accrued taxes		33,713			65,871
Accrued interest		34,530			27,532
Notes payable and other short-term obligations (Note 7)		185,500			135,500
Notes payable to affiliated companies (Note 7)		249,712			130,580
Long-term debt due within one year		325,050			50,000
Other		59,368			33,326

Total Current Liabilities		1,058,324			546,252

Non-Current Liabilities
Long-term debt (Note 6)		1,868,555			1,824,219
Deferred income taxes (Note 12)		609,569			638,061
Unamortized investment tax credits		23,624			26,603
Accrued pension and other postretirement benefit costs (Note 11)		227,435			209,992
Regulatory liabilities (Note 1(e))		394,377			392,573
Other		87,077			88,665

Total Non-Current Liabilities		3,210,637			3,180,113

Commitments and Contingencies (Note 13)

Total Liabilities		4,268,961			3,726,365

Cumulative Preferred Stock
Not subject to mandatory redemption		11,258			42,333

Common Stock Equity (Note 3)
Common stock – without par value; $.01 stated value; authorized shares – 60,000,000; outstanding shares – 53,913,701 at December 31, 2005 and December 31, 2004		539			539
Paid-in capital		840,692			626,019
Retained earnings		1,148,192			1,078,617
Accumulated other comprehensive loss (Note 20)		(27,460	)		(23,977	)

Total Common Stock Equity		1,961,963			1,681,198

Total Liabilities and Shareholder’s Equity	$	6,242,182		$	5,449,896

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

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)*
2003
Beginning balance	$	539	$	426,931		$	981,946		$	(8,119	)	$	1,401,297

Comprehensive income:
Net income							133,381						133,381
Other comprehensive income (loss), net of tax effect of $3,645 (Note 20)
Minimum pension liability adjustment										(11,534	)		(11,534	)
Unrealized gain on investment trusts										6,232			6,232

Total comprehensive income													128,079

Dividends on preferred stock							(2,587	)					(2,587	)
Dividends on common stock							(93,950	)					(93,950	)
Contribution from parent company - equity infusion				200,000									200,000
Contribution from parent company for reallocation of taxes				343									343

Ending balance	$	539	$	627,274		$	1,018,790		$	(13,421	)	$	1,633,182

2004
Comprehensive income:
Net income							165,002						165,002
Other comprehensive income (loss), net of tax effect of $7,350 (Note 20)
Minimum pension liability adjustment										(12,597	)		(12,597	)
Unrealized gain on investment trusts										2,041			2,041

Total comprehensive income													154,446

Dividends on preferred stock							(2,587	)					(2,587	)
Dividends on common stock							(102,588	)					(102,588	)
Contribution from parent company for reallocation of taxes				(1,255	)								(1,255	)

Ending balance	$	539	$	626,019		$	1,078,617		$	(23,977	)	$	1,681,198

2005
Comprehensive income:
Net income							197,795						197,795
Other comprehensive income (loss), net of tax effect of $2,196 (Note 20)
Minimum pension liability adjustment										(10,204	)		(10,204	)
Unrealized gain on investment trusts										205			205
Cash flow hedges										6,516			6,516

Total comprehensive income													194,312

Dividends on preferred stock							(1,975	)					(1,975	)
Dividends on common stock							(126,245	)					(126,245	)
Contribution from parent – equity infusion				200,000									200,000
Contribution from parent company for reallocation of taxes				14,673									14,673

Ending balance	$	539	$	840,692		$	1,148,192		$	(27,460	)	$	1,961,963

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

PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	2005			2004			2003
	*(dollars in thousands)*
Operating Activities
Net income	$	197,795		$	165,002		$	133,381
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		266,230			221,596			163,938
Cumulative effect of a change in accounting principle, net of tax		—			—			494
Deferred income taxes and investment tax credits-net		(23,638	)		49,085			38,424
Allowance for equity funds used during construction		(7,273	)		(1,811	)		(4,783	)
Regulatory asset/liability deferrals		(225,028	)		(22,519	)		(41,282	)
Regulatory asset amortization		84,319			43,723			53,107
Accrued pension and other postretirement benefit costs		18,699			18,735			13,048
Cost of removal		(13,226	)		(9,887	)		(16,598	)
Changes in current assets and current liabilities:
Accounts and notes receivable		(113,406	)		(1,204	)		35,643
Fuel, emission allowances, and supplies		(61,014	)		40,599			27,330
Prepayments		(21,566	)		297			686
Accounts payable		67,007			(24,589	)		(104,515	)
Accrued taxes and interest		(26,119	)		(2,631	)		(33,004	)
Other assets		(58,633	)		11,219			(29,308	)
Other liabilities		21,341			(4,152	)		10,174

Net cash provided by operating activities		105,488			483,463			246,735

Financing Activities
Change in short-term debt, including net affiliate notes		119,132			(57,866	)		15,542
Issuance of long-term debt		393,962			—			431,968
Redemption of long-term debt		(131,166	)		(1,100	)		(460,903	)
Contribution from parent		200,000			—			200,000
Retirement of preferred stock		(31,075	)		—			—
Dividends on preferred stock		(1,974	)		(2,587	)		(2,587	)
Dividends on common stock		(126,245	)		(102,588	)		(93,950	)

Net cash provided by (used in) financing activities		422,634			(164,141	)		90,070

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)		(532,520	)		(337,208	)		(330,362	)
Withdrawal of restricted funds held in trust		126,541			25,273			—
Other investments		(101,077	)		(3,158	)		(1,885	)

Net cash used in investing activities		(507,056	)		(315,093	)		(332,247	)

Net increase in cash and cash equivalents		21,066			4,229			4,558

Cash and cash equivalents at beginning of period		10,794			6,565			2,007

Cash and cash equivalents at end of period	$	31,860		$	10,794		$	6,565


Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	112,774		$	101,275		$	95,733
Income taxes	$	183,127		$	60,353		$	65,564
Non-cash financing & investing activities:
Restricted cash proceeds from the issuance of debt securities	$	99,725		$	208,600		$	80,339

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

PSI ENERGY, INC.

CONSOLIDATED STATEMENTS OF CAPITALIZATION


	December 31
	2005			2004
	*(dollars in thousands)*
Long-term Debt
First Mortgage Bonds:
Series ZZ, 5 ³ / 4 % due February 15, 2028 (Pollution Control)	$	—		$	50,000
Series AAA, 7 ¹ / 8 % due February 1, 2024		—			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		540,720			620,720

Secured Medium-term Notes:
Series A, 8.55% to 8.57% as of December 31, 2005 and 2004, respectively. Due December 27, 2011.		7,500			7,500
Series B, 6.37% to 8.24%, due August 15, 2008 to August 22, 2022
(Series A and B, 7.255% weighted average interest rate as of December 31, 2005 and 2004. 8.1 and 9.1 year weighted average remaining life at December 31, 2005 and 2004, respectively)		70,000			70,000

Total Secured Medium-term Notes		77,500			77,500

Other Long-term Debt:
Indiana Development Finance Authority (IDFA) Environmental Refunding Revenue Bonds, due May 1, 2035		44,025			44,025
IDFA 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		—			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		78,722			79,888
6.52 % Senior Notes due March 15, 2009		97,342			97,342
7.85 % Debentures due October 15, 2007		265,000			265,000
5.00 % Debentures due September 15, 2013		400,000			400,000
6.12 % Debentures due October 15, 2035		350,000			—
Series 2002A, IDFA Environmental Refunding Revenue Bonds, due March 1, 2031		23,000			23,000
Series 2002B, IDFA Environmental Refunding Revenue Bonds, due March 1, 2019		24,600			24,600
Series 2003, IDFA Environmental Refunding Revenue Bonds, due April 1, 2022		35,000			35,000
Series 2004B, IDFA Environmental Revenue Bonds, due December 1, 2039 (Note 6)		77,125			77,125
Series 2004C, IDFA Environmental Revenue Bonds, due December 1, 2039 (Note 6)		77,125			77,125
Series 2005A, Indiana Finance Authority (IFA), Environmental Revenue Refunding Bonds, 4.50% fixed rate, due July 1, 2035		50,000			—
Series 2005C, IFA, Environmental Revenue Bonds, variable rate, due October 1, 2040		50,000			—

Total Other Long-term Debt		1,584,647			1,185,813

Unamortized Premium and Discount - Net		(9,262	)		(9,814	)

Total Consolidated Long-term Debt	$	2,193,605		$	1,874,219
Less: Current Portion		325,050			50,000

Total Long-term Debt	$	1,868,555		$	1,824,219


Cumulative Preferred Stock

	Par/Stated Value	Authorized Shares	Shares Outstanding at December 31, 2005	Series	Mandatory Redemption
	$100 (Note 4)	5,000,000	36,695	3 ¹ / 2 %	No	$	3,669	$	34,744
	$ 25	5,000,000	303,544	4.16% - 4.32%	No		7,589		7,589

Total Preferred Stock						$	11,258	$	42,333

Common Stock Equity						$	1,961,963	$	1,681,198

Total Consolidated Capitalization						$	3,841,776	$	3,547,750

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

THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF INCOME


	2005		2004		2003
	*(dollars in thousands)*
Operating Revenues (Note 1(f))
Electric	$	239,801	$	230,068	$	222,081
Gas		148,326		124,475		110,072

Total Operating Revenues		388,127		354,543		332,153

Operating Expenses
Electricity purchased from parent company for resale (Note 1(u)( ii ))		168,158		162,497		154,572
Gas purchased		100,663		79,278		69,774
Operation and maintenance		67,292		55,810		53,704
Depreciation		20,625		20,034		18,315
Taxes other than income taxes		4,955		3,544		4,412

Total Operating Expenses		361,693		321,163		300,777

Operating Income		26,434		33,380		31,376

Miscellaneous Income - Net		2,947		813		3,561
Interest Expense		6,903		5,179		6,127

Income Before Taxes		22,478		29,014		28,810

Income Taxes (Note 12)		7,833		10,376		9,781

Net Income	$	14,645	$	18,638	$	19,029

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

THE UNION LIGHT, HEAT AND POWER COMPANY

BALANCE SHEETS


	December 31
	2005		2004
	*(dollars in thousands)*
ASSETS
Current Assets
Cash and cash equivalents	$	9,876	$	4,197
Notes receivable from affiliated companies		29,267		20,675
Accounts receivable less accumulated provision for doubtful accounts of $162 at December 31, 2005, and $13 at December 31, 2004 (Note 5(c))		1,618		1,451
Accounts receivable from affiliated companies		6,567		5,671
Inventory and supplies		10,767		8,500
Prepayments and other		4,500		285

Total Current Assets		62,595		40,779

Property, Plant, and Equipment - at Cost
Utility plant in service (Note 22)
Electric		299,012		285,828
Gas		276,908		256,667
Common		45,319		42,176

Total Utility Plant In Service		621,239		584,671
Construction work in progress		12,840		6,070

Total Utility Plant		634,079		590,741
Accumulated depreciation (Note 1(j)( i ))		188,614		176,726

Net Property, Plant, and Equipment (Note 22)		445,465		414,015

Other Assets
Regulatory assets (Note 1(e))		7,529		10,070
Other		2,625		2,801

Total Other Assets		10,154		12,871

Total Assets	$	518,214	$	467,665

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

THE UNION LIGHT, HEAT AND POWER COMPANY

BALANCE SHEETS


	December 31
	2005			2004
	*(dollars in thousands)*
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	26,206		$	16,028
Accounts payable to affiliated companies		26,815			22,236
Accrued interest		1,374			1,370
Notes payable to affiliated companies (Note 7)		29,777			11,246
Other		16,967			7,009

Total Current Liabilities		101,139			57,889

Non-Current Liabilities
Long-term debt (Note 6)		94,409			94,340
Deferred income taxes (Note 12)		52,800			58,422
Unamortized investment tax credits		2,373			2,626
Accrued pension and other postretirement benefit costs (Note 11)		19,354			17,762
Regulatory liabilities (Note 1(e))		29,038			29,979
Other		22,642			14,136

Total Non-Current Liabilities		220,616			217,265

Commitments and Contingencies (Note 13)

Total Liabilities		321,755			275,154

Common Stock Equity (Note 3)
Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares – 585,333 at December 31, 2005 and December 31, 2004		8,780			8,780
Paid-in capital		23,760			23,455
Retained earnings		166,242			161,562
Accumulated other comprehensive loss		(2,323	)		(1,286	)

Total Common Stock Equity		196,459			192,511

Total Liabilities and Shareholder’s Equity	$	518,214		$	467,665

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

THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF CHANGES IN COMMON STOCK EQUITY


	Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Common Stock Equity
	*(dollars in thousands)*
2003
Beginning balance	$	8,780	$	23,644		$	144,800		$	(60	)	$	177,164

Comprehensive income:
Net income							19,029						19,029
Other comprehensive loss, net of tax effect of $291
Minimum pension liability adjustment										(429	)		(429	)

Total comprehensive income													18,600

Dividends on common stock							(6,305	)					(6,305	)
Contribution from parent company for reallocation of taxes				(103	)								(103	)

Ending balance	$	8,780	$	23,541		$	157,524		$	(489	)	$	189,356

2004
Comprehensive income:
Net income							18,638						18,638
Other comprehensive loss, net of tax effect of $539
Minimum pension liability adjustment										(797	)		(797	)

Total comprehensive income													17,841

Dividends on common stock							(14,600	)					(14,600	)
Contribution from parent company for reallocation of taxes				(86	)								(86	)

Ending balance	$	8,780	$	23,455		$	161,562		$	(1,286	)	$	192,511

2005
Comprehensive income:
Net income							14,645						14,645
Other comprehensive loss, net of tax effect of $608
Minimum pension liability adjustment										(1,037	)		(1,037	)

Total comprehensive income													13,608

Dividends on common stock							(9,965	)					(9,965	)
Contribution from parent company for reallocation of taxes				305									305

Ending balance	$	8,780	$	23,760		$	166,242		$	(2,323	)	$	196,459

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

THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF CASH FLOWS


	2005			2004			2003
	*(dollars in thousands)*
Operating Activities
Net income	$	14,645		$	18,638		$	19,029
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		20,625			20,034			18,315
Deferred income taxes and investment tax credits - net		2,161			7,601			7,808
Allowance for equity funds used during construction		(642	)		18			(183	)
Regulatory asset/liability deferrals		(5,459	)		(2,337	)		(8,138	)
Regulatory asset amortization		3,847			1,613			1,843
Accrued pension and other postretirement benefit costs		2,005			(371	)		1,520
Cost of removal		(1,188	)		(1,588	)		—
Changes in current assets and current liabilities:
Accounts and notes receivable		(9,655	)		(3,026	)		(9,060	)
Inventory and supplies		(2,267	)		(564	)		246
Prepayments		(4,215	)		(6	)		37
Accounts payable		14,757			3,702			3,449
Accrued taxes and interest		7,344			(729	)		(1,185	)
Other assets		2,237			2,995			(3,708	)
Other liabilities		62			(599	)		3,088

Net cash provided by operating activities		44,257			45,381			33,061

Financing Activities
Change in short-term debt, including net affiliate notes		18,531			(33,987	)		31,157
Issuance of long-term debt		—			39,361			—
Redemption of long-term debt		—			—			(20,000	)
Dividends on common stock		(9,965	)		(14,600	)		(6,305	)

Net cash provided by (used in) financing activities		8,566			(9,226	)		4,852

Investing Activities
Construction expenditures (less allowance for equity funds used during construction)		(47,144	)		(33,857	)		(39,940	)

Net cash used in investing activities		(47,144	)		(33,857	)		(39,940	)

Net increase (decrease) in cash and cash equivalents		5,679			2,298			(2,027	)

Cash and cash equivalents at beginning of period		4,197			1,899			3,926

Cash and cash equivalents at end of period	$	9,876		$	4,197		$	1,899


Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized)	$	6,581		$	4,796		$	5,842
Income taxes	$	(2,689	)	$	2,827		$	3,001

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

THE UNION LIGHT, HEAT AND POWER COMPANY

STATEMENTS OF CAPITALIZATION


	December 31
	2005			2004
	*(dollars in thousands)*
Long-term Debt

Other Long-term Debt:
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
5.00 % Debentures due December 15, 2014		40,000			40,000

Total Other Long-term Debt		95,000			95,000

Unamortized Premium and Discount - Net		(591	)		(660	)

Total Long-term Debt	$	94,409		$	94,340

Common Stock Equity	$	196,459		$	192,511
Ÿ Total Capitalization	$	290,868		$	286,851

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

INDEX

NOTES TO CONDENSED FINANCIAL STATEMENTS


Note Number		Page Number
1	Organization and Summary of Significant Accounting Policies	134

2	Pending Merger	150

3	Common Stock	153

4	Cumulative Preferred Stock	158

5	Variable Interest Entities	158

6	Long-term Debt	161

7	Notes Payable and Other Short-term Obligations	163

8	Leases	167

9	Financial Instruments	168

10	Notes Receivables	170

11	Pension and Other Postretirement Benefits	170

12	Income Taxes	175

13	Commitments and Contingencies	177

14	Jointly-Owned Plant	185

15	Quarterly Financial Data (unaudited)	186

16	Discontinued Operations	187

17	Investment Activity	188

18	Financial Information by Business Segment	189

19	Earnings Per Common Share	194

20	Comprehensive Income	195

21	Acquisition of Wheatland Generating Assets	197

22	Subsequent Event	197

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.” In addition, when discussing Cinergy’s financial information, it necessarily includes the results of The Cincinnati Gas & Electric Company ( CG&E ), PSI Energy, Inc. ( PSI ), The Union Light, Heat and Power Company ( ULH&P ) and all of Cinergy’s other consolidated subsidiaries. When discussing CG&E’s financial information, it necessarily includes the results of ULH&P and all of CG&E’s other consolidated subsidiaries.

1. Organization and Summary of Significant Accounting Policies

(a)

Pending Merger

On May 8, 2005, Cinergy Corp. entered into an agreement and plan of merger with Duke Energy Corporation (Duke), a North Carolina corporation, whereby Cinergy Corp. will be merged with Duke. Under the merger agreement, each share of Cinergy Corp. common stock will be converted into 1.56 shares of common stock of the newly formed company, Duke Energy Holding Corp. (Duke Energy Holding).

The merger agreement has been approved by both companies’ Boards of Directors. Consummation of the merger is subject to customary conditions, including, among others, the approval of the shareholders of both companies and the approvals of various regulatory authorities. See Note 2 for further information regarding the pending merger.

(b)

Nature of Operations

Cinergy Corp. , a Delaware corporation organized in 1993, owns all outstanding common stock of CG&E and PSI , both of which are public utilities, as well as Cinergy Investments, Inc. (Investments), its non-regulated investment holding company.

CG&E , an Ohio corporation organized in 1837, is a combination electric and gas public utility company that provides service in the southwestern portion of Ohio and, through ULH&P , in nearby areas of Kentucky. CG&E is responsible for the majority of our power marketing and trading activity. CG&E’s principal subsidiary, ULH&P , a Kentucky corporation organized in 1901, provides electric and gas service in northern Kentucky.

PSI , an Indiana corporation organized in 1942, is a vertically integrated and regulated electric utility that provides service in north central, central, and southern Indiana.

The following table presents further information related to the operations of our domestic utility companies CG&E , PSI , and ULH&P (our utility operating companies):


Principal Line(s) of Business
CG&E and subsidiaries		Ÿ Generation, transmission, and distribution of electricity Ÿ Sale and/or transportation of natural gas Ÿ Electric commodity marketing and trading operations

PSI		Ÿ Generation, transmission, and distribution of electricity

ULH&P ⁽¹⁾		Ÿ Transmission and distribution of electricity Ÿ Sale and transportation of natural gas

⁽¹⁾	See Note 22 for further discussion of the transfer of certain generation assets in January 2006. Following the transfer, ULH&P has generation as a principal line of business.

NOTES TO FINANCIAL STATEMENTS

The following table presents further information related to the operations of our other principal subsidiaries, Cinergy Services, Inc. (Services) and Investments:


Principal Services and Line(s) of Business
Services ⁽¹⁾		Ÿ Administrative services
		Ÿ Management services
		Ÿ Support services

Investments		Ÿ Cogeneration and energy efficiency investments
Investments		Ÿ Natural gas marketing and trading operations ⁽²⁾

⁽¹⁾	Services provides the noted services to our subsidiaries.

⁽²⁾	Natural gas marketing and trading operations are primarily conducted through Cinergy Marketing & Trading, LP (Marketing & Trading), one of its subsidiaries.

We conduct operations through our subsidiaries and manage our businesses through the following three reportable segments:

•

Regulated Business Unit (Regulated);

•

Commercial Business Unit (Commercial); and

•

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

See Note 18 for further discussion of our reportable segments.

(c)

Repeal of the Public Utility Holding Company Act of 1935 (PUHCA 1935) and Establishment of the Federal Energy Regulatory Commission (FERC) Public Utility Holding Company Act of 2005 (PUHCA 2005)

Because Cinergy is a utility holding company, we are registered with the Securities and Exchange Commission (SEC) and were subject to regulation under the PUHCA 1935. The Energy Policy Act of 2005, among other provisions, repealed the PUHCA 1935 and replaced it with the PUHCA 2005, under the jurisdiction of the FERC, effective February 8, 2006. The net effect of these legislative changes was to abolish the regulatory regime imposed under the PUHCA 1935, while at the same time, enhancing the FERC’s authority over books and records of holding companies, in order to assist the FERC and state utility regulators in protecting customers of regulated utilities. In December 2005, the FERC adopted final rules further implementing the provisions of the PUHCA 2005. Among other things, these rules impose certain limited filing and reporting obligations on holding companies such as Cinergy . At this time, it is too early to predict the overall impact that the Energy Policy Act of 2005 will have on our financial position or results of operations.

(d)

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 about future events or performance. 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.

We have restated certain prior-year amounts in Cinergy’s financial statements, including cash flows to reflect the impact of discontinued operations in 2005. For a further discussion of discontinued operations, see Note 16. 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.

NOTES TO FINANCIAL STATEMENTS

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

For traditional operating entities, we use the consolidation method when we own a majority of the voting stock of or have the ability to control a subsidiary. For variable interest entities (VIE) (discussed further in Note 5), we use the consolidation method when we anticipate absorbing a majority of the losses or receiving a majority of the returns of an entity, should they occur. 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 Balance Sheets; and

•

our percentage share of the earnings from the entity as Equity in earnings of unconsolidated subsidiaries in our 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.

(e)

Regulation

Our utility operating companies and certain of our non-utility subsidiaries must comply with the rules prescribed by the SEC under the PUHCA 1935, through February 8, 2006. The PUHCA 1935 was replaced with the PUHCA 2005, under the FERC’s jurisdiction, as previously discussed in (c). Our utility operating companies must also comply with the other rules prescribed by the FERC and the applicable state utility commissions of Ohio, Indiana, and Kentucky.

Our utility 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 (SFAS) 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 amounts provided in current rates to cover costs to be incurred in the future, respectively) on our Balance Sheets.

The state of Ohio passed comprehensive electric deregulation legislation in 1999, and in 2000, the Public Utilities Commission of Ohio (PUCO) approved a stipulation agreement relating to CG&E’s transition plan creating a Regulatory Transition Charge (RTC) designed to recover CG&E’s generation-related regulatory assets and transition costs over a ten-year period beginning January 1, 2001. Accordingly, application of Statement 71 was discontinued for the generation portion of CG&E’s business.

NOTES TO FINANCIAL STATEMENTS

In November 2004, the PUCO approved CG&E’s Electric Rate Stabilization Plan (RSP) which expires December 31, 2008. The features of the RSP were applied to non-residential customers beginning January 1, 2005 and January 1, 2006 for residential customers. The major features of the RSP are:

•

A Provider of Last Resort (POLR) charge which consists of:

•

An Annually Adjusted Component intended to provide cost recovery primarily for environmental compliance expenditures;

•

An Infrastructure Maintenance Fund charge intended to compensate CG&E for committing its physical capacity; and

•

A System Reliability Tracker intended to provide actual cost recovery for capacity purchases, purchased power, reserve capacity, and related market costs for purchases to meet capacity needs.

•

Generation rates and fuel recovery which consists of the establishment of market rates for generation service and a fuel cost recovery mechanism. See Note 13(b)( iii ) for more information; and

•

Transmission cost recovery which permits CG&E to recover Midwest Independent Transmission System Operator, Inc. (Midwest ISO) charges, all FERC approved transmission costs, and all congestion costs allocable to retail ratepayers that receive services from CG&E .

Excluding CG&E’s deregulated generation-related assets and liabilities, as of December 31, 2005, CG&E , PSI , and ULH&P continue to meet the criteria to apply Statement 71. If Indiana or Kentucky were to implement deregulation legislation, the application of Statement 71 would need to be reviewed. Based on our utility 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, 2005, is probable. For a further discussion of CG&E’s regulatory developments, see Note 13(b)( iii ). For a further discussion of PSI’s regulatory developments, see Notes 13(b)( i ) and 13(b)( ii ).

NOTES TO FINANCIAL STATEMENTS

Our regulatory assets, liabilities, and amounts authorized for recovery through regulatory orders at December 31, 2005 and 2004, were as follows:


	2005									2004
	CG&E ⁽¹⁾			PSI			Cinergy			CG&E ⁽¹⁾			PSI			Cinergy
	*(in millions)*
Regulatory assets
Amounts due from customers - income taxes ⁽²⁾	$	80		$	18		$	98		$	74		$	22		$	96
Gasification services agreement buyout costs ⁽³⁾⁽⁴⁾		—			217			217			—			227			227
Post-in-service carrying costs and deferred operating expenses ⁽⁴⁾⁽⁵⁾		4			83			87			3			80			83
Deferred merger costs		2			26			28			—			38			38
Unamortized costs of reacquiring debt		13			32			45			15			25			40
RTC recoverable assets ⁽⁴⁾⁽⁶⁾		414			—			414			494			—			494
Capital-related distribution costs ⁽⁷⁾		35			—			35			11			—			11
Deferred fuel costs ⁽⁸⁾		—			68			68			—			—			—
Deferred Midwest ISO costs ⁽⁸⁾		—			30			30			—			—			—
Other		8			40			48			12			29			41

Total Regulatory assets	$	556		$	514		$	1,070		$	609		$	421		$	1,030
Total Regulatory assets authorized for recovery ⁽⁹⁾	$	554		$	465		$	1,019		$	602		$	378		$	980

Regulatory liabilities
Accrued cost of removal ⁽¹⁰⁾	$	(149	)	$	(394	)	$	(543	)	$	(164	)	$	(367	)	$	(531	)
Deferred fuel costs		(3	)		—			(3	)		(1	)		(25	)		(26	)

Total Regulatory liabilities	$	(152	)	$	(394	)	$	(546	)	$	(165	)	$	(392	)	$	(557	)

⁽¹⁾

Includes $8 million at December 31, 2005, and $10 million at December 31, 2004, related to ULH&P’s regulatory assets. Of these amounts, $6 million at December 31, 2005, and $9 million at December 31, 2004, have been authorized for recovery. Includes $(29) million and $(30) million of regulatory liabilities at December 31, 2005 and 2004, respectively, related to ULH&P .

⁽²⁾

The various regulatory commissions overseeing the regulated business operations of our utility 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 , PSI , and ULH&P .

⁽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⁾	Regulatory assets earning a return at December 31, 2005.

⁽⁵⁾	For PSI , this amount includes $35 million that is authorized for recovery but is not earning a return and $42 million that is not yet authorized for recovery and is not earning a return at December 31, 2005.

⁽⁶⁾

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.

⁽⁷⁾

In November 2004, CG&E’s RSP was approved by the PUCO. CG&E had the ability to defer certain capital-related distribution costs from July 1, 2004 through December 31, 2005 with recovery from non-residential customers to be provided through a rider from January 1, 2006 through December 31, 2010.

⁽⁸⁾	Represents authorized recoverable expenses and/or returnable revenues that will be billed and collected or returned at a future date, in connection with PSI’s fuel cost recovery mechanism and Midwest ISO cost recovery mechanism.

⁽⁹⁾	At December 31, 2005, these amounts were being recovered through rates charged to customers over remaining periods ranging from 1 to 60 years for CG&E , 1 to 36 years for PSI, and 1 to 15 years for ULH&P .

⁽¹⁰⁾

Represents amounts received for anticipated future removal and retirement costs of regulated property, plant, and equipment that do not represent legal obligations pursuant to SFAS No. 143, Accounting for Asset Retirement Obligations (Statement 143). See Note 1(l) for a further discussion of Statement 143.

(f)

Revenue Recognition

(i)

Utility Revenues

Our utility operating companies record Operating Revenues for electric and gas service when delivered 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 revenues” and is a widely recognized and accepted practice for utilities. In making our estimates of unbilled revenues, we use 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 these amounts are subsequently billed.

NOTES TO FINANCIAL STATEMENTS

Unbilled revenues for Cinergy , CG&E , PSI , and ULH&P as of December 31, 2005, 2004, and 2003 were as follows:


	2005		2004		2003
	*(in millions)*
Cinergy	$	227	$	203	$	176
CG&E and subsidiaries		150		129		112
PSI		77		74		64
ULH&P		27		23		20

(ii)

Energy Marketing and Trading Revenues

We market and trade electricity, natural gas, and other energy-related products. Many of the contracts associated with these products qualify as derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133), further discussed in (m)( i ). We designate derivative transactions as either trading or non-trading at the time they are originated in accordance with Emerging Issues Task Force (EITF) Issue 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities (EITF 02-3).

Net Reporting

Net reporting requires presentation of realized and unrealized gains and losses on trading derivatives on a net basis in Operating Revenues pursuant to the requirements of EITF 02-3, regardless of whether the transactions were settled physically. Energy derivatives involving frequent buying and selling with the objective of generating profits from differences in price are classified as trading and reported net.

Gross Reporting

Gross reporting requires presentation of sales contracts in Operating Revenues and purchase contracts in Fuel, emission allowances, and purchased power expense or Gas purchased expense. Non-trading derivatives typically involve physical delivery of the underlying commodity and are therefore generally presented on a gross basis.

Derivatives are classified as non-trading only when (a) the contracts involve the purchase of gas or electricity to serve our native load requirements (end-use customers within our utility operating companies’ franchise service territories), or (b) the contracts involve the sale of gas or electricity and we have the intent and projected ability to fulfill the majority of the obligations from company-owned assets, which generally is limited to the sale of generation to third parties when it is not required to meet native load requirements.

(iii)

Other Operating Revenues

Cinergy and CG&E recognize revenue from coal origination, which represents marketing of physical coal. These revenues are included in Other Operating Revenues on the Statements of Income. Other Operating Revenues for Cinergy also includes sales of synthetic fuel.

(g)

Energy Purchases and Fuel Costs

The expenses associated with electric and gas services include:

•

fuel used to generate electricity and the associated transportation costs;

•

costs of emission allowances;

•

electricity purchased from others; and

•

natural gas purchased from others and the associated transportation costs.

NOTES TO FINANCIAL STATEMENTS

These expenses are shown in the Statements of Income of Cinergy , CG&E , and PSI as Fuel, emission allowances, and purchased power expense and Gas purchased expense. These expenses are shown in ULH&P’s Statements of Income as Electricity purchased from parent company for resale expense and Gas purchased expense.

PSI utilizes a cost tracking recovery mechanism (commonly referred to as a fuel adjustment clause) that recovers retail and a portion of its wholesale fuel costs from customers. 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. The fuel adjustment clause is calculated based on the estimated cost of fuel in the next three-month period, and is trued up after actual costs are known. PSI records any under-recovery or over-recovery resulting from the differences between estimated and actual costs as a regulatory asset or liability until it is billed or refunded to its customers, at which point it is adjusted through fuel expense.

In addition to the fuel adjustment clause, PSI utilizes a purchased power tracking mechanism approved by the IURC for the recovery of costs related to certain specified purchases of power necessary to meet native load peak demand requirements to the extent such costs are not recovered through the existing fuel adjustment clause.

As part of the PUCO’s November 2004 approval of CG&E’s RSP, a cost tracking recovery mechanism was established to recover costs of retail fuel and emission allowances that exceed the amount originally included in the rates frozen in the CG&E transition plan. This mechanism was effective January 1, 2005 for non-residential customers and January 1, 2006 for residential customers. CG&E began utilizing a tracking mechanism approved by the PUCO for the recovery of system reliability capacity costs related to certain specified purchases of power. This mechanism was effective January 1, 2005 for non-residential customers and January 1, 2006 for residential customers. Because CG&E does not apply Statement 71 to its generation operations, differences between fuel costs billed and costs incurred are not recorded as regulatory assets or liabilities.

(h)

Cash and Cash Equivalents

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

(i)

Fuel, Emission Allowances, and Supplies

We maintain coal inventories for use in the production of electricity, emission allowances inventories for regulatory compliance purposes due to the production of electricity, and gas inventories both as part of Investments’ trading business as well as for CG&E’s gas distribution business. These inventories are accounted for at the lower of cost or market, with cost being determined using the weighted-average method.

Materials and supplies inventory is accounted for on a weighted-average cost basis.

(j)

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;

•

contractor fees;

•

salaries;

•

payroll taxes;

•

fringe benefits;

•

financing costs of funds used during construction (described in ( ii ) and ( iii )); 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

NOTES TO FINANCIAL STATEMENTS

items. The cost of normal repairs and maintenance is expensed as incurred. On an annual basis, we perform major pre-planned maintenance activities on our generating units. These pre-planned activities are expensed when incurred. When regulated property, plant, and equipment is retired, Cinergy charges the original cost, less salvage, to Accumulated depreciation and the cost of removal to Regulatory liabilities , which is consistent with the composite method of depreciation. See (l) for further information on accrued cost of removal. 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.

(i)

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 was discontinued for all non-regulated property beginning in 2003, as a result of adopting Statement 143. Our utility operating companies use composite depreciation rates. These rates are approved by the respective state utility commissions with respect to regulated property. The average depreciation rates for Property, Plant, and Equipment are presented in the following table.


	2005		2004		2003
Cinergy ⁽¹⁾	3.2	%	3.2	%	2.8	%
CG&E and subsidiaries	2.4		2.6		2.6
PSI	4.1		3.7		3.1
ULH&P	3.4		3.5		3.2

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

In June 2004, PSI implemented new depreciation rates, as a result of changes in useful lives of production assets and an increased rate for cost of removal, that were approved in PSI’s latest retail rate case. The impact of this change in accounting estimate was an increase of approximately $30 million and $18 million in Cinergy’s and PSI’s Depreciation expense for 2005 and 2004, respectively.

(ii)

Allowance for Funds Used During Construction (AFUDC)

Our utility 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 equity component of AFUDC, which is credited to Miscellaneous Income (Expense) – Net , for the years ended December 31, 2005, 2004, and 2003, was as follows:


	2005		2004		2003
	*(in millions)*
Cinergy	$	7.1	$	1.6	$	7.5
CG&E and subsidiaries		1.0		0.5		2.7
PSI		6.1		1.1		4.8
ULH&P		0.6		—		0.2

NOTES TO FINANCIAL STATEMENTS

The borrowed funds component of AFUDC, which is recorded on a pre-tax basis and is credited to Interest Expense , for the years ended December 31, 2005, 2004, and 2003, was as follows:


	2005		2004		2003
	*(in millions)*
Cinergy	$	9.5	$	2.7	$	5.7
CG&E and subsidiaries		1.3		0.4		1.0
PSI		8.2		2.3		4.7
ULH&P		0.2		0.1		0.1

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 ( iii ) for a discussion of capitalized interest. The majority of PSI’s projects are being recovered through a construction work in progress (CWIP) tracker. Once CWIP projects are approved and included in the CWIP tracking mechanism, the costs of funds are no longer accrued on the project.

(iii)

Capitalized Interest

Cinergy capitalizes interest costs for non-regulated construction projects in accordance with SFAS No. 34, Capitalization of Interest Cost (Statement 34). The primary differences from AFUDC are that the 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, 2005, 2004, and 2003, were as follows:


	2005		2004		2003
	*(in millions)*
Cinergy ⁽¹⁾	$	6.1	$	4.5	$	7.9
CG&E and subsidiaries		5.4		4.1		7.7

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

(k)

Impairments

(i)

Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal 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. So long as an asset or group of assets is not held for sale, the determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows (including related tax effects) 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. Once assets are classified as held for sale, the comparison of undiscounted cash flows to carrying value is disregarded and an impairment loss is recognized for any amount by which the carrying value exceeds the fair value of the assets less cost to sell.

At December 31, 2005, the carrying value of gas-fired peaking plants that are not subject to cost-of-service-based ratemaking is approximately $400 million. GAAP does not require us to estimate the fair value of these assets since they are recoverable on a nominal basis. However, we believe the fair value of these plants to be substantially below their carrying value.

(ii)

Unconsolidated Investments

We evaluate the recoverability of investments in unconsolidated subsidiaries when events or changes in circumstances indicate that the carrying amount of the asset is other than temporarily impaired. An investment is

NOTES TO FINANCIAL STATEMENTS

considered impaired if the fair value of the investment is less than its carrying value. We only recognize an impairment loss when an impairment is considered to be other than temporary. We consider an impairment to be other than temporary when a forecasted recovery up to the investment’s carrying value is not expected for a reasonable period of time. We evaluate several factors, including, but not limited to, our intent and ability to hold the investment, the severity of the impairment, the duration of the impairment and the entity’s historical and projected financial performance, when determining whether or not an impairment is other than temporary. Once an investment is considered other than temporarily impaired and an impairment loss is recognized (as Miscellaneous Income (Expense) – Net ), the carrying value of the investment is not adjusted for any subsequent recoveries in fair value. As of December 31, 2005 and 2004, we do not have any material unrealized losses that are deemed to be temporary in nature. We have not incurred any material impairment charges on unconsolidated investments during 2005. See Note 17(a) for the amount of impairment charges recorded during 2004.

(l)

Asset Retirement Obligations and Accrued Cost of Removal

In accordance with Statement 143, we recognize the fair value of legal obligations associated with the retirement or removal of long-lived assets at the time the obligations are incurred and can be reasonably estimated. The initial recognition of this liability is accompanied by a corresponding increase in property, plant, and equipment. Subsequent to the initial recognition, the liability is adjusted for any revisions to the expected value 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 Operation and maintenance expense). Additional depreciation expense is recorded prospectively for any property, plant, and equipment increases.

See (s)( iv ) for a summary of cumulative effect adjustments, which includes our adoption of Statement 143, and (s)( i ) for a discussion of our December 31, 2005 adoption of FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (Interpretation 47), an interpretation of Statement 143.

CG&E’s transmission and distribution business, PSI , and ULH&P ratably accrue the estimated retirement and removal cost of rate regulated property, plant, and equipment when removal of the asset is considered likely, in accordance with established regulatory practices. The accrued, but not incurred, balance for these costs is classified as Regulatory liabilities , under Statement 71. We do not accrue the estimated cost of removal when no legal obligation associated with retirement or removal exists for any of our non-regulated assets (including CG&E’s generation assets).

Approximately $2 million of asset retirement obligations were transferred to ULH&P from CG&E in January 2006 in conjunction with the transfer of generating assets. See (s)( i ) for additional information.

(m)

Derivatives

We account for derivatives under Statement 133, which requires all derivatives, subject to certain exemptions, to be accounted for at fair value. Changes in a 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 Statements of Income for fair value hedges; or (b) be recorded in other comprehensive income for cash flow hedges. To qualify for hedge accounting, derivatives must be designated as a hedge (for example, an offset of interest rate risks) 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.

(i)

Energy Marketing and Trading

We account for all energy trading derivatives at fair value. These derivatives are shown in our Balance Sheets as Energy risk management assets and Energy risk management liabilities . Changes in a derivative’s fair value represent unrealized gains and losses and are recognized as revenues in our Statements of Income unless specific hedge accounting criteria are met.

NOTES TO FINANCIAL STATEMENTS

Non-derivatives involve the physical delivery of energy and are accounted for as accrual contracts. Accrual contracts are not adjusted for changes in fair value.

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. Open market purchases may occur for the following reasons:

•

generating station outages;

•

least-cost alternative;

•

native load requirements; and

•

extreme weather.

We value derivatives 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

•

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

In October 2002, the EITF reached a consensus in EITF 02-3 to rescind EITF Issue 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities (EITF 98-10). EITF 98-10 permitted non-derivative contracts to be accounted for at fair value if certain criteria were met. Effective with the adoption of EITF 02-3 on January 1, 2003, non-derivative contracts and natural gas held in storage that were previously accounted for at fair value were required to be accounted for on an accrual basis, with gains and losses on the transactions being recognized at the time the contract was settled. See (s)( iv ) for a summary of cumulative effect adjustments.

Cinergy designates derivatives as fair value hedges for certain volumes of our natural gas held in storage. Under this accounting election, changes in the fair value of both the derivative as well as the hedged item (the specified gas held in storage) are included in Gas Operating Revenues in Cinergy’s Statements of Income. We assess the effectiveness of the derivatives in offsetting the change in fair value of the gas held in storage on a quarterly basis. Selected information on Cinergy’s hedge accounting activities was as follows:


	2005			2004
	*(in millions)*
Portion of gain (loss) on hedging instruments determined to be ineffective	$	—		$	(2	)
Portion of gain (loss) on hedging instruments related to changes in time value excluded from assessment of ineffectiveness		(5	)		28

Total included in Gas Operating Revenues	$	(5	)	$	26

(ii)

Financial

In addition to energy derivatives, we use derivative financial instruments to manage exposure to fluctuations in interest rates. We use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for variable-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). We account for such derivatives at fair value and assess the effectiveness of any such derivative used in hedging activities.

At December 31, 2005, 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 hedged debt instrument. The unrealized losses that will be reclassified as a charge to Interest Expense during the twelve-month period ending December 31, 2006 are not expected to be material.

NOTES TO FINANCIAL STATEMENTS

(n)

Intangible Assets

Under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets (Statement 142), goodwill and other intangible assets with indefinite lives are not amortized. Statement 142 requires that goodwill is assessed 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 18. 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)

Income Taxes

Cinergy and its subsidiaries file a consolidated federal income tax return and combined/consolidated state and local tax returns in certain jurisdictions. Cinergy and its subsidiaries have an income tax allocation agreement; the corporate taxable income method is used to allocate tax benefits to the subsidiaries whose investments or results of operations provide those tax benefits. Any tax liability not directly attributable to a specific subsidiary is allocated proportionately among the subsidiaries as required by the agreement.

SFAS 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. We evaluate quarterly the realizability of our deferred tax assets by assessing our valuation allowance and adjusting the amount of such allowance, if necessary.

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 12.

(p)

Contingencies

In the normal course of business, Cinergy , CG&E , PSI , and ULH&P are subject to various regulatory actions, proceedings, and lawsuits related to environmental, tax, or other legal matters. We reserve for these potential contingencies when they are deemed probable and reasonably estimable liabilities. However, these amounts are estimates based upon assumptions involving judgment and therefore actual results could differ. For further discussion of contingencies, see Note 13.

(q)

Pension and Other Postretirement Benefits

Cinergy provides benefits to retirees in the form of pension and other postretirement benefits. Our reported costs of providing these pension and other postretirement benefits are developed by actuarial valuations and are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience. Changes made to the provisions of the plans may impact current and future pension costs. Pension costs associated with Cinergy’s defined benefit plans are impacted by employee demographics, the level of contributions we make to the plan, and earnings on plan assets. These 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. Changes in pension obligations associated with the previously discussed factors are not immediately recognized as pension costs on the Statements of Income but are deferred and amortized in the future over the average remaining service period of active plan participants to the extent they exceed certain thresholds prescribed by SFAS No. 87, Employers’ Accounting for Pensions (Statement 87).

Other postretirement benefit costs are impacted by employee demographics, per capita claims costs, and health care cost trend rates and may also be affected by changes in key actuarial assumptions, including the discount rate used in determining the accumulated postretirement benefit obligation (APBO). Changes in postretirement benefit

NOTES TO FINANCIAL STATEMENTS

obligations associated with these factors are not immediately recognized as postretirement benefit costs but are deferred and amortized in the future over the average remaining service period of active plan participants to the extent they exceed certain thresholds prescribed by SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (Statement 106).

Cinergy reviews and updates its actuarial assumptions for its pension and postretirement benefit plans on an annual basis, unless plan amendments or other significant events require earlier remeasurement at an interim period. For additional information on pension and other postretirement benefits, see Note 11.

(r)

Stock-Based Compensation

In 2003, we prospectively adopted accounting for our stock-based compensation plans using the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (Statement 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (Statement 148), for all employee awards granted or with terms modified on or after January 1, 2003. Prior to 2003, we had accounted for our stock-based compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees . See Note 3(c) for further information on our stock-based compensation plans. The impact on our Net Income and earnings per common share (EPS) if the fair-value based method had been applied to all outstanding and unvested awards in each period was not material. In December 2004, the FASB issued a revision of Statement 123 entitled Share-Based Payment . See (s)( ii ) for further information.

(s)

Accounting Changes

(i)

Asset Retirement Obligations

In March 2005, the FASB issued Interpretation No. 47, an interpretation of Statement 143. Statement 143 requires recognition of legal obligations associated with the retirement or removal of long-lived assets at the time the obligations are incurred. Interpretation 47 clarifies that a conditional asset retirement obligation (which occurs when the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity) is a legal obligation within the scope of Statement 143. As such, the fair value of a conditional asset retirement obligation must be recognized as a liability when incurred if the liability’s fair value can be reasonably estimated. Interpretation 47 also clarifies when sufficient information exists to reasonably estimate the fair value of an asset retirement obligation.

We adopted Interpretation 47 on December 31, 2005 and recorded multiple asset retirement obligations as a result. These asset retirement obligations primarily related to obligations associated with retiring gas mains, recorded by Cinergy , CG&E , and ULH&P , and future asbestos abatement at certain generating stations, recorded by Cinergy , CG&E , and PSI .

Cinergy and CG&E recognized a loss of approximately $3 million (net of tax) for the cumulative effect of this change in accounting principle. The cumulative effect resulted from asset retirement obligations primarily associated with our non-regulated generating assets. See (s)( iv ) for a summary of cumulative effect adjustments. The effect of adoption for Cinergy , CG&E , PSI , and ULH&P included balance sheet reclassifications of approximately $35 million, $27 million, $8 million, and $5 million, respectively, from Regulatory liabilities . See discussion of Regulatory liabilities previously disclosed in (e). The increases in asset retirement obligations from adopting Interpretation 47 were $51 million, $39 million, $12 million and $6 million for Cinergy , CG&E , PSI , and ULH&P , respectively.

Pro-forma results as if Interpretation 47 was applied retroactively for the years ended December 31, 2005, 2004, and 2003 are not materially different from reported results. The December 31, 2004 and December 31, 2003 pro-forma liabilities for asset retirement obligations recorded as a result of the adoption of Interpretation 47 are not materially different than the December 31, 2005 balances.

NOTES TO FINANCIAL STATEMENTS

(ii)

Share-Based Payment

In December 2004, the FASB issued a replacement of Statement 123, SFAS No. 123 (revised 2004), Share-Based Payment (Statement 123R). This standard will require, among other things, accounting for all stock-based compensation arrangements under the fair value method. The standard also requires compensation awards that involve the achievement of a certain company stock price (or similar measure) to have the likelihood of reaching those targets incorporated into the fair value of the award. The number of awards paid out under Cinergy’s performance-based share awards under the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan (LTIP) is based on Cinergy’s expected total shareholder return (TSR) as measured against a pre-defined peer group. Therefore, these awards are required to be re-valued at fair value upon adoption.

We adopted Statement 123R on January 1, 2006 using the modified prospective application. Cinergy recognized an immaterial loss for the cumulative effect of this change in accounting principle. The cumulative effect is due to the use of a new model that incorporates the expected TSR into the fair value of Cinergy’s performance-based share awards under the LTIP. This model is used to value all grants of future performance-based share awards under the LTIP, beginning January 1, 2006.

In 2003, we prospectively adopted accounting for our stock-based compensation plans using the fair value recognition provisions of Statement 123, as amended by Statement 148, for all employee awards granted or with terms modified on or after January 1, 2003. Therefore, the impact of implementation of Statement 123R on stock options and remaining awards, other than the aforementioned performance-based share awards, within our stock-based compensation plans was not material. See additional detail regarding Cinergy’s stock-based compensation plans in Note 3(c).

(iii)

Income Taxes

In October 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a one-time deduction of 85 percent of certain foreign earnings that are repatriated, as defined in the AJCA. The repatriation of foreign earnings pursuant to this provision did not have a material impact on our financial position or results of operations.

NOTES TO FINANCIAL STATEMENTS

(iv)

Cumulative Effect of Changes in Accounting Principles, Net of Tax

In 2005, Cinergy recognized a Cumulative effect of a change in accounting principle, net of tax as a result of the recognition of conditional asset retirement obligations in conjunction with the adoption of Interpretation 47. In 2003, Cinergy , CG&E , and PSI recognized Cumulative effect of changes in accounting principles, net of tax as a result of the reversal of accrued cost of removal for non-regulated generating assets in conjunction with the adoption of Statement 143 and the change in accounting for certain energy related contracts from fair value to accrual in accordance with the rescission of EITF 98-10. There were no cumulative effect adjustments in 2004. The following table summarizes these cumulative effect adjustments and their related tax effects.


	Year to Date December 31
	2005								2003
	Before- tax Amount			Tax (Expense) Benefit		Net-of-tax Amount			Before- tax Amount			Tax (Expense) Benefit			Net-of-tax Amount
	*(in millions)*
Cinergy ⁽¹⁾
Asset retirement obligation (Interpretation 47 adoption)	$	(5	)	$	2	$	(3	)	$	—		$	—		$	—
Rescission of EITF 98-10 (EITF 02-3 adoption)		—			—		—			(21	)		8			(13	)
Asset retirement obligation (Statement 143 adoption)		—			—		—			64			(25	)		39

	$	(5	)	$	2	$	(3	)	$	43		$	(17	)	$	26

CG&E
Asset retirement obligation (Interpretation 47 adoption)	$	(5	)	$	2	$	(3	)	$	—		$	—		$	—
Rescission of EITF 98-10 (EITF 02-3 adoption)		—			—		—			(13	)		5			(8	)
Asset retirement obligation (Statement 143 adoption)		—			—		—			64			(25	)		39

	$	(5	)	$	2	$	(3	)	$	51		$	(20	)	$	31
PSI		—			—		—			—			—			—
Asset retirement obligation (Interpretation 47 adoption)	$	—		$	—	$	—		$	—		$	—		$	—
Rescission of EITF 98-10 (EITF 02-3 adoption)		—			—		—			(1	)		0.5			(0.5	)

	$	—		$	—	$	—		$	(1	)	$	0.5		$	(0.5	)

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

(t)

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 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.

(u)

Related Party Transactions

CG&E , PSI , and ULH&P 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 1935 and the applicable state and federal commission regulations. See (c) for a further discussion of the repeal of the PUHCA 1935 and the implementation of the FERC’s PUHCA 2005. The Balance Sheets of our utility 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 1935.

NOTES TO FINANCIAL STATEMENTS

The costs of these services are charged to our 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; and

•

construction expenditures.

These costs were as follows for the years ended December 31, 2005, 2004, and 2003:


	2005		2004		2003
	*(in millions)*
CG&E and subsidiaries	$	370	$	286	$	219
PSI		259		230		193
ULH&P		31		21		22

During 2003, Cinergy Power Generation Services, LLC (Generation Services) supplied electric production-related construction, operation and maintenance services to certain of our subsidiaries pursuant to agreements approved by the SEC under the PUHCA 1935. CG&E and its subsidiaries received services from Generation Services in the amount of $96 million for the year ended December 31, 2003. PSI received services in the amount of $55 million for the year ended December 31, 2003. Effective January 1, 2004, these services are now provided by Services and/or directly by CG&E and PSI as all Generation Services employees were transferred to other affiliated corporations.

(ii)

Purchased Energy

Through December 31, 2005, ULH&P purchased energy from CG&E pursuant to a 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 . ULH&P purchased energy from CG&E for resale in the amounts of $168 million, $162 million, and $155 million for the years ended December 31, 2005, 2004, and 2003, respectively. These amounts are reflected in the Statements of Income for ULH&P as Electricity purchased from parent company for resale . This contract was terminated effective December 31, 2005, in connection with the transfer of generating assets from CG&E to ULH&P . For information on the transfer of generating assets to ULH&P on January 1, 2006, see Note 22.

PSI and CG&E purchased energy from each other under a federal and state approved joint operating agreement. These sales and purchases are reflected in the Statements of Income of PSI and CG&E as Electric operating revenues and Fuel, emission allowances, and purchased power expense and were as follows for the years ended December 31, 2005, 2004, and 2003:


	2005		2004		2003
	*(in millions)*
CG&E
Electric operating revenues	$	32	$	48	$	63
Purchased power ⁽¹⁾		14		80		74

PSI
Electric operating revenues		14		80		74
Purchased power ⁽¹⁾		32		48		63

⁽¹⁾	Includes intercompany purchases that are presented net in accordance with EITF 02-3.

Effective January 1, 2006, the joint operating agreement was terminated. With the implementation of Midwest ISO’s structured Day-Ahead and Real-Time Energy Market, Midwest ISO took over the responsibility of dispatching generation units in its footprint, including PSI and CG& E generation units, and it was no longer necessary to have a joint operating agreement between PSI and CG& E .

NOTES TO FINANCIAL STATEMENTS

CG&E and PSI had an agreement with Marketing & Trading to purchase gas for certain gas-fired peaking plants. Purchases under this agreement were approximately $26 million, $4 million, and $6 million for CG&E and $130 million, $37 million, and $20 million for PSI for the years ended December 31, 2005, 2004, and 2003, respectively. The amounts are reflected in the Statements of Income of CG&E and PSI as Fuel, emission allowances, and purchased power expense.

During 2005, PSI terminated the agreement with Marketing & Trading to purchase gas, and on December 29, 2005, PSI and ULH&P entered into separate agreements with an unrelated third party to supply all of the natural gas to be used as fuel for certain gas-fired peaking plants.

(iii)

Other

CG&E and ULH&P enter into various agreements with Marketing & Trading to manage their interstate pipeline transportation, storage capacity, and gas supply contracts. Under the terms of these agreements, Marketing & Trading is obligated to deliver natural gas to meet CG&E’s and ULH&P’s requirements. Payments under these agreements for the years ended December 31, 2005, 2004, and 2003 were approximately $726 million, $480 million, and $413 million for CG&E and its subsidiaries and $102 million, $79 million, and $78 million for ULH&P . These amounts are recorded in the Statements of Income for CG&E and ULH&P as Gas purchased expense. Certain of these amounts for CG&E and ULH&P have been deferred for future recovery. In addition, certain of these amounts for CG&E are presented net in Gas operating revenues in accordance with EITF 02-3.

ULH&P terminated its agreement with Marketing & Trading, and on December 29, 2005, entered into an agreement with an unrelated third party to manage their interstate pipeline transportation, storage capacity, and gas supply contracts.

During 2004 and 2005, CG&E served as the purchase and sales agent for PSI with respect to emission allowances. As of December 31, 2005, CG&E’s affiliated receivables and PSI’s affiliated payables totaled approximately $3 million. All other amounts were immaterial. There were no emission allowance transactions between CG&E and PSI in 2003.

Cinergy Corp. , Services, and our utility operating companies participate in a money pool arrangement to better manage cash and working capital requirements. These amounts are reflected in Notes payable to affiliated companies and Notes receivable from affiliated companies on the Balance Sheets of our utility operating companies. For a further discussion of the money pool agreement, see Note 7.

2. Pending Merger

On May 8, 2005, Cinergy Corp. entered into an agreement and plan of merger with Duke, a North Carolina corporation, whereby Cinergy Corp. will be merged with Duke. Under the merger agreement, each share of Cinergy Corp. common stock will be converted into 1.56 shares of the newly formed company, Duke Energy Holding.

Immediately following consummation of the merger, former Cinergy shareholders will own approximately 24 percent of Duke Energy Holding’s common stock. Paul Anderson, Duke’s CEO and Chairman of the Board will remain Chairman of the combined company and Jim Rogers, Cinergy’s CEO and Chairman of the Board, will become the President and CEO of the combined company. The new Duke Energy Holding board will be comprised of 10 members appointed by Duke and five members appointed by Cinergy .

The merger will be recorded using the purchase method of accounting whereby the total purchase price of approximately $9 billion will be allocated to Cinergy’s identifiable tangible and intangible assets acquired and liabilities assumed based on their fair values as of the closing of the merger.

The merger is expected to close in the first half of 2006. However, the actual timing is contingent on the receipt of several approvals including: FERC, Federal Communications Commission (FCC), Nuclear Regulatory Commission (NRC), state regulatory commissions of Ohio, Indiana, Kentucky, North Carolina, and South Carolina, and shareholders of each company. The status of these matters is as follows:

Completed:

•

On August 11, 2005, the United States Department of Justice and the Federal Trade Commission granted early termination of the waiting period imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

•

In November 2005, the KPSC approved Duke’s and Cinergy’s application seeking approval of a transfer and acquisition of control of ULH&P .

•

In November 2005, the state utility regulatory agency in South Carolina approved Duke’s application requesting authorization to enter into a business combination.

•

In December 2005, the PUCO approved Cinergy’s application of a change in control with respect to CG&E . The PUCO affirmed the approval in February 2006.

•

In December 2005, the FERC approved Duke’s and Cinergy’s application requesting approval of the merger and the subsequent internal restructuring and consolidation of the merged company.

•

In February 2006, the NRC approved Duke’s application requesting approval of the merger.

•

The FCC has approved assignment of all eight Cinergy wireless telecommunications licenses.

•

In light of the repeal of the PUHCA 1935, as amended, effective February 2006, the merger will no longer require SEC authorization under the PUHCA 1935.

Pending:

•

In June 2005, PSI filed a petition with the IURC concerning, among other things, certain merger-related affiliate agreements, the sharing of merger-related benefits with customers, and deferred accounting of certain merger-related costs. On December 15, 2005, PSI filed with the IURC a settlement agreement reached with the staff of the IURC, the Indiana Office of Utilities Consumer Counsel and the PSI Industrial Group. Settlement hearings were held in January 2006 and a final order is expected in March 2006.

•

In July 2005, Duke filed an application with the state utility regulatory agency in North Carolina. The application requests both the authorization to enter into a business combination transaction and the approval of various affiliate agreements. Hearings were held in January 2006 and a final order is expected in March 2006.

•

Special meetings of shareholders of both companies for the purpose of voting on the merger will be held on March 10, 2006.

The merger agreement also provides that Duke and Cinergy will use their reasonable best efforts to transfer five generating stations located in the midwest from Duke to CG&E . This transfer will require regulatory approval by the FERC and, with respect to one plant located in Indiana the IURC. The FERC approved this transaction in December 2005. CG&E and the Duke affiliate that owns the interest in the Indiana plant filed an application with

the IURC requesting approval for the transfer (as well as the declination by the IURC of jurisdiction over CG&E following the transfer) in October 2005. A final order approving the transfer and the IURC’s declination of jurisdiction over CG&E was received in February 2006. Duke and Cinergy intend to effectuate the transfer as an equity infusion into CG&E at book value. In conjunction with the transfer, Duke Capital LLC, a subsidiary of Duke, and CG&E intend to enter into a financial arrangement covering a multi-year period, to eliminate any potential cash shortfalls that may result from CG&E owning and operating the five stations. At this time, we cannot predict the outcome of this matter.

The merger agreement contains certain termination rights for both Duke and Cinergy , and further provides that, upon termination of the merger agreement under specified circumstances, a party would be required to pay the other party’s fees and expenses in an amount not to exceed $35 million and/or a termination fee of $300 million in the case of a fee payable by Cinergy to Duke or a termination fee of $500 million in the case of a fee payable by Duke to Cinergy . Any termination fee would be reduced by the amount of any fees and expenses previously reimbursed by the party required to pay the termination fee.

In May 2005, a purported shareholder class action was filed in the Court of Common Pleas in Hamilton County, Ohio against Cinergy and each of the members of the Board of Directors. The lawsuit alleged that the defendants breached their duties of due care and loyalty to shareholders by agreeing to the merger agreement between Duke and Cinergy and was seeking to either enjoin or amend the terms of the merger. Cinergy and the individual defendants filed a motion to dismiss this lawsuit in July 2005, which was granted in November of 2005. An appeal was not filed by the plaintiffs and the case is closed.

Although Management believes that the merger should close in the first half of 2006, the actual timing of the transaction could be delayed or the merger could be abandoned by the parties in the event of the inability to obtain one or more of the required regulatory approvals on acceptable terms.

1. Common Stock

(a)

Changes In Common Stock Outstanding

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


	Shares Authorized for Issuance under Plan		Number of Shares Available for Future Issuance ⁽²⁾	Shares Used to Grant or Settle Awards
				Shares Used to Grant or Settle Awards
				2005	2004	2003
Cinergy Corp. 1996 LTIP	14,500,000		2,012,161	770,518	1,729,679	1,742,046
Cinergy Corp. Stock Option Plan (SOP)	5,000,000		1,318,500	33,900	393,523	421,611
Cinergy Corp. Employee Stock Purchase and Savings Plan	2,000,000		1,482,664	—	—	168,756
Cinergy Corp. UK Sharesave Scheme	75,000		62,047	589	7,313	3,364
Cinergy Corp. Retirement Plan for Directors	175,000	⁽¹⁾	—	6,203	5,909	5,602
Cinergy Corp. Directors’ Equity Compensation Plan	75,000		35,805	423	1,095	3,824
Cinergy Corp. Directors’ Deferred Compensation Plan	200,000		92,415	5,655	5,388	25,826
Cinergy Corp. 401(k) Plans	6,469,373	⁽¹⁾	1,169,358	1,615,900	1,174,600	1,544,900
Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan	3,000,000	⁽¹⁾	497,388	538,163	627,205	679,301
Cinergy Corp. 401(k) Excess Plan	100,000	⁽¹⁾	—	—	—	—

⁽¹⁾	Plan does not contain an authorization limit. The number of shares presented reflects amounts registered with the SEC as of December 31, 2005.

⁽²⁾	Shares available exclude the number of shares to be issued upon exercise of outstanding options, warrants, and rights.

We retired 111,544 shares of common stock in 2005, 829,575 shares in 2004, and 519,976 shares in 2003, mainly representing shares tendered as payment for the exercise of previously granted stock options.

Cinergy issues new Cinergy Corp. common stock shares to satisfy obligations under certain of its employee stock plans and the Cinergy Corp. Direct Stock Purchase and Dividend Reinvestment Plan. Cinergy Corp. issued approximately 3.0 million shares in 2005 and approximately 3.9 million shares in 2004 to satisfy its obligations under these plans.

In December 2004, Cinergy Corp. issued 6.1 million shares of common stock under its January 2003 $750 million registration statement with the SEC. The net proceeds of $247 million were used to reduce short-term indebtedness.

In January and February 2005, Cinergy Corp. issued a total of 9.2 million shares of common stock pursuant to certain stock purchase contracts that were issued as a component of combined securities in December 2001. Net proceeds from the transaction of $316 million were used to reduce short-term debt. See Note 5(b) for further discussion of the securities.

In June 2005, Cinergy Corp. contributed $200 million in capital to PSI . The capital contribution was used to repay short-term indebtedness and is consistent with supporting PSI’s current credit ratings.

In January 2006, CG&E contributed approximately $140 million in capital to ULH&P in conjunction with the transfer of certain generating assets to ULH&P . See Note 22 for additional information.

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. dividends on their common stock. 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. In addition, until consummation or termination of the merger with Duke, Cinergy is prohibited from paying dividends in excess of its historical levels without prior consent of Duke.

(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) Plans; and

•

401(k) Excess Plan.

The LTIP, the SOP, the Employee Stock Purchase and Savings Plan, 401(k) Plans, and the 401(k) Excess Plan are discussed below. The activity in 2005, 2004, and 2003 for the remaining stock-based compensation plans was not significant.

In 2003, we prospectively adopted accounting for our stock-based compensation plans using the fair value recognition provisions of Statement 123, as amended by Statement 148, for all employee awards granted or with terms modified on or after January 1, 2003. See Note 1(s)( ii ) for additional information on costs we recognized related to stock-based compensation plans. Effective January 1, 2006, Cinergy adopted Statement 123R. See Note 1(r) for additional information regarding this new accounting standard.

(i)

LTIP

Under this plan, certain key employees may be granted incentive and non-qualified stock options, stock appreciation rights (SARs), restricted stock, dividend equivalents, phantom stock, 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 three years. The vesting period begins on the grant date and all options expire within 10 years from that date.

From 2003 through 2005, performance-based share awards were paid with 50 percent in common stock and 50 percent in cash. As of December 31, 2005, all performance shares were classified as liabilities as management intends to pay all outstanding awards in cash. As a result, the expected cash payout portion of the performance shares were reported in Current Liabilities - Other and Non-Current Liabilities - Other .

Entitlement to performance-based shares is based on Cinergy’s 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)*
VIII	1/2004	2004-2006	362
IX	1/2005	2005-2007	340
X	1/2006	2006-2008	351

Participants may earn more or less performance shares if Cinergy’s TSR ranks above or below the 55 ^th percentile of the TSR of its peer group. For the three-year performance period ended December 31, 2005 (Cycle VII), approximately 109,000 shares (including dividend equivalent shares) were earned, based on our relative TSR.

(ii)

SOP

The SOP was 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 could have been granted to key employees, officers, and outside directors. The activity under this plan predominantly consisted of the grant of stock options. Options were granted with an option price equal to the fair market value of the shares on the grant date. Options generally vested over five years at a rate of 20 percent per year, beginning on the grant date, and expiring 10 years from the grant date. As of October 2004, no additional incentive stock options may be granted under the plan.

(iii)

Employee Stock Purchase and Savings Plan

The Employee Stock Purchase and Savings Plan allowed essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. The last offering period began May 1, 2001, and ended June 30, 2003, with 168,101 shares purchased and the remaining cash distributed to the respective participants. The purchase price for all shares under this offering was $32.78.

Stock option activity for 2005, 2004, and 2003 for the LTIP, SOP, and Employee Stock Purchase and Savings Plan is summarized as follows:


	LTIP and SOP				Employee Stock Purchase and Savings Plan ⁽¹⁾
	Shares Subject to Option		Weighted Average Exercise Price		Shares Subject to Option		Weighted Average Exercise Price
Balance at December 31, 2002	7,361,700		$	29.06	218,170		$	32.78
Options granted ⁽²⁾	897,100			34.30	—			—
Options exercised	(1,630,046	)		24.89	(168,101	)		32.78
Options forfeited	(59,300	)		30.51	(50,069	)		32.78

Balance at December 31, 2003	6,569,454			30.79	—			—

Options granted ⁽²⁾	739,200			38.79
Options exercised	(1,950,570	)		26.41
Options forfeited	(32,700	)		35.95

Balance at December 31, 2004	5,325,384			33.35
Options granted ⁽²⁾	766,100			41.78
Options exercised	(490,263	)		30.27
Options forfeited	(116,572	)		39.66

Balance at December 31, 2005	5,484,649		$	34.72

Options Exercisable:
At December 31, 2003	3,700,346		$	29.52
At December 31, 2004	2,706,876		$	32.01
At December 31, 2005	3,310,549		$	32.86

⁽¹⁾	Shares were not offered after June 30, 2003.

⁽²⁾	Options were not granted under the SOP during 2005, 2004, or 2003.

The weighted average fair value of options granted under the LTIP was $5.64 in 2005, $5.65 in 2004, and $4.96 in 2003. 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
	2005		2004		2003
Risk-free interest rate	3.63	%	3.35	%	3.02	%
Expected dividend yield	4.52	%	4.97	%	5.34	%
Expected life	4.99	yrs.	5.33	yrs.	5.35	yrs.
Expected volatility	21.24	%	24.47	%	26.15	%

Price ranges, along with certain other information, for options outstanding under the combined LTIP and SOP plans at December 31, 2005, 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
$23.66 - $33.64	1,896,158	$	29.77	5.04 yrs.	1,712,158	$	29.66
$33.88 - $36.88	1,979,691	$	35.11	4.91 yrs.	1,266,291	$	35.52
$37.82 - $43.70	1,608,800	$	40.08	7.63 yrs.	332,100	$	39.16

(iv)

401(k) Plans

We sponsor 401(k) employee retirement plans that cover substantially all United States employees. Employees can contribute up to 50 percent of pre-tax base salary (subject to Internal Revenue Service (IRS) limits) and up to 15 percent of after-tax base salary. We make matching contributions to these plans in the form of Cinergy Corp. common stock, contributing 100 percent of the first three percent of an employee’s pre-tax contributions plus 50 percent of the next two percent of an employee’s pre-tax contributions, and we have the discretion to make incentive matching contributions based on Cinergy’s net income. Employees are immediately vested in both their contributions and our matching contributions.

Cinergy’s , CG&E’s , and PSI’s matching contributions for the years ended December 31, 2005, 2004, and 2003 were as follows:


	2005		2004		2003
	*(in millions)*
Cinergy ⁽¹⁾	$	18	$	20	$	18
CG&E and subsidiaries		4		5		3
PSI		4		4		4

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

Effective January 1, 2003, each Cinergy employee whose pension benefit is determined using a cash balance formula is also eligible to receive an annual deferred profit sharing contribution, calculated as a percentage of that employee’s total pension eligible earnings. The deferred profit sharing contribution made by Cinergy is based on the corporate net income performance level for the year, and is made to the 401(k) plans in the form of Cinergy Corp. common stock. Employees vest in their benefit upon reaching three years of service, or immediately upon reaching age 65 while employed. Cinergy has recorded approximately $4.7 million and $2.4 million, respectively, of profit sharing contribution costs for the years ended December 31, 2005 and December 31, 2004.

(v)

401(k) Excess Plan

The 401(k) Excess Plan is a non-qualified deferred compensation plan for a select group of Cinergy management and other highly compensated employees. It is a means by which these employees can defer additional compensation, and receive company matching contributions, provided they have already contributed the maximum amount (pursuant to the anti-discrimination rules for highly compensated employees) under the qualified 401(k) Plans. All funds deferred are held in a rabbi trust administered by an independent trustee.

(vi)

Merger-Related Obligations

Several of the company’s benefit plans contain “change-in-control” clauses that provide enhanced, and/or accelerate the payment of, benefits to management level employees in the event of a qualifying transaction such as would occur upon the consummation of the proposed merger with Duke as discussed in Note 2. These include benefits paid pursuant to the LTIP and certain payments under Cinergy’s Annual Incentive Plan. Certain employees will also be entitled to additional severance and benefits in the event they are involuntarily terminated without “cause” or voluntarily terminate for “good reason” (as such terms are defined in their employment agreements) in connection with or following the merger.

On December 30, 2005, Cinergy entered into agreements with 28 employees to accelerate the payment of a portion of the amounts discussed above, otherwise expected to be paid after December 31, 2005, in order to mitigate the Company’s taxes and related expenses. Payments totaling $70 million were made in December pursuant to these agreements. The agreements amend the employees’ employment agreements, and benefit plans in which they participate, to accelerate into 2005 the payment of certain amounts that they have previously earned or are expected to earn after December 31, 2005. Among other things, the Company prepaid performance shares under the LTIP and severance payments for certain individuals. In the event an employee who received such amounts voluntarily terminates his employment prior to the closing of the merger, the employee is obligated to repay all of the payments, and if the merger does not close on or prior to December 15, 2006, the employee is obligated to repay half of the payments, to reflect his or her estimated tax liability upon receipt of the accelerated payments; in each case, less any amounts that the employee has already earned through such date. By accelerating these payments, the Company will mitigate taxes and related expenses that it would otherwise incur if it had waited until after 2005 to make these payments.

The majority of these payments have been recorded as prepaid compensation in Prepayments and other . Approximately half of these payments are being accounted for as a retention bonus and will be expensed over the period between January 1, 2006 and the estimated closing of the pending merger with Duke. The remainder, representing the half that executives must repay if the merger is never consummated, will remain in Prepayments and other until the merger closes.

In addition to payments made in December, based on certain assumptions and using our current best estimates, the Company’s remaining contractual obligations that will be triggered upon merger consummation, and due shortly thereafter, including severance payments for those executives that have indicated their intention to terminate for “good reason”, is expected to be approximately $73 million. These amounts will be accounted for when the merger closes. This estimate only includes amounts payable pursuant to existing benefit arrangements and employment contracts and does not include the value of accelerated stock options, retirement benefits earned prior to the merger, and amounts payable under severance plans that Duke and Cinergy are considering to reduce redundant positions after the merger closes.

2. Cumulative Preferred Stock

In August 2005, PSI redeemed all of its $31.075 million notional amount 6.875% Cumulative Preferred Stock.

In February 2006, CG&E notified holders of its $16.98 million notional amount 4% Cumulative Preferred Stock, and holders of its $3.5 million notional amount 4.75% Cumulative Preferred Stock that it intends to redeem all outstanding shares on March 10 at a price of $108 per share and $101 per share, respectively, plus accrued and unpaid dividends.

3. Variable Interest Entities

(a)

Power Sale Special Purpose Entities (SPEs)

In accordance with FASB Interpretation No. 46, Consolidation of Variable Interest Entities , we consolidate two SPEs that have individual power sale agreements with Central Maine Power Company (CMP) for approximately 45 megawatts (MW) of capacity, ending in 2009, and 35 MW of capacity, ending in 2016. In addition, these 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. Upon the initial consolidation of these two SPEs on July 1, 2003, approximately $239 million of notes receivable, $225 million of non-recourse debt, and miscellaneous other assets and liabilities were included on Cinergy’s Balance Sheets. The debt was incurred by the SPEs to finance the buyout of the existing power contracts that CMP held with the former suppliers. The cash flows from the notes receivable are designed to repay the debt. Note 10 provides additional information regarding the debt and the notes receivable, respectively.

(b)

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 by February 2005. A $50 preferred trust security and stock purchase contract were sold together as a single security unit (Unit). The preferred trust securities were issued through a trust whose common stock was 100 percent owned by Cinergy Corp . The stock purchase contracts were issued directly by Cinergy Corp. The trust loaned the proceeds from the issuance of the securities to Cinergy Corp. in exchange for a note payable to the trust that was eliminated in consolidation. The proceeds of $306 million, which was net of approximately $10 million of issuance costs, were used to pay down Cinergy Corp.’s short-term indebtedness. In January and February 2005, certain holders settled the stock purchase contracts early and elected to remove the units from the remarketing. In February 2005, the remaining preferred trust securities were successfully remarketed and the dividend rate was reset at 6.9 percent. The preferred trust securities will mature in February 2007. To settle the stock purchase contracts, Cinergy Corp. issued 9.2 million shares of common stock at the ceiling price of $34.40 per share as the market price of the stock exceeded the ceiling price of the contract. Net proceeds of approximately $316 million were used to repay short-term indebtedness.

Each Unit continues to receive quarterly cash payments of 6.9 percent per annum of the notional amount, which represents a preferred trust security dividend. The trust’s ability to pay dividends on the preferred trust securities is solely dependent on its receipt of interest payments from Cinergy Corp. on the note payable. However, Cinergy Corp. has fully and unconditionally guaranteed the preferred trust securities.

As of July 1, 2003, we no longer consolidate the trust that was established to issue the preferred trust securities. The preferred trust securities are no longer included in Cinergy Corp.’s Balance Sheets. In addition, the note payable owed to the trust, which has a current carrying value of $324 million, is included in Long-term debt .

(c)

Sales of Accounts Receivable

In February 2002, CG&E , PSI , and ULH&P entered into an 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 transfers of receivables are accounted for as sales, pursuant to 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 SFAS No. 140, Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities – a replacement of FASB Statement No. 125 (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 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 bases 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 are as follows (all amounts are averages of the assumptions used in sales during the period):


	Cinergy				CG&E and subsidiaries				PSI				ULH&P
	2005		2004		2005		2004		2005		2004		2005		2004
Anticipated credit loss rate	0.7	%	0.7	%	0.8	%	0.9	%	0.5	%	0.5	%	1.1	%	1.2	%
Discount rate on expected cash flows	5.7	%	3.8	%	5.7	%	3.8	%	5.7	%	3.8	%	5.7	%	3.8	%
Receivables turnover rate ⁽¹⁾	12.3	%	12.6	%	13.0	%	13.4	%	11.2	%	11.5	%	12.3	%	12.9	%

⁽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.

The following table shows the gross and net receivables sold, retained interests, purchased beneficial interest, sales, and cash flows during the periods ending December 31, 2005 and 2004.


	2005
	Cinergy		CG&E and subsidiaries		PSI		ULH&P
	*(in millions)*
Receivables sold as of period end	$	670	$	453	$	217	$	71
Less: Retained interests		264		177		87		29

Net receivables sold as of period end	$	406	$	276	$	130	$	42

Purchased beneficial interest	$	22	$	—	$	—	$	—

Sales during period
Receivables sold	$	4,419	$	2,636	$	1,783	$	406
Loss recognized on sale		53		35		18		6

Cash flows during period
Cash proceeds from sold receivables	$	4,296	$	2,546	$	1,750	$	392
Collection fees received		2		2		—		—
Return received on retained interests		24		14		10		2


	2004
	Cinergy		CG&E and subsidiaries		PSI		ULH&P
	*(in millions)*
Receivables sold as of period end	$	538	$	339	$	199	$	54
Less: Retained interests		194		121		73		21

Net receivables sold as of period end	$	344	$	218	$	126	$	33

Purchased beneficial interest	$	18	$	—	$	—	$	—

Sales during period
Receivables sold	$	3,895	$	2,253	$	1,642	$	367
Loss recognized on sale		38		25		13		4

Cash flows during period
Cash proceeds from sold receivables	$	3,835	$	2,213	$	1,622	$	360
Collection fees received		2		2		—		—
Return received on retained interests		17		10		7		2

(d)

Other

Cinergy also holds interests in several joint ventures, primarily engaged in cogeneration and energy efficiency operations, that are considered VIEs which do not require consolidation. Our exposure to loss from our involvement with these entities is not material.

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 February 2004, CG&E repaid at maturity $110 million of its 6.45% First Mortgage Bonds.

In April 2004, Cinergy Corp. repaid at maturity $200 million of its 6.125% Debentures.

In September 2004, Cinergy Corp . repaid at maturity $500 million of its 6.25% Debentures.

In November 2004, CG&E borrowed the proceeds from the Ohio Air Quality Development Authority’s issuance of $47 million principal amount of its State of Ohio Air Quality Development Revenue Bonds 2004 Series A and $47 million principal amount of its State of Ohio Air Quality Development Revenue Bonds 2004 Series B (for loans totaling $94 million), both due November 1, 2039. Payment of principal and interest on the Bonds when due is insured by separate bond insurance policies issued by XL Capital Assurance. The initial interest rate for both Series A and Series B was 1.92%. The interest rates on Series A and Series B were initially reset on January 5, 2005 and January 12, 2005, respectively, and then every 35 days by auction thereafter. Because the holders cannot tender the Bonds for purchase by the issuer while the Bonds are in the auction rate mode, these debt obligations are classified as Long-term debt . CG&E is using the proceeds from these borrowings to assist in financing its portion of the costs of acquiring, constructing and installing certain solid waste disposal facilities comprising air quality facilities at Units 7 and 8 at CG&E’s majority-owned Miami Fort Generating Station (Miami Fort Station).

In December 2004, PSI borrowed the proceeds from the Indiana Development Finance Authority’s issuance of $77 million principal amount of its Environmental Revenue Bonds, Series 2004B and $77 million principal amount of its Environmental Revenue Bonds, Series 2004C, both due December 1, 2039 (for loans totaling $154 million). Payment of principal and interest on the Bonds when due is insured by separate bond insurance policies issued by XL Capital Assurance. The initial interest rate for Series 2004B was 1.80% and for Series 2004C was 1.85%. The interest rates on both Series 2004B and Series 2004C were initially reset on January 11, 2005 and then every 35 days by auction thereafter. Because the holders cannot tender the Bonds for purchase by the issuer while the Bonds are in the auction rate mode, these debt obligations are classified as Long-term debt . PSI is using the proceeds from these borrowings to assist in the acquisition and construction of solid waste disposal facilities located at various generating stations in Indiana.

Also, in December 2004, ULH&P issued $40 million principal amount of its 5.00% Debentures due December 15, 2014 (effective interest rate of 5.26%). Proceeds from this issuance were used for general corporate purposes and the repayment of outstanding indebtedness.

In August 2005, PSI redeemed all of its $50 million 6.50% Synthetic Putable Yield Securities due August 1, 2026 through the exercise of call provisions within the securities.

Also in August 2005, PSI redeemed all of its $50 million principal amount Series ZZ First Mortgage secured 5 ³ / 4 % Series 1993B Environmental Revenue Refunding Bonds, due February 15, 2028. PSI redeemed these bonds with the proceeds from the issuance by the Indiana Finance Authority of $50 million principal amount of its Environmental Revenue Refunding Bonds, Series 2005A, due July 1, 2035. The bonds bear a fixed rate of interest through 2035 of 4.50 percent.

In September 2005, PSI redeemed all of its $30 million principal amount 7.125% Series AAA First Mortgage Bonds, due 2024.

In October 2005, PSI borrowed the proceeds from the Indiana Finance Authority’s issuance of $50 million principal amount of its Environmental Revenue Bonds, Series 2005C, due October 1, 2040. The initial interest rate for Series 2005C Bonds was 2.75%. This rate initially reset on December 2, 2005 and then every 35 days by auction thereafter. Because the holders cannot tender the Series 2005C Bonds for purchase by the issuer while the Series 2005C Bonds are in the auction rate mode, these debt obligations are classified as Long-term debt. PSI is using the proceeds from these borrowings to assist in the acquisition and construction of solid waste disposal facilities located at various generating stations in Indiana.

Also in October 2005, PSI issued $350 million principal amount of its 6.12% Debentures due October 15, 2035. Proceeds from this issuance were used for general corporate purposes and the repayment of outstanding short-term indebtedness.

In January 2006, ULH&P assumed responsibility for principal and interest payments on $61 million of CG&E’s long-term pollution control bonds in conjunction with the transfer of certain generating assets to ULH&P . The bonds will still remain on CG&E’s balance sheet and ULH&P’s obligation will be reflected as an intercompany note payable from ULH&P to CG&E . See Note 22 for additional information.

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 we have the right to buy back a given security from the holder at a specified price before maturity.


	Long-term Debt Maturities
	Cinergy ⁽¹⁾		CG&E and subsidiaries		PSI		ULH&P
	*(in millions)*
2006	$	353	$	—	$	325	$	—
2007		728		100		268		—
2008		550		120		43		20
2009		272		20		223		20
2010		18		—		2		—
Thereafter		2,872		1,390		1,342		55

Total	$	4,793	$	1,630	$	2,203	$	95

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

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.

CG&E’s transmission and distribution assets of approximately $2.9 billion are subject to the lien of its first mortgage bond indenture. The utility property of PSI is also subject to the lien of its first mortgage bond indenture.

As discussed previously, CG&E and PSI periodically borrowed proceeds from the issuance of tax-exempt bonds for the purpose of funding the acquisition and construction of solid waste disposal facilities located at various generating stations in Indiana and Ohio. Because some of these facilities have not commenced construction and others are not yet complete, proceeds from the borrowings have been placed in escrow with a trustee and may be drawn upon only as facilities are built and qualified costs incurred. In the event any of the proceeds are not drawn, CG&E and PSI would eventually be required to return the unused proceeds to bondholders. CG&E and PSI expect to draw down all of the proceeds over the next two years.

5. Notes Payable and Other Short-term Obligations

Short-term obligations may include:

•

short-term notes;

•

variable rate pollution control notes;

•

commercial paper; and

•

money pool.

Cinergy Corp.’s short-term borrowings consist primarily of unsecured revolving lines of credit and the sale of commercial paper. Cinergy Corp.’s revolving credit facility and commercial paper program also support the short-term borrowing needs of CG&E , PSI , and ULH&P . In addition, Cinergy Corp. , 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. The following table summarizes our Notes payable and other short-term obligations and Notes payable to affiliated companies :


	December 31, 2005						December 31, 2004
	Established Lines		Outstanding		Weighted Average Rate		Established Lines		Outstanding		Weighted Average Rate
	*(in millions)*
Cinergy
Cinergy Corp.
Revolving line ⁽¹⁾	$	2,000	$	—	—	%	$	2,000	$	—	—	%
Uncommitted lines		40		—	—			40		—	—
Commercial paper ⁽²⁾				515	4.43					675	2.45

Utility operating companies
Uncommitted lines		75		—	—			75		—	—
Pollution control notes				298	4.00					248	2.43

Non-regulated subsidiaries
Revolving lines ⁽³⁾		162		77	4.95			158		—	—
Short-term debt				9	9.96					—	—
Pollution control notes				25	3.90					25	2.30

Cinergy Total			$	924	4.37	%			$	948	2.44	%

CG&E and subsidiaries
Uncommitted lines	$	15	$	—	—	%	$	15	$	—	—	%
Pollution control notes				112	3.86					112	2.34
Money pool				114	4.41					180	2.38

CG&E Total			$	226	4.14	%			$	292	2.36	%

PSI
Uncommitted lines	$	60	$	—	—	%	$	60	$	—	—	%
Pollution control notes				186	4.07					136	2.49
Money pool				250	4.41					130	2.38

PSI Total			$	436	4.27	%			$	266	2.44	%

ULH&P
Money pool			$	30	4.41	%			$	11	2.38	%

ULH&P Total			$	30	4.41	%			$	11	2.38	%

⁽¹⁾

Consists of a five-year facility which was entered into in September 2005, matures in September 2010, and contains $500 million sublimits each for CG&E and PSI , and a $100 million sublimit for ULH&P (which was increased from $65 million in conjunction with its transaction with CG&E in which ULH&P acquired interests in three of CG&E’s electric generating stations. See Note 22 for further information regarding this transaction.)

⁽²⁾	Cinergy Corp.’s commercial paper program limit is $1.5 billion. The commercial paper program is supported by Cinergy Corp.’s revolving line of credit.

⁽³⁾	Of the $162 million and $158 million, in 2005 and 2004, respectively, $150 million relates to a three-year senior revolving credit facility that Cinergy Canada, Inc. entered into in December 2004 that matures in December 2007.

(a)

Short-term Notes

Short-term borrowings mature within one year from the date of issuance. We primarily use an unsecured revolving line of credit and the sale of commercial paper for short-term borrowings. A portion of Cinergy Corp.’s revolving line is used to provide credit support for commercial paper and letters of credit. When the revolving line is reserved for commercial paper or backing letters of credit, it is not available for additional borrowings. The fees paid to secure short-term borrowings were immaterial during each of the years ended December 31, 2005, 2004, and 2003.

In September 2005, Cinergy Corp ., CG&E , PSI , and ULH&P entered into a five-year revolving credit facility with a termination date of September 2010, which can be extended twice, each extension for an additional one-year period. The new credit agreement replaces two existing credit agreements, one dated April 2004 and one dated December 2004.

The new credit agreement provides that the pending merger between Duke and Cinergy Corp. will not be considered a fundamental change or a “Change of Control” for purposes of the credit agreement.

For purposes of making borrowings the new credit agreement does not require certain environmental, legal or material adverse change representations and warranties that were in the credit agreements it replaced.

At December 31, 2005, Cinergy Corp. had $1.1 billion remaining unused and available capacity relating to its $2 billion revolving credit facility. This revolving credit facility includes the following:


Credit Facility	Expiration	Established Lines		Outstanding and Committed		Unused and Available
		*(in millions)*
Five-year senior revolving	September 2010
Commercial paper support				$	515
Letter of credit support					358

Total five-year facility ⁽¹⁾		$	2,000		873	$	1,127

⁽¹⁾

In September 2005, Cinergy Corp. successfully placed a $2 billion senior unsecured revolving credit facility which replaced the $1 billion three-year facility, set to expire in April 2007, and the $1 billion five-year facility, set to expire in December 2009. CG&E and PSI each have $500 million borrowing sublimits on this facility, and ULH&P has a $100 million borrowing sublimit on this facility (which was increased from $65 million in conjunction with its transaction with CG&E in which ULH&P acquired interests in three of CG&E’s electric generating stations. See Note 22 for further information regarding this transaction.)

In addition to the revolving credit facility, 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 $40 million, $15 million, and $60 million, respectively, all of which remained unused as of December 31, 2005.

In our credit facility, 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.

As part of CG&E’s $500 million sublimit under the $2 billion five-year credit facility, CG&E has covenanted to maintain:

•

a consolidated net worth of $1 billion; and

•

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

As part of PSI’s $500 million sublimit under the $2 billion five-year credit facility, PSI has covenanted to maintain:

•

a consolidated net worth of $900 million; and

•

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

As part of ULH&P’s $100 million sublimit under the $2 billion five-year credit facility, ULH&P has covenanted to maintain:

•

a consolidated net worth of $200 million; 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 facility and the acceleration of the related indebtedness. In addition to breaches of covenants, certain other events that could result in the termination of the 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. In no event shall a default on the part of CG&E , PSI , or ULH&P result solely from a default on the part of any other borrower, including Cinergy . As of December 31, 2005, Cinergy , CG&E , PSI , and ULH&P are in compliance with all of their debt covenants.

(b)

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, weekly, or monthly basis, they are reflected in Notes payable and other short-term obligations on the Balance Sheets of Cinergy , CG&E , and PSI . At December 31, 2005, Cinergy , CG&E and PSI had $323 million, $112 million and $186 million, respectively, outstanding in variable rate pollution control notes, classified as short-term debt. ULH&P had no outstanding short-term pollution control notes. 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 .

In August 2004, PSI borrowed the proceeds from the issuance by the Indiana Development Finance Authority of $55 million principal amount of its Environmental Revenue Bonds, Series 2004A, due August 2039. The initial interest rate for the bonds was 1.13% and is reset weekly. Proceeds from the borrowing will be used for the acquisition and construction of various solid waste disposal facilities located at various generating stations in Indiana. The funds are being held in escrow by an independent trustee and will be drawn upon as facilities are built. Holders of these notes are entitled to credit enhancement in the form of a standby letter of credit which, if drawn upon, provides for the payment of both interest and principal on the notes. Because the holders of these notes have the right to have their notes redeemed on a weekly basis, they are reflected in Notes payable and other short-term obligations on Cinergy’s and PSI’s Balance Sheets.

In October 2005, PSI borrowed the proceeds from the Indiana Finance Authority’s issuance of $50 million principal amount of its Environmental Revenue Bonds, Series 2005B, due October 1, 2040. Holders of the Series 2005B Bonds are entitled to credit enhancement in the form of a standby letter of credit, which if drawn upon, provides for the payment of both interest and principal on the Series 2005B Bonds. The initial interest rate for the Series 2005B Bonds was 2.75% and is reset weekly. Because the holders have the right to have their Bonds redeemed on a weekly basis, they are classified as Notes payable and other short-term obligations on Cinergy’s and PSI’s Balance Sheets . PSI is using the proceeds from these borrowings to assist in the acquisition and construction of solid waste disposal facilities located at various generating stations in Indiana.

In January 2006, ULH&P assumed responsibility for principal and interest payments on $16 million of CG&E’s redeemable variable rate pollution control bonds in conjunction with the transfer of certain generating assets to ULH&P . The bonds will still remain on CG&E’s balance sheet and ULH&P’s obligation will be reflected as an intercompany note payable from ULH&P to CG&E . See Note 22 for additional information.

(c)

Commercial Paper

Cinergy Corp.’s commercial paper program is supported by Cinergy Corp.’s $2 billion revolving credit facility. The commercial paper program supports, in part, the short-term borrowing needs of CG&E and PSI and eliminates their need for separate commercial paper programs. In September 2004, Cinergy Corp. expanded its commercial paper program from $800 million to a maximum outstanding principal amount of $1.5 billion. As of December 31, 2005, Cinergy Corp. had $515 million in commercial paper outstanding.

(d)

Money Pool

Cinergy Corp. , Services, and our utility 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 .

6. 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 following table. 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, 2005:


	Lease Expense						Estimated Minimum Lease Payments
	2003		2004		2005		2006		2007		2008		2009		2010		Thereafter		Total
	*(in millions)*
Cinergy ⁽¹⁾	$	72	$	85	$	66	$	44	$	36	$	26	$	18	$	14	$	25	$	163
CG&E and subsidiaries		34		36		30		9		7		6		4		3		4		33
PSI		31		32		27		11		10		9		7		6		10		53
ULH&P		4		4		2		—		—		—		—		—		—		—

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

(b)

Capital Leases

In each of the years 1999 through 2005, CG&E , PSI , and ULH&P entered into capital lease agreements to fund the purchase of gas and electric meters, and associated equipment. The lease terms are for 120 months commencing with the date of purchase and contain buyout options ranging from 105 to 108 months. The first buyout will occur in December 2008 and each year thereafter. It is our objective to own the meters and associated equipment indefinitely and the operating companies plan to exercise the buyout option at month 105. As of December 31, 2005, Cinergy’s effective interest rate on capital lease obligations outstanding was 5.5 percent. The meters and associated equipment 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 .

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⁾	$	91	$	60	$	32	$	16
Less: amount representing interest		17		12		6		4

Present value of minimum lease payments	$	74	$	48	$	26	$	12

⁽¹⁾	Annual minimum lease payments are immaterial.

7. Financial Instruments

(a)

Financial Derivatives

We have entered into financial derivative contracts for the purpose of managing financial instrument risk.

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 variable 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 variable rate interest amounts calculated on an agreed notional amount.

CG&E has an outstanding interest rate swap agreement that decreased the percentage of variable 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 variable 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) .

In June 2005, PSI executed two forward starting swaps with a combined notional amount of $325 million. The forward starting swaps effectively fix the benchmark interest rate of an anticipated issuance of fixed rate debt from June 2005 through June 2006, the expected date of issuance of the debt securities. Both forward starting swaps have been designated as cash flow hedges under the provisions of Statement 133. As the terms of these swap agreements mirror the terms of the forecasted debt issuance, we anticipate that they will be highly effective hedges. Changes in the fair value of these swaps are recorded in Accumulated other comprehensive income (loss) .

See Note 1(m)( ii ) for additional information on financial derivatives. In the future, we will continually monitor market conditions to evaluate whether to modify our use of financial derivative contracts to manage financial instrument risk.

(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, 2005				December 31, 2004
Financial Instruments	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	*(in millions)*
Cinergy ⁽¹⁾
First mortgage bonds and other long-term debt ⁽²⁾	$	4,746	$	4,831	$	4,447	$	4,710

CG&E and subsidiaries
First mortgage bonds and other long-term debt ⁽²⁾	$	1,595	$	1,609	$	1,594	$	1,641

PSI
First mortgage bonds and other long-term debt ⁽²⁾	$	2,194	$	2,215	$	1,874	$	1,999

ULH&P
Other long-term debt	$	94	$	96	$	94	$	99

⁽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.

(c)

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 traditional electric cooperatives and municipalities and other investor-owned utilities. At December 31, 2005, 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 approved by Cinergy’s Risk Policy Committee 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, which is independent of all trading operations. As of December 31, 2005, 95 percent of Cinergy’s credit exposure and 89 percent of CG&E’s credit exposure, net of credit collateral, related to energy trading and marketing activity was with counterparties rated investment grade or the counterparties’ obligations were guaranteed or secured by an investment grade entity. The majority of these investment grade counterparties are externally rated. If a counterparty has an external rating, the lower of Standard & Poor’s or Moody’s Investors Service is used; otherwise, Cinergy’s internal rating of the counterparty is used. Cinergy’s remaining five percent represents credit exposure of $74 million and CG&E’s remaining 11 percent represents credit exposure of $38 million with counterparties rated non-investment grade.

As of December 31, 2005, CG&E had a concentration of trading credit exposure of $62 million with one counterparty accounting for greater than 10 percent of CG&E’s total trading credit exposure. This counterparty is rated investment grade.

Energy commodity prices can be extremely volatile and the market can, at times, lack liquidity. Because of these issues, credit risk for energy commodities is generally greater than with other commodity trading.

We continually review and monitor our credit exposure to all counterparties and secondary counterparties. If appropriate, we 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 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.

8. Notes Receivable

Cinergy has approximately $194 million and $214 million of notes receivable as of December 31, 2005 and 2004, respectively, comprised of two separate notes with one counterparty. The credit rating of the counterparty is BBB.

The first note, with a December 31, 2005 balance of $82 million and a December 31, 2004 balance of $101 million, bears an effective interest rate of 7.81 percent and matures in August 2009. The second note, with a balance of $112 million as of December 31, 2005 and $113 million as of December 31, 2004, bears an effective interest rate of 9.23 percent and matures in December 2016.

The following table reflects the maturities of these notes as of December 31, 2005.


Notes Receivable Maturities
*(in millions)*
2006	$	23
2007		25
2008		29
2009		24
2010		8
Thereafter		85

Total	$	194

9. Pension and Other Postretirement Benefits

Cinergy Corp. sponsors both pension and other postretirement benefit plans.

Our qualified defined benefit pension plans cover substantially all United States employees meeting certain minimum age and service requirements. 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 traditional defined benefit pension formula or to have their benefit determined using a cash balance formula. A similar election was provided to certain union employees at a later time.

The traditional defined benefit program utilizes a final average pay formula to determine pension benefits. These benefits are based on:

•

years of participation;

•

age at retirement; and

•

the applicable average Social Security wage base.

Benefits are accrued under the cash balance formula based upon a percentage of pension eligible earnings plus interest. In addition, participants with the cash balance formula may request a lump-sum cash payment upon termination of their employment, which may result in increased cash requirements from pension plan assets. At the effective time of the election, benefits ceased accruing under the traditional defined benefit pension formula for employees who elected the cash balance formula. There was no change to retirement benefits earned prior to the effective time of the election. The pension benefits of all non-union and certain union employees hired after December 31, 2002 are calculated using the cash balance formula. At December 31, 2005, approximately 81 percent of Cinergy’s employees remain in the traditional defined benefit program.

The introduction of the cash balance features to our defined benefit plans did not have a material effect on our financial position or results of operations.

Funding for the qualified defined benefit pension plans is based on actuarially determined contributions, the maximum of which is generally the amount deductible for tax purposes and the minimum being that required by the Employee Retirement Income Security Act of 1974, as amended. The pension plans’ assets consist of investments in equity and debt securities.

Cinergy’s investment strategy with respect to pension assets is designed to achieve a moderate level of overall portfolio risk in keeping with our desired risk objective, which is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The portfolio’s target asset allocation is 60 percent equity and 40 percent debt with specified allowable ranges around these targets. Within the equity segment, we are broadly diversified across domestic, developed international and emerging market equities, with the largest concentration being domestic. Further diversification is achieved through allocations to growth/value and small-, mid-, and large-cap equities. Within the debt segment, we principally maintain separate “core plus” and “core” portfolios. The “core plus” portfolio makes tactical use of the “plus” sectors (e.g., high yield, developed international, emerging markets, etc.) while the “core” portfolio is a domestic, investment grade portfolio. In late 2004, Cinergy commenced the implementation of alternative investment strategies in its investment program. The initial allocation incorporated an investment in a hedge fund of funds in conjunction with an S&P 500 swaps and futures overlay program and is classified as part of our large-cap United States equity allocation. In 2005, a commitment was made to a private equity fund of funds with funding expected to occur over an approximate three-year period. Fund of funds are limited partnership vehicles that allocate invested capital to underlying funds (e.g. hedge funds or private equity) that pursue various investment strategies. Other than the hedge fund of funds strategy, the use of derivatives is currently limited to collateralized mortgage obligations and asset-backed securities. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies.

Cinergy uses a September 30 measurement date for its defined benefit pension plans. The asset allocation at September 30, 2005 and 2004 by asset category was as follows:


	Percentage of Fair Value of Plan Assets at September 30
Asset Category	2005		2004
Equity securities ⁽¹⁾	62	%	62	%
Debt securities ⁽²⁾	37	%	38	%
Cash	1	%	—	%

⁽¹⁾	The portfolio’s target asset allocation is 60 percent equity with an allowable range of 50 percent to 70 percent.

⁽²⁾	The portfolio’s target asset allocation is 40 percent debt with an allowable range of 30 percent to 50 percent.

In addition, Cinergy Corp. sponsors non-qualified pension plans (plans that do not meet the criteria for certain 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 (64 percent) and debt (36 percent) securities at December 31, 2005, is not restricted to the payment of plan benefits and therefore, not considered plan assets under Statement 87. Trust assets were approximately $10 million, for both the years ended December 31, 2005 and 2004, and are reflected in Cinergy’s Balance Sheets as Other investments .

Cinergy Corp. provides certain health care and life insurance benefits to retired United States 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 (65 percent) and debt (35 percent) securities at December 31, 2005, is not restricted to

the payment of plan benefits and therefore, not considered plan assets under Statement 106. At December 31, 2005 and 2004, trust assets were approximately $74 million and $71 million, respectively, and are reflected in Cinergy’s Balance Sheets as Other investments .

Qualified pension benefit contributions for 2005 were $102 million. Based on preliminary estimates, we expect 2006 contributions of approximately $120 million for qualified pension benefits. As discussed previously, we do not hold “plan assets” as defined by Statement 87 and Statement 106 for our non-qualified pension plans and other postretirement benefit costs, and therefore contributions are equal to the benefit payments presented in the following table.

The following estimated benefits payments, which reflect future service, are expected to be paid:


	Qualified Pension Benefits		Non-Qualified Pension Benefits		Other Postretirement Benefits
	*(in millions)*
2006	$	79	$	10	$	25
2007		79		10		26
2008		81		10		27
2009		83		14		28
2010		86		10		29
Five years thereafter		508		56		166

Our benefit plans’ costs for the past three years included the following components:


	Qualified Pension Benefits									Non-Qualified Pension Benefits						Other Postretirement Benefits
	2005			2004			2003			2005		2004		2003		2005			2004		2003
	*(in millions)*
Service cost	$	38		$	35		$	31		$	6	$	5	$	3	$	6		$	5	$	4
Interest cost		96			89			86			7		7		7		23			22		23
Expected return on plans’ assets		(88	)		(81	)		(81	)		—		—		—		—			—		—
Amortization of transition (asset) obligation		—			(1	)		(1	)		—		—		—		1			1		3
Amortization of prior service cost		5			5			5			2		2		1		(1	)		—		—
Recognized actuarial gain		8			2			—			2		2		2		11			8		5
Voluntary early retirement costs (Statement 88) ⁽¹⁾		—			—			9			—		—		—		—			—		—

Net periodic benefit cost	$	59		$	49		$	49		$	17	$	16	$	13	$	40		$	36	$	35

⁽¹⁾	SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (Statement 88).

The net periodic benefit cost by registrant was as follows:


	Qualified Pension Benefits						Non-Qualified Pension Benefits						Other Postretirement Benefits
	2005		2004		2003		2005		2004		2003		2005		2004		2003
	*(in millions)*
Cinergy ⁽¹⁾	$	59	$	49	$	49	$	17	$	16	$	13	$	40	$	36	$	35
CG&E and subsidiaries		13		15		10		1		1		1		8		9		9
PSI		11		13		12		1		1		1		15		20		18
ULH&P		1		1		1		—		—		—		1		1		1

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

The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for 2005 and 2004, and a statement of the funded status for both years. Cinergy uses a September 30 measurement date for its defined benefit pension plans and other postretirement benefit plans.


	Qualified Pension Benefits						Non-Qualified Pension Benefits						Other Postretirement Benefits
	2005			2004			2005			2004			2005			2004
	*(in millions)*
Change in benefit obligation
Benefit obligation at beginning of period	$	1,578		$	1,458		$	120		$	108		$	409		$	399
Service cost		38			35			6			5			6			5
Interest cost		96			88			7			7			23			22
Amendments		(1	)		(1	)		3			8			(1	)		(24	)
Actuarial (gain) loss		120			69			19			—			(3	)		27
Benefits paid		(80	)		(71	)		(8	)		(8	)		(20	)		(20	)

Benefit obligation at end of period		1,751			1,578			147			120			414			409

Change in plan assets

Fair value of plan assets at beginning of period		1,021			877			—			—			—			—

Actual return on plan assets		127			98			—			—			—			—
Employer contribution		102			117			8			8			19			20
Benefits paid		(81	)		(71	)		(8	)		(8	)		(19	)		(20	)

Fair value of plan assets at end of period		1,169			1,021			—			—			—			—

Funded status		(582	)		(557	)		(147	)		(120	)		(414	)		(409	)

Unrecognized prior service cost		24			30			19			19			(2	)		(2	)
Unrecognized net actuarial loss		378			304			56			38			175			189
Unrecognized net transition (asset) obligation		—			—			—			—			2			4
Employer contribution		—			—			2			2			6			5

Accrued benefit cost at December 31	$	(180	)	$	(223	)	$	(70	)	$	(61	)	$	(233	)	$	(213	)

Amounts recognized in balance sheets

Accrued benefit liability	$	(366	)	$	(366	)	$	(130	)	$	(109	)	$	(233	)	$	(213	)
Intangible asset		24			30			19			19			—			—
Accumulated other comprehensive income (pre-tax)		162			113			41			29			—			—

Net recognized at end of period	$	(180	)	$	(223	)	$	(70	)	$	(61	)	$	(233	)	$	(213	)

The accumulated benefit obligation for the qualified defined benefit pension plans was approximately $1,535 million and approximately $1,387 million for 2005 and 2004, respectively. The accumulated benefit obligation for the non-qualified defined benefit pension plans was approximately $132 million and $111 million for 2005 and 2004, respectively.

The weighted-average assumptions used to determine benefit obligations were as follows:

Qualified
Pension Benefits

Non-Qualified
Pension Benefits


	2005		2004
Health care cost trend rate assumed for next year	7.00	%	8.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2008		2008


	One-Percentage- Point Increase		One-Percentage- Point Decrease
	*(in millions)*
Effect on total of service and interest cost components	$	4	$	(4	)
Effect on APBO		47		(42	)


	Cinergy ⁽¹⁾				CG&E and subsidiaries				PSI				ULH&P
	2005		2004		2005		2004		2005		2004		2005		2004
	*(in millions)*
Deferred Income Tax Liability
Property, plant, and equipment	$	1,620	$	1,706	$	951	$	971	$	604	$	656	$	57	$	63
Unamortized costs of reacquiring debt		18		15		5		6		13		9		1		—
Deferred operating expenses and carrying costs		12		—		1		—		11		—		1		—
Purchased power tracker		1		4		—		—		1		4		—		—
RTC		163		194		163		194		—		—		—		—
Net energy risk management assets		47		51		1		5		—		—		—		—
Amounts due from customers-income taxes		37		39		28		28		9		11		—		2
Gasification services agreement buyout costs		82		86		—		—		82		86		—		—
Other		35		21		14		19		17		7		1		—

Total Deferred Income Tax Liability		2,015		2,116		1,163		1,223		737		773		60		65

Deferred Income Tax Asset
Unamortized investment tax credits		35		39		25		29		9		11		1		1
Accrued pension and other postretirement benefit costs		211		222		63		60		70		65		4		5
Net energy risk management liabilities		8		28		—		—		8		28		—		—
Deferred operating expenses and carrying costs		2		25		—		9		—		—		—		—
Rural Utilities Service obligation		27		27		—		—		27		27		—		—
Tax credit carryovers		163		121		—		—		—		—		—		—
Other		46		66		20		34		13		4		2		1

Total Deferred Income Tax Asset		492		528		108		132		127		135		7		7

Net Deferred Income Tax Liability	$	1,523	$	1,588	$	1,055	$	1,091	$	610	$	638	$	53	$	58


	2006		2006-2010
	*(in millions)*
Cinergy ⁽¹⁾	$	1,377	$	5,539
CG&E and subsidiaries		660		2,482
PSI		657		2,872
ULH&P		67		292


	Ownership Share		Property, Plant, and Equipment		Accumulated Depreciation		Construction Work in Progress
	*(in millions)*
CG&E
Production:
Miami Fort Station (Units 7 and 8)	64.00	%	$	326	$	142	$	102
W.C. Beckjord Station (Unit 6)	37.50			46		31		—
Stuart Station ⁽¹⁾	39.00			396		170		51
Conesville Station (Unit 4) ⁽¹⁾	40.00			77		50		11
Zimmer Station	46.50			1,311		460		5
East Bend Station ⁽²⁾	69.00			418		205		1
Killen Station ⁽¹⁾	33.00			206		117		7
Transmission:	Various			88		45		—

PSI
Production:
Gibson Station (Unit 5)	50.05			283		139		5
Transmission and local facilities:	94.37			2,662		1,064		—


	First Quarter		Second Quarter			Third Quarter			Fourth Quarter			Total
	*(in millions, except per share amounts)*
Cinergy ⁽¹⁾
2005
Results of Operations:
Operating Revenues	$	1,326	$	1,100		$	1,355		$	1,629		$	5,410
Operating Income		204		105			222			256			787
Income before discontinued operations and cumulative effect of changes in accounting principles		115		50			133			192			490
Discontinued operations, net of tax		2		1			(1	)		1			3
Cumulative effect of changes in accounting principles, net of tax		—		—			—			(3	)		(3	)

Net Income	$	117	$	51		$	132		$	190		$	490

Per Share Data:
EPS - basic:
Income before discontinued operations and cumulative effect of changes in accounting principles		0.59		0.24			0.68			0.96			2.47
Discontinued operations, net of tax		0.01		0.01			(0.01	)		—			0.01
Cumulative effect of changes in accounting principles, net of tax		—		—			—			(0.01	)		(0.01	)

Net Income	$	0.60	$	0.25		$	0.67		$	0.95		$	2.47
EPS - diluted:
Income before discontinued operations and cumulative effect of changes in accounting principles		0.59		0.24			0.67			0.96			2.46
Discontinued operations, net of tax		0.01		0.01			(0.01	)		—			0.01
Cumulative effect of changes in accounting principles, net of tax		—		—			—			(0.01	)		(0.01	)

Net Income	$	0.60	$	0.25		$	0.66		$	0.95		$	2.46
2004
Results of Operations:
Operating Revenues	$	1,272	$	1,037		$	1,117		$	1,202		$	4,628
Operating Income		213		143			189			202			747

Income before discontinued operations		101		65			99			146			411
Discontinued operations, net of tax		2		(6	)		(6	)		—			(10	)

Net Income	$	103	$	59		$	93		$	146		$	401

Per Share Data:
EPS - basic:
Income before discontinued operations		0.56		0.36			0.54			0.81			2.27
Discontinued operations, net of tax		0.01		(0.03	)		(0.03	)		—			(0.05	)

Net Income	$	0.57	$	0.33		$	0.51		$	0.81		$	2.22
EPS - diluted:
Income before discontinued operations		0.56		0.35			0.53			0.79			2.23
Discontinued operations, net of tax		0.01		(0.03	)		(0.03	)		—			(0.05	)

Net Income	$	0.57	$	0.32		$	0.50		$	0.79		$	2.18


	2005
	Cinergy Business Units											Reconciling Eliminations ⁽¹⁾			Consolidated
	Regulated		Commercial			Power Technology and Infrastructure			Total			Reconciling Eliminations ⁽¹⁾			Consolidated
	*(in millions)*
Operating revenues -
External customers	$	3,472	$	1,937		$	1		$	5,410		$	—		$	5,410
Intersegment revenues		32		172			—			204			(204	)		—

Gross Margins
Electric ⁽²⁾		1,811		725			—			2,536			—			2,536
Gas ⁽³⁾		263		40			—			303			—			303

Depreciation		368		141			1			510			—			510
Equity in earnings of unconsolidated subsidiaries		5		28			1			34			—			34
Interest expense ⁽⁴⁾		154		127			2			283			—			283

Income taxes		174		(72	)		(6	)		96			—			96
Discontinued operations, net of tax ⁽⁵⁾		—		3			—			3			—			3
Cumulative effect of change in accounting principles, net of tax ⁽⁶⁾		—		(3	)		—			(3	)		—			(3	)

Segment profit (loss)		289		210			(9	)		490			—			490

Segment assets from continuing operations	$	9,963	$	7,025		$	132		$	17,120		$	—		$	17,120
Segment assets from discontinued operations		—		34			—			34			—			34

Total segment assets	$	9,963	$	7,059		$	132		$	17,154		$	—		$	17,154
Investments in unconsolidated subsidiaries		22		381			76			479			—			479
Total expenditures for long-lived assets		783		267			8			1,058			—			1,058


*(in millions)*

	Revenues
	Traditional Utility						Wholesale Commodity
Year	Electric		Gas		Total		Electric		Gas		Total		Other		Consolidated
2005	$	2,552	$	777	$	3,329	$	1,519	$	40	$	1,559	$	522	$	5,410
2004		2,324		690		3,014		1,187		93		1,280		334		4,628
2003		2,156		626		2,782		1,141		210		1,351		231		4,364


	Long-Lived Assets from Continuing Operations						Long-Lived Assets from Discontinued Operations						Total Long-Lived Assets
	*(in millions)*						*(in millions)*						*(in millions)*
Year	Domestic		International		Consolidated		Domestic		International		Consolidated		Domestic		International		Consolidated
2005	$	13,110	$	117	$	13,227	$	18	$	—	$	18	$	13,128	$	117	$	13,245
2004		12,146		167		12,313		15		118		133		12,161		285		12,446
2003		11,499		174		11,673		20		104		124		11,519		278		11,797


	Income			Shares	EPS
	*(in thousands, except per share amounts)*
Year ended December 31, 2005
EPS - basic:
Income before discontinued operations and cumulative effect of a change in accounting principle	$	490,122			$	2.47
Discontinued operations, net of tax		2,575				0.01
Cumulative effect of a change in accounting principle, net of tax		(3,044	)			(0.01	)

Net income	$	489,653		198,199	$	2.47
Effect of dilutive securities:
Common stock options				680
Directors’ compensation plans				158
Contingently issuable common stock				63
Stock purchase contracts				72

EPS - diluted:
Net income plus assumed conversions	$	489,653		199,172	$	2.46

Year ended December 31, 2004
EPS - basic:
Income before discontinued operations and cumulative effect of a change in accounting principle	$	410,399			$	2.27
Discontinued operations, net of tax		(9,531	)			(0.05	)

Net income	$	400,868		180,965	$	2.22

Effect of dilutive securities:
Common stock options				678
Directors’ compensation plans				150
Contingently issuable common stock				605
Stock purchase contracts				1,133

EPS - diluted:
Net income plus assumed conversions	$	400,868		183,531	$	2.18

Year ended December 31, 2003
EPS - basic:
Income before discontinued operations and cumulative effect of a change in accounting principle	$	436,969			$	2.47
Discontinued operations, net of tax		6,341				0.04
Cumulative effect of a change in accounting principle, net of tax		26,462				0.15

Net income	$	469,772		176,535	$	2.66

Effect of dilutive securities:
Common stock options				746
Employee Stock Purchase and Savings Plan				152
Directors’ compensation plans				851
Contingently issuable common stock				189

EPS - diluted:
Net income plus assumed conversions	$	469,772		178,473	$	2.63


	Comprehensive Income
	2005									2004									2003
	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 millions)*
Cinergy ⁽¹⁾
Net income	$	588		$	(98	)	$	490		$	505		$	(104	)	$	401		$	626		$	(156	)	$	470

Other comprehensive income (loss):
Foreign currency translation adjustment		(9	)		8			(1	)		23			(8	)		15			25			(8	)		17
Reclassification adjustments		(50	)		13			(37	)		—			—			—			(9	)		3			(6	)

Total foreign currency translation adjustment		(59	)		21			(38	)		23			(8	)		15			16			(5	)		11
Minimum pension liability adjustment		(60	)		18			(42	)		(53	)		21			(32	)		(56	)		22			(34	)
Unrealized gain (loss) on investment trusts		—			—			—			4			(2	)		2			11			(4	)		7
Cash flow hedges		19			(8	)		11			8			(3	)		5			2			(1	)		1

Total other comprehensive income (loss)		(100	)		31			(69	)		(18	)		8			(10	)		(27	)		12			(15	)

Total comprehensive income	$	488		$	(67	)	$	421		$	487		$	(96	)	$	391		$	599		$	(144	)	$	455


CG&E and subsidiaries ⁽²⁾
Net income	$	484		$	(186	)	$	298		$	415		$	(158	)	$	257		$	529		$	(198	)	$	331

Other comprehensive income (loss):
Minimum pension liability adjustment		(18	)		5			(13	)		(16	)		6			(10	)		(13	)		5			(8	)
Cash flow hedges		7			(3	)		4			7			(3	)		4			2			(1	)		1

Total other comprehensive income (loss)		(11	)		2			(9	)		(9	)		3			(6	)		(11	)		4			(7	)

Total comprehensive income	$	473		$	(184	)	$	289		$	406		$	(155	)	$	251		$	518		$	(194	)	$	324


PSI
Net income	$	325		$	(127	)	$	198		$	277		$	(112	)	$	165		$	233		$	(100	)	$	133

Other comprehensive income (loss):
Minimum pension liability adjustment		(17	)		7			(10	)		(21	)		8			(13	)		(18	)		7			(11	)
Unrealized gain (loss) on investment trusts		—			—			—			3			(1	)		2			10			(4	)		6
Cash flow hedges		11			(5	)		6			—			—			—			—			—			—

Total other comprehensive income (loss)		(6	)		2			(4	)		(18	)		7			(11	)		(8	)		3			(5	)

Total comprehensive income	$	319		$	(125	)	$	194		$	259		$	(105	)	$	154		$	225		$	(97	)	$	128


	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 millions)*
Cinergy ⁽¹⁾
Balance at December 31, 2002	$	21		$	(20	)	$	(6	)	$	(25	)	$	(30	)
Current-period change		11			(34	)		7			1			(15	)

Balance at December 31, 2003	$	32		$	(54	)	$	1		$	(24	)	$	(45	)
Current-period change		15			(32	)		2			5			(10	)

Balance at December 31, 2004	$	47		$	(86	)	$	3		$	(19	)	$	(55	)
Current-period change		(38	)		(42	)		—			11			(69	)

Balance at December 31, 2005	$	9		$	(128	)	$	3		$	(8	)	$	(124	)

CG&E and subsidiaries ⁽²⁾

Balance at December 31, 2002	$	—		$	(2	)	$	—		$	(24	)	$	(26	)
Current-period change		—			(8	)		—			1			(7	)

Balance at December 31, 2003	$	—		$	(10	)	$	—		$	(23	)	$	(33	)
Current-period change		—			(9	)		—			4			(5	)

Balance at December 31, 2004	$	—		$	(19	)	$	—		$	(19	)	$	(38	)
Current-period change		—			(13	)		—			4			(9	)

Balance at December 31, 2005	$	—		$	(32	)	$	—		$	(15	)	$	(47	)

PSI
Balance at December 31, 2002	$	—		$	(3	)	$	(5	)	$	—		$	(8	)
Current-period change		—			(11	)		6			—			(5	)

Balance at December 31, 2003	$	—		$	(14	)	$	1		$	—		$	(13	)
Current-period change		—			(13	)		2			—			(11	)

Balance at December 31, 2004	$	—		$	(27	)	$	3		$	—		$	(24	)
Current-period change		—			(10	)		—			6			(4	)

Balance at December 31, 2005	$	—		$	(37	)	$	3		$	6		$	(28	)


	*(in millions)*
Assets Received
Generating Assets	$	376
Inventory		24

Total Assets Received	$	400

Liabilities Assumed
Debt	$	77
Accounts payable to affiliated companies		90
Deferred tax liabilities		91
Other		2

Total Liabilities Assumed	$	260

Contributed Capital from CG&E	$	140