EMPLOYMENT AGREEMENT


THIS  EMPLOYMENT  AGREEMENT  made and entered  into as of the 22nd day of April,
1997, by and among Cinergy Corp., a Delaware  Corporation  ("Cinergy"),  Cinergy
Services, Inc., a Delaware Corporation ("Cinergy Services"),  The Cincinnati Gas
& Electric Company, an Ohio Corporation  ("CG&E"),  PSI Energy, Inc., an Indiana
Corporation ("PSI"), and Madeleine W. Ludlow (the "Executive"). Cinergy, Cinergy
Services,  CG&E,  and PSI  will  sometimes  be  referred  to in  this  Agreement
collectively as the "Corporation".

WHEREAS,  the  Corporation  desires  that the  Executive  become an  employee in
accordance with this Agreement;

WHEREAS,  the  Executive  is  willing  to commit  herself  to the  employ of the
Corporation and any successor thereto,  on the terms and conditions set forth in
this Agreement and thus to forego opportunities elsewhere; and

WHEREAS,  the parties  desire to enter into this  Agreement as of the date first
set forth  above  setting  forth the terms  and  conditions  for the  employment
relationship of the Executive;

NOW,  THEREFORE,  IN  CONSIDERATION  of  the  mutual  premises,   covenants  and
agreements set forth below, it is hereby agreed as follows:

1.       Employment and Term.

a. The Corporation  agrees to employ the Executive,  and the Executive agrees to
be employed,  in accordance  with the terms and provisions of this Agreement for
the period set forth below (the "Employment Period").

b. The  Employment  Period of the  Executive  as provided  in Section  1(a) will
commence on April 22, 1997,  (the  "Effective  Date") and shall  continue  until
December 31, 2000;  provided,  however,  commencing on January 1, 1999, and each
January  1  thereafter  (the  "Renewal  Date"),  the  Employment  Period of this
Agreement shall automatically be extended for one (1) additional year if neither
the  Corporation  not the  Executive  shall  have given  between  December 1 and
December 15 prior to each applicable Renewal Date written notice to the other of
its intent to terminate this Agreement.

2.       Duties and Powers of Executive.

a.  Position.  The Executive  shall serve the  Corporation  in such  responsible
executive capacity or capacities as the Board of Directors of Cinergy or Cinergy
Services (the Board of Directors of Cinergy or Cinergy Services, as the case may
be, may be referred to sometimes as the "Board") or the Chief Executive  Officer
of Cinergy  or the Chief  Operating  Officer  of  Cinergy  may from time to time
determine and shall have such  responsibilities,  duties and authority as may be
assigned to her from time to time during the  Employment  Period by the Board or
the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy
that are consistent with such responsibilities,  duties and authority.  Upon the
Effective Date of this  Agreement,  the Executive  shall initially serve as Vice
President, and Chief Financial Officer for the Corporation,  but consistent with
the  foregoing  provisions  of this Section  2(a),  may be assigned to any other
position  or  positions  by either the Board or the Chief  Executive  Officer of
Cinergy or the Chief Operating Officer of Cinergy during the Employment Period.

b. Place of  Performance.  In connection with the  Executive's  employment,  the
Executive shall be based at the principal  executive offices of the Corporation,
221 East Fourth Street,  Cincinnati,  Ohio,  and,  except for required  business
travel to an extent  substantially  consistent with the present  business travel
obligations  of executives of the  Corporation  who have  positions of authority
comparable  to that of the  Executive,  the  Executive  shall not be required to
relocate to a new  principal  place of  business  which is more that thirty (30)
miles from the current principal place of business of the Corporation.

3. Compensation.  The Executive shall receive the following compensation for her
services under this Agreement.

a. Salary and  Transition  Allowance.  The  Executive's  annual base salary (the
"Annual Base Salary"), payable not less often than semi-monthly, shall be at the
annual  rate of not less than  $275,000.00.  The Board  may,  from time to time,
direct such upward  adjustments  in the Annual Base Salary as the Board deems to
be necessary or desirable,  including without limitation adjustments in order to
reflect increases in the cost of living.  Any increase in the Annual Base Salary
shall not serve to limit or reduce any other obligation of the Corporation under
this  Agreement.  The Annual Base Salary shall not be reduced after any increase
thereof except for  across-the-board  salary reductions  similarly affecting all
management personnel of Cinergy,  Cinergy Services,  PSI or CG&E. In addition to
the Annual Base Salary described in this Section,  the Corporation  shall pay to
the  Executive a  transition  allowance  in the gross sum of  $50,000.00  on the
Effective Date or as soon thereafter as administratively feasible.

b. Retirement,  Incentive,  Welfare Benefit Plans and Other Benefits. During the
Employment  Period and so long as the Executive is employed by the  Corporation,
the Executive shall be eligible,  and the Corporation shall take such actions as
may be  necessary  or required to cause the  Executive  to become  eligible,  to
participate in all short-term and long-term incentive,  stock option, restricted
stock,  performance  unit,  savings,  retirement and welfare  plans,  practices,
policies and  programs  applicable  generally  to employees  and/or other senior
executives  of the  Corporation  who  are  considered  Tier  II  executives  for
compensation purposes, including, but not limited to, Cinergy's Annual Incentive
Plan, Cinergy's 1996 Long-Term Incentive  Compensation Plan, Cinergy's Executive
Supplemental  Life Insurance  Program,  PSI's  Supplemental  Retirement Plan and
PSI's Excess Benefit Plan, or any successors thereto, except with respect to any
plan,  practice,  policy or program to which the Executive has waived her rights
in writing.

c. Fringe Benefits and Perquisites.  During the Employment Period and so long as
the Executive is employed by the Corporation, the Executive shall be entitled to
the following additional fringe benefits:

(i) The Corporation shall furnish to the Executive an automobile and shall pay
all of the related expenses for gasoline, insurance, maintenance and repairs;

(ii)  The  Corporation  shall  pay  the  initiation  fee and  the  annual  dues,
assessments and other membership charges of the Executive for membership charges
of the Executive for membership in a country club selected by the Executive;

(iii) The  Corporation  shall  provide paid vacation for four (4) weeks per year
(or longer if permitted by the Corporation's policy); and

(iv) The Corporation  shall furnish to the Executive annual  financial  planning
and tax preparation  services.  In addition,  the Executive shall be entitled to
receive  such other fringe  benefits in  accordance  with the plans,  practices,
programs  and  policies  of  the  Corporation  from  time  to  time  in  effect,
commensurate  with her position  and at least  comparable  to those  received by
other senior executives of the Corporation.

d. Expenses. The Corporation agrees to reimburse the Executive for all expenses,
including those for travel and  entertainment,  properly  incurred by her in the
performance of her duties under this  Agreement in accordance  with the policies
established from time to time by the Board.

e. Relocation  Benefits.  The Executive shall be entitled to reimbursement  from
the Corporation  pursuant to the terms of the Corporation  Relocation Program in
effect  as of the  day and  year  first  written  above,  as well as all  actual
expenses  for  temporary  housing  until  such time as she has moved  into a new
primary residence in the general area of the Corporation's  principal  corporate
office located in Cincinnati, Ohio. The expenses described in this Section shall
be "grossed up" to provide for adverse tax consequences to the Executive.

4.       Termination of Employment.

a. Death.  The Executive's  employment  shall terminate  automatically  upon the
Executive's death during the Employment Period.

b. By the Corporation  for Cause.  The Corporation may terminate the Executive's
employment  during  the  Employment  Period  for  Cause.  For  purposes  of this
Agreement, "Cause" shall mean:

(i) The willful and continued failure by the Executive to substantially  perform
the  Executive's  duties  with the  Corporation  (other  than  any such  failure
resulting from Executive's  incapacity due to physical or mental illness) or any
such actual or anticipated failure after the issuance of a Notice of Termination
for Good Reason by the Executive pursuant to Section 4(c) after a written demand
for  substantial  performance is delivered to the Executive by the Board,  which
demand  specifically  identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or

The  breach by the  Executive  of the  confidentiality  provisions  set forth in
Section 8 of this Agreement, or

(iii) The conviction of the Executive for the commission of a felony,  including
the  entry of a guilty  or nolo  contendere  plea,  or any  willful  or  grossly
negligent  action or inaction by the  Executive  that has a  materially  adverse
effect on the Corporation.

For  purposes of this  definition  of "Cause," no act, or failure to act, on the
Executive's  part shall be deemed  "willful" unless done, or omitted to be done,
by the  Executive  not in good  faith and  without  reasonable  belief  that the
Executive's act, or failure to act, was in the best interest of the Corporation.
Notwithstanding  the above definition of "Cause",  the Corporation may terminate
the Executive's  employment during the Employment Period for a reason other than
Cause, but the obligations placed upon the Corporation in Section 5 shall apply.

c. By the Executive for Good Reason.  The Executive may terminate her employment
during the Employment  Period for Good Reason.  For purposes of this  Agreement,
"Good Reason" shall mean:

(i) The reduction in the Executive's  Annual Base Salary as specified in Section
3(a) of this Agreement,  or any other benefit or payment  described in Section 3
of this  Agreement,  except for  across-the-board  salary  reductions  similarly
affecting all management personnel of Cinergy,  Cinergy Services, CG&E, and PSI,
and changes to the employee benefits programs affecting all management personnel
of those Corporations, provided that such changes (either individually or in the
aggregate)  will not result in a material  adverse  change  with  respect to the
benefits  which the Executive was entitled to receive as of the Effective  Date;
(ii) The  material  reduction  without  her  consent of the  Executive's  title,
authority,  duties or responsibilities from those in effect immediately prior to
the reduction;

(iii) Any breach by the Corporation of any other material  provision  (including
but not limited to the place of performance as specified in Section 2(b);

(iv) The  Executive's  disability  due to physical  or mental  illness or injury
which precludes the Executive from performing any job for which she is qualified
and able to perform based upon her education, training or experience; or

(v) Any event which constitutes a "Change in Control" as defined in Section 4(f)
of this Agreement.

d. Notice of  Termination.  Any  termination by the Corporation for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party to this Agreement given in accordance with Section 10(b) of this
Agreement.  For purposes of this Agreement,  a "Notice of  Termination"  means a
written notice which:

(i) Indicates the specific termination provision in this Agreement relied upon;

(ii) To the extent  applicable,  sets forth in  reasonable  detail the facts and
circumstances  claimed to  provide a basis for  termination  of the  Executive's
employment under the provision so indicated; and

(iii) If the Date of Termination  (as defined in Section 4(e)) is other than the
date of receipt of such notice, specifies the termination date (which date shall
be not more than thirty (30) days after the giving of such notice).  The failure
by the Executive or the  Corporation  to set forth in the Notice of  Termination
any fact or circumstances which contributes to a showing of Good Reason or Cause
shall not  waive  any  right of the  Executive  or the  Corporation  under  this
Agreement or preclude the Executive or the Corporation  from asserting such fact
or circumstances in enforcing the Executive's or the Corporation's  rights under
this Agreement.

e. Date of Termination. "Date of Termination" means:

(i) If the Executive's employment is terminated by the Corporation for Cause, or
by the  Executive  for  Good  Reason,  the  date of  receipt  of the  Notice  of
Termination or any later date specified therein, as the case may be;

(ii) If the Executive's  employment is terminated by the Corporation  other than
for Cause,  the date on which the  Corporation  notifies  the  Executive of such
termination; and

(iii) If the Executive's  employment is terminated by reason of death,  the date
of death.

f. Change in Control.  A "Change in Control" shall be deemed to have occurred if
any of the following events occur after the Effective Date:

(i) Any  "person"  or  "group"  (within  the  meaning  of  Subsection  13(d) and
Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or
becomes  the  beneficial  owner (as  defined in Rule 13d-3  under the 1934 Act),
directly  or  indirectly,  of  securities  of  Cinergy  (not  including  in  the
securities  beneficially  owned by such Person any securities  acquired directly
from Cinergy or its affiliates)  representing fifty percent (50%) or more of the
combined voting power of Cinergy's then  outstanding  securities,  excluding any
person who becomes  such a beneficial  owner in  connection  with a  transaction
described in clause (1) of paragraph (ii) below; or

(ii) There is consummated a merger or  consolidation of Cinergy or any direct or
indirect  subsidiary  of Cinergy with any other  corporation  , other than (1) a
merger or  consolidation  with would result in the voting  securities of Cinergy
outstanding  immediately  prior to such merger or  consolidation  continuing  to
represent  (either by remaining  outstanding  or by being  converted into voting
securities of the surviving entity or any parent thereof) at least fifty percent
(50%)  of the  combined  voting  power  of the  securities  of  Cinergy  or such
surviving  entity or any parent thereof  outstanding  immediately such merger or
consolidation,  or  (2) a  merger  or  consolidation  effected  to  implement  a
recapitalization  of Cinergy (or similar  transaction)  in which no person is or
becomes the beneficial owner,  directly or indirectly,  of securities of Cinergy
(not  including  in  the  securities  beneficially  owned  by  such  person  any
securities  acquired  directly  from  Cinergy  or its  affiliates  other than in
connection  with the  acquisition  by Cinergy or its  affiliates  of a business)
representing  twenty-five  percent (25%) or more of the combined voting power of
Cinergy's then outstanding securities; or

During any period of two consecutive years,  individuals who at the beginning of
that period constitute  Cinergy's Board of Directors and any new director (other
than a director  whose initial  assumption  of office is in  connection  with an
actual or threatened  election  contest,  including but not limited to a consent
solicitation,   relating  to  the  election  of  directors  of  Cinergy)   whose
appointment or election by Cinergy's shareholders was approved or recommended by
a vote of at least  two-thirds  (2/3) of the directors  then still in office who
either were  directors  at the  beginning  of that period or whose  appointment,
election or nomination  for election was  previously so approved or  recommended
cease for any reason to  constitute a majority of Cinergy's  Board of Directors;
or

(iv) The  shareholders  of Cinergy  approve a plan of  complete  liquidation  or
dissolution  of Cinergy or there is  consummated  an  agreement  for the sale or
disposition by Cinergy of all or substantially  all of Cinergy's  assets,  other
than a sale or disposition by Cinergy of all or  substantially  all of Cinergy's
assets to an entity,  at least sixty percent (60%) of the combined  voting power
of the  voting  securities  of which are owned by  shareholders  of  Cinergy  in
substantially  the same  proportions as their  ownership of Cinergy  immediately
prior to such sale.

g. Person.  "Person" shall have the meaning given in Section 3(a)(9) of the 1934
Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person
shall not include:

(i) The Corporation or any of its subsidiaries;

(ii) A trustee or other fiduciary  holding  securities under an employee benefit
plan of Cinergy or any of its subsidiaries;

(iii) An underwriter  temporarily  holding securities pursuant to an offering of
such securities; or

(iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy
in  substantially  the  same  proportions  as  their  ownership  of stock of the
Corporation.


5.       Obligations of the Corporation Upon Termination.

a. Certain Terminations.  During the Employment Period, if the Corporation shall
terminate the  Executive's  employment  (other than in the case of a termination
for Cause),  the Executive shall terminate her employment for Good Reason or the
Executive's  employment  shall terminate by reason of death  (termination in any
such case referred to as "Termination"):

(i) The Corporation shall pay to the Executive a lump sum amount, in cash, equal
to the sum of:

(1) the Executive's Annual Base Salary through the Date of Termination,  and the
Executive's  Transition  Allowance,  in each case to the extent most  previously
paid;

(2) an amount  equal to the Cinergy  Annual  Incentive  Plan  target  percentage
benefit for the fiscal year that includes the Date of Termination  multiplied by
a fraction the numerator of which shall be the number of days from the beginning
of such fiscal year to and including the Date of Termination and the denominator
of which shall be three hundred and sixty-five (365);

(3) an amount  equal to her  vested  accrued  benefit  under the  Cinergy  Value
Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan; and

(4) any  compensation  previously  deferred by the Executive  (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each case
to the extent not previously paid.

(The amounts  specified in clauses (1), (2), (3) and (4) shall be referred to in
this  Agreement as the  "Accrued  Obligations".)  The amounts  specified in this
Section  5(a)(i)  shall  be paid  within  thirty  (30)  days  after  the Date of
Termination.  The Accrued  Obligations  described in this Section are payable to
the Executive regardless of whether a Change in Control has occurred.

(ii)  Prior  to the  occurrence  of a Change  in  Control,  and in the  event of
Termination other than by reason of the Executive's death, then:

(1) the Corporation shall pay to the Executive a lump sum amount, in cash, equal
to the present value  discounted  using an interest rate equal to the prime rate
promulgated by CitiBank,  N.A. and in effect as of the Date of Termination  (the
"Prime Rate") of the Annual Base Salary,  and the Cinergy Annual  Incentive Plan
target percentage payable through the end of the Employment Period,  each at the
rate,  and using the same  goals and  factors,  in effect at the time  Notice of
Termination  is  given,  and  paid  within  thirty  (30)  days  of the  Date  of
Termination;

(2) the Corporation  shall pay to the Executive the present value (discounted at
the Prime Rate) of all amounts to which the  Executive  would have been entitled
had she  remained  in  employment  with  the  Corporation  until  the end of the
Employment  Period,  each,  where  applicable,  at the rate of the  Annual  Base
Salary,  and using the same goals and  factors,  in effect at the time Notice of
Termination is given,  under the Cinergy Value Creation Plan of the Cinergy 1996
Long-Term  Incentive  Compensation Plan and the Cinergy  Executive  Supplemental
Life Insurance Program minus the present value (discounted at the Prime Rate) of
the benefits to which she is actually  entitled under the above  mentioned plans
and programs;

(3) the  Corporation  shall pay the value of all deferred  compensation  amounts
whether or not then payable; and

(4) the  Corporation  shall  continue,  until the end of the Employment  Period,
medical and welfare benefits to the Executive  and/or the Executive's  family at
least  equal  to  those  which  would  have  been  provided  if the  Executive's
employment had not been  terminated  (excluding  benefits to which the Executive
has waived her rights in writing),  such benefits to be in  accordance  with the
most  favorable  medical  and  welfare  benefit  plans,  practices,  programs or
policies  (the "M&W  Plans")  of the  Corporation  as in effect  and  applicable
generally to other  senior  executives  of the  Corporation  and their  families
during the ninety (90) day period immediately preceding the Date of Termination;
provided,  however, that if the Executive becomes employed with another employer
and is eligible  to receive  medical or other  welfare  benefits  under  another
employer-provided  plan,  the benefits under the M&W Plans shall be secondary to
those  provided  under  such  other  plan  during  such  applicable   period  of
eligibility.

(iii) From and after the  occurrence  of a Change in Control and in the event of
Termination  other than by reason of the Executive's  death, then in lieu of any
further salary  payments to the Executive for periods  subsequent to the Date of
Termination  and in lieu of any  other  benefits  payable  pursuant  to  Section
5(a)(ii) of this Agreement:

(1) The Corporation shall pay to the Executive a lump sum severance payment,  in
cash, equal to the greater of:

(A) the present value of all amounts and benefits that would have been due under
Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and

(B) three (3) times the sum of (x) the  higher of the  Executive's  Annual  Base
Salary  in  effect   immediately  prior  to  the  occurrence  of  the  event  or
circumstance  upon  which  the  Notice  of  Termination  is based  or in  effect
immediately  prior to the  Change in  Control,  and (y) the higher of the amount
paid to the Executive  pursuant to all incentive  compensation or bonus plans or
programs maintained by the Corporation,  in the year preceding that in which the
Date of Termination  occurs or in the year preceding that in which the Change in
Control occurs; and

(2) For a  thirty-six  (36)  month  period  after the Date of  Termination,  the
Corporation  shall  arrange  to provide  the  Executive  with life,  disability,
accident and health insurance benefits  substantially similar to those which the
Executive is receiving  immediately prior to the Notice of Termination  (without
giving  effect  to any  reduction  in such  benefits  subsequent  to a Change in
Control which reduction  constitutes Good Reason),  except for any benefits that
were waived by the Executive in writing.  Benefits  otherwise  receivable by the
Executive  pursuant to this Section  5(a)(iii)(2) shall be reduced to the extent
comparable  benefits are actually received by or made available to the Executive
without cost during the thirty-six  (36) month period  following the Executive's
termination  of  employment  (and any such  benefits  actually  received  by the
Executive shall be reported to the Corporation by the Executive).

The Executive's  employment shall be deemed to have been terminated  following a
Change in Control of Cinergy  without  Cause or by the Executive for Good Reason
if, in addition to all other applicable Terminations, the Executive's employment
is terminated  prior to a Change in Control  without Cause at the direction of a
Person who has entered into an agreement with Cinergy or any of its subsidiaries
or affiliates,  the consummation of which will constitute a Change in Control or
if the Executive  terminates her employment for Good Reason prior to a Change in
Control if the  circumstances  or event which  constitutes Good Reason occurs at
the direction of such Person.

b.  Termination by the  Corporation for Cause or by the Executive Other Than for
Good Reason.  Subject to the provisions of Section 7 of this  Agreement,  if the
Executive's  employment  shall be  terminated  for Cause  during the  Employment
Period, or if the Executive  terminates  employment during the Employment Period
other than a termination for Good Reason,  the Corporation shall have no further
obligations to the Executive  under this Agreement  other than the obligation to
pay to the Executive the Accrued  Obligations and the amounts  determined  under
Section 5(c), plus any other earned but unpaid compensation, in each case to the
extent not previously paid.

c. Retirement Benefits on Termination.  In addition to retirement benefits under
PSI's Pension Plan, PSI's Supplemental Retirement Plan, and PSI's Excess Benefit
Plan, or any successor  thereto,  the Executive shall be eligible to participate
in any supplemental executive retirement plan (commonly referred to as a "SERP")
sponsored by the Corporation.

d.  Survival of Section 5(c).  The  provisions of Section 5(c) shall survive the
expiration or termination of this Agreement for any reason.

e. Certain Tax Consequences. In the event that the Executive becomes entitled to
the  payments  and  benefits   described  in  this  Section  5  (the  "Severance
Benefits"),  if any of the Severance  Benefits will be subject to any excise tax
(the "Excise Tax")  imposed  under Section 4999 of the Internal  Revenue Code of
1986, as amended (the  "Code"),  the  Corporation  shall pay to the Executive an
additional amount (the "Gross-Up  Payment") such that the net amount retained by
the Executive,  after  deduction of an Excise Tax on the Severance  Benefits and
any federal,  state and local income and  employment tax and Excise Tax upon the
payment  provided  for by this  Section  5,  shall  be  equal  to the  Severance
Benefits. For purposes of determining whether any of the Severance Benefits will
be subject to the Excise Tax and the amount of such Excise Tax,

(i) any other  payments or benefits  received or to be received by the Executive
in  connection  with a Change  in  Control  or the  Executive's  termination  of
employment  (whether  pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the  Corporation,  any Person whose actions result
in a Change in Control or any Person  affiliated  with the  Corporation  or such
Person) shall be treated as "parachute  payments"  within the meaning of Section
280G(b)(2) of the Code, and all "excess  parachute  payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by the  Corporation's  independent
auditors and  reasonably  acceptable  to the  Executive  such other  payments or
benefits (in whole or in part) do not constitute  parachute payments,  including
by  reason  of  Section  280G(b)(4)(A)  of the Code,  or such  excess  parachute
payments (in whole or in part) represent  reasonable  compensation  for services
actually rendered,  within the meaning of Section  280G(b)(4)(B) of the Code, in
excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable
to such reasonable compensation, or are otherwise not subject to the Excise Tax,

(ii) the amount of the  Severance  Benefits  that shall be treated as subject to
the Excise Tax shall be equal to the lesser of

(1) the total amount of the Severance Benefits, or

(2) the  amount of excess  parachute  payments  within  the  meaning  of Section
280G(b)(1) of the Code (after applying clause (i), above), and

(iii) the value of any  non-cash  benefits  or any  deferred  payment or benefit
shall be determined by the Corporation's independent auditors in accordance with
the  principles  of Section  280G(d)(3)  and (4) of the Code.  For  purposes  of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar  year in which the Gross-Up  Payment is to be made and state and
local  income  taxes at the highest  marginal  rate of taxation in the state and
locality of the  Executive's  residence on the Date of  Termination,  net of the
maximum reduction in federal income taxes which would be obtained from deduction
of such state and local taxes.  In the event that the Excise Tax is subsequently
determined  to be less than the amount taken into account  hereunder at the time
of termination of the Executive's  employment,  the Executive shall repay to the
Corporation,  at the time that the  amount of such  reduction  in Excise  Tax is
finally  determined,  the portion of the Gross-Up  Payment  attributable to such
reduction (plus that portion of the Gross-Up Payment  attributable to the Excise
Tax and  federal,  state and local  income  and  employment  tax  imposed on the
Gross-Up Payment being repaid by the Executive to the extent that such repayment
results in a reduction in Excise Tax and/or a federal,  state or local income or
employment tax  deduction)  plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account  hereunder at the time
of the  termination of the  Executive's  employment  (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment),  the Corporation shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive  with  respect  to such  excess)  at the time that the  amount of such
excess is finally  determined.  The  Executive  and the  Corporation  shall each
reasonably  cooperate with the other in connection  with any  administrative  or
judicial proceedings  concerning the existence or amount of liability for Excise
Tax with respect to the Severance Benefits.

f. Other Fees and Expenses.  The Corporation also shall pay to the Executive all
legal fees and expenses  incurred by the  Executive as a result of a termination
which entitles the Executive to the Severance Benefits  (including all such fees
and expenses,  if any,  incurred in disputing any such termination or in seeking
in good  faith to  obtain or  enforce  any  benefit  or right  provided  by this
Agreement).  Such  payments  shall be made within five (5)  business  days after
delivery of the Executive's  written requests for payment  accompanied with such
evidence  of fees  and  expenses  incurred  as the  Corporation  reasonably  may
require.

6.  Non-exclusivity of Rights.  Nothing in this Agreement shall prevent or limit
the  Executive's  continuing  or  future  participation  in any  benefit,  plan,
program,  policy  or  practice  provided  by the  Corporation  and for which the
Executive may qualify (except with respect to any benefit to which the Executive
has waived her rights in writing),  nor shall anything herein limit or otherwise
affect  such  rights as the  Executive  may have  under any  other  contract  or
agreement entered into after the date hereof with the Corporation. Amounts which
are vested  benefits or which the  Executive  is  otherwise  entitled to receive
under any  benefit,  plan,  program,  policy or practice  of, or any contract or
agreement  entered  into  after the date  hereof  with,  the  Corporation  at or
subsequent to the Date of Termination,  shall be payable in accordance with such
benefit, plan, program, policy or practice, or contract or agreement,  except as
explicitly modified by this Agreement.

7. Full Settlement:  Mitigation.  Except as provided in Sections 5(a)(ii)(4) and
5(a)(iii)(2)  of this  Agreement,  the  Corporation's  obligation  to  make  the
payments provided for in this Agreement and otherwise to perform its obligations
under  this  Agreement  shall  not be  affected  by any  set-off,  counterclaim,
recoupment,  defense or other claim,  right or action which the  Corporation may
have  against  the  Executive  or others.  In no event  shall the  Executive  be
obligated to seek other employment or take any other action by way of mitigation
of the  amounts  (including  amounts  for  damages  for  breach)  payable to the
Executive  under any of the  provisions of this Agreement and such amounts shall
not be reduced  whether or not the Executive  obtains other  employment.  If the
Executive  finally prevails with respect to any dispute between the Corporation,
the  Executive  or  others  as  to  the  interpretation,   terms,   validity  or
enforceability  of  (including  any  dispute  about the  amount  of any  payment
pursuant to) this Agreement,  the  Corporation  agrees to pay all legal fees and
expenses  which  the  Executive  may  reasonably  incur as a result  of any such
dispute.

8. Confidential  Information.  The Executive shall hold in a fiduciary  capacity
for the benefit of Cinergy, all of its subsidiary  companies and affiliates,  as
well as all  successors  and assigns  thereof  (the  "Cinergy  Companies"),  all
secret,  confidential  information,  knowledge  or data  relating to the Cinergy
Companies, and their respective businesses, that shall have been obtained by the
Executive  during the  Executive's  employment by the Corporation and that shall
not have been or now or subsequently have become public knowledge (other than by
acts by the Executive or  representatives  of the Executive in violation of this
Agreement).  During the Employment  Period and  thereafter,  the Executive shall
not, without the prior written consent of the Corporation or as may otherwise by
required by law or legal process,  communicate or divulge any such  information,
knowledge or data to anyone other than the Corporation  and those  designated by
it. The Executive  understands  that during the Employment  Period,  the Cinergy
Companies  may be required  from time to time to make public  disclosure  of the
terms or existence of the Executive's employment relationship in order to comply
with  various  laws and legal  requirements.  In addition to all other  remedies
available to the  Corporation  in law and equity,  this  Agreement is subject to
termination  by the  Corporation  for Cause under  Section 4(b) in the event the
Executive violates any provision of this Section 8.

9.       Successors.

a. This  Agreement is personal to the Executive  and,  without the prior written
consent of the Corporation,  shall not be assignable by the Executive  otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal representatives.

b.  This  Agreement  shall  inure  to the  benefit  of and be  binding  upon the
Corporation, and its successors and assigns.


c. The Corporation shall require any successor  (whether direct or indirect,  by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business  and/or  assets of the  Corporation  to assume  expressly  and agree to
perform  this  Agreement  in the same  manner  and to the same  extent  that the
Corporation  would be  required  to perform it if no such  succession  had taken
place.

10.      Miscellaneous.

a. This Agreement shall be governed by and construed in accordance with the laws
of the State of Ohio,  without  reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions  hereof and shall have
no force or effect.  This  Agreement  may not be  amended,  modified,  repealed,
waived,  extended or discharged  except by an agreement in writing signed by the
party against whom enforcement of such amendment,  modification, repeal, waiver,
extension or discharge is sought. No person, other than pursuant to a resolution
of the Board or a  committee  thereof,  shall  have  authority  on behalf of the
Corporation to agree to amend,  modify,  repeal,  waive, extend or discharge any
provision of this Agreement or anything in reference thereto.

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

If to the Executive: Madeleine W. Ludlow Cinergy Corp. 221 East Fourth Street P.
O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation:  Cinergy Corp. 221
East  Fourth  Street  P. O. Box 960  Cincinnati,  Ohio  45201-0960  Attn:  Chief
Executive  Officer or to such other address as either party shall have furnished
to the other in writing in  accordance  with this  Agreement.  All  notices  and
communications shall be effective when actually received by the addressee.

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

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

e. The Executive's or the Corporation's failure to insist upon strict compliance
with any  provision  of this  Agreement  or the  failure to assert any right the
Executive or the Corporation may have under this  Agreement,  including  without
limitation  the right of the Executive to terminate  employment  for Good Reason
pursuant to Section 4(c) of this  Agreement,  or the right of the Corporation to
terminate the Executive's  employment for Cause pursuant to Section 4(b) of this
Agreement,  shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.

f. This  instrument  contains  the entire  agreement  of the  Executive  and the
Corporation  with  respect  to the  subject  matter  hereof;  and all  promises,
representations,  understandings,  arrangements  and prior agreements are merged
into this Agreement and accordingly superseded.

g. This Agreement may be executed in counterparts, each of which shall be deemed
to be an original but all of which  together  will  constitute  one and the same
instrument.

h. The  Corporation  and the Executive agree that Cinergy shall be authorized to
act  for  the  Corporation  with  respect  to  all  aspects  pertaining  to  the
administration and interpretation of this Agreement.

IN WITNESS WHEREOF, the Executive and the Corporation have caused this Agreement
to be executed as of the day and year first above written.


CINERGY CORP., CINERGY SERVICES, INC.,
THE CINCINNATI GAS & ELECTRIC COMPANY,
AND PSI ENERGY, INC.



By:  _________________________
     James E. Rogers
     Vice Chairman and Chief Executive Officer





EXECUTIVE



--------------------------
Madeleine W. Ludlow