**TEMPLATE**

** **

** **

**NON-QUALIFIED STOCK OPTION AGREEMENT FOR**

**EMPLOYEES UNDER THE CINERGY CORP.**

**1996 LONG-TERM INCENTIVECOMPENSATION PLAN**

 

 

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”),effective as of _______________ (the “Date of Grant”), is made by and betweenCinergy Corp., a Delaware corporation, and _______________ (the “Optionee”), anemployee of Cinergy Corp. or one of its directly or indirectly held majority orgreater-owned subsidiaries (collectively referred to in this Agreement as the “Company”).

 

WHEREAS, Cinergy Corp. has adopted the Cinergy Corp.1996 Long-Term Incentive Compensation Plan, as amended from time to time (the “Plan”),pursuant to which the Optionee has been granted a non-qualified stock option(the “Option”) to purchase shares of Cinergy Corp. common stock, with par valueof $0.01 per share (“Common Stock”), pursuant to the Plan, on the terms setforth in this Agreement; and

 

                WHEREAS, theparties desire to enter into this Agreement to set forth their understandingswith respect to the grant of the Option described in this Agreement.

 

                NOW, THEREFORE, inconsideration of the recitals and the mutual agreements contained in thisAgreement, the parties agree as follows:

 

**1.****                                     ****Option Grant****.**

 

Cinergy Corp. hereby grants to the Optionee effectiveon the Date of Grant an Option to purchase __________ shares of Common Stock,pursuant to the Plan, on the terms and conditions set forth in thisAgreement.  The number of shares ofCommon Stock subject to this Option, and the Option Price described below inSection 2, are subject to adjustment as provided in the Plan.  TheOption is intended to be a non-qualified stock option and shall not be treatedas an “incentive stock option” within the meaning of that term under Section422 of the Internal Revenue Code of 1986, as amended.

 

**2.****                                     ****Purchase Price****.**

 

The purchase price of each share of Common Stocksubject to this Option is $__________ (the “Option Price”).  At the time this Option is exercised, theOptionee must pay the aggregate Option Price of the shares with respect towhich the Optionee exercises the Option pursuant to one of the followingmethods:  (a) in cash, (b) by tenderingto the Company whole shares of Common Stock owned by the Optionee, or ownedjointly by the Optionee and his or her spouse (with the spouse’s writtenconsent), for at least six (6) months (a “Stock Swap”), which tendered sharesmust have a Fair Market Value (as defined in the Plan) equal to the aggregateOption Price of the shares with respect to which the 

 

1

----

 

Optionee exercises the Option, (c) any combination ofthe methods described in (a) and (b) of this sentence, or (d) any other methodapproved by the Compensation Committee (the “Committee”) of Cinergy Corp.’s Boardof Directors.  To exercise this Option,the Optionee must send written notice to the Cinergy Corp. Manager,Compensation, at the address noted in Section 19 or follow such other procedureas specified by the Company.  The noticeshall state the number of shares of Common Stock in respect of which the Optionis being exercised, shall identify the Option as a non-qualified stock option,and shall be signed by the person or persons exercising the Option.  The notice shall be accompanied by payment ofthe full cash Option Price for such shares of Common Stock, or followed as soonas practicable by the delivery of shares used in a Stock Swap and related cash(if applicable), or any other consideration approved by the Committee.  Certificates evidencing shares of CommonStock purchased pursuant to this Option will not be delivered to the Optioneeuntil payment has been made.

 

**3.****                                     ****Term of, and Right toExercise, Option****.**

 

Theterm of this Option (the “Option Term”) shall be for a period of ten years fromthe Date of Grant, subject to earlier termination as otherwise provided in thisAgreement. Except as otherwise provided below, the Option shall becomeexercisable with respect to _______________ (____%) of the total number ofshares of Common Stock covered by this Option on _______________, but only ifthe Optionee remains continuously employed with the Company from the Date ofGrant until _______________.(1)  From and after the date the Option becomesexercisable, the shares of Common Stock subject to this Option may be purchasedat any time, or from time to time, in whole or in part, until the Option Termexpires, but in no case may fewer than 100 such shares be purchased at any onetime, except to purchase all remaining shares subject to the Option.

 

**4.****                                     ****Effect of Termination ofEmployment due to Reasons other than Retirement, Death or Disability****.**

 

If the Optionee ceases to be an employee of theCompany for any reason other than as a result of his or her termination ofemployment on or after attaining age fifty (50) with five years of “Service”under the Cinergy Corp. Non-Union Employees’ Pension Plan (“Retirement”), deathor disability (as defined in Section 7), this Option, to the extent exercisableon the date of termination, will remain exercisable until the earlier of (a)the date three months following the effective date of the Optionee’stermination of employment or (b) the expiration of the Option Term.

 

**5.****                                     ****Effect of Termination ofEmployment Due to Retirement****.**

 

If the Optionee ceases tobe an employee of the Company as a result of his or her Retirement, the Optionshall become immediately exercisable in its entirety

----

(1) The vestingevents for stock option grants vary for each participant (*e.g.,*cliff or graded vesting schedule).

 

2

----

 

and the Optionee mayexercise this Option in whole or in part, subject to Section 6, at any timeprior to the expiration of the Option Term.

 

**6.****                                     ****Effect of Death****.**

 

Notwithstanding Section 5, if the Optionee dies eitherwhile employed by the Company or after his or her termination of employmentbecause of Retirement, the Option shall become immediately exercisable in itsentirety and may be exercised in whole or in part by the Optionee’s executor,administrator, legatees or estate at any time during the period commencing uponthe Optionee’s death and ending on the earlier of (a) the date twelve (12)months after the date of the Optionee’s death or (b) the expiration of theOption Term.

 

**7.****                                     ****Effect of Disability****.**

 

In the event that the Optionee while employed by theCompany becomes “disabled,” as that term is defined under the then existinglong-term disability plan of the Company in which the Optionee participates (orif no such plan exists, as determined by the Committee), the Optionee will bedeemed to be employed by the Company during his or her period of disability.

 

**8.****                                     ****Effect of Change inControl****.**

 

Notwithstanding the foregoing, in the event that a “Changein Control” (as defined in the Plan) of Cinergy Corp. occurs while the Optioneeis employed by the Company, the Option, to the extent it has not previouslyterminated, shall immediately become exercisable in full.

 

**9.****                                     ****Transferability****.**

 

Except as otherwise provided by the Committee, thisOption is not transferable or assignable otherwise than by will or the laws ofdescent and distribution.  The Option maybe exercised only by the Optionee, or, if the Optionee dies, by his or herexecutor, administrator, legatees, or beneficiaries of his or her estate whoare entitled to this Option, or in the event of his or her legal incapacity, byhis or her guardian or legal representative acting on behalf of the Optionee ina fiduciary capacity under state law and court supervision.

 

**10.****                              ****Effect of Assignment orPledge****.**

 

If the Optionee attempts to assign or pledge shares ofCommon Stock covered by this Option, or if there is a levy, attachment,execution or other legal or equitable process upon this Option, the Company hasthe right to terminate this Option.

 

3

----

 

**11.****                              ****Incorporation of the Plan’sTerms****.**

 

This Option is subject to all the terms, provisionsand conditions of the Plan, which is incorporated into this Agreement byreference, and to such regulations, procedures and administrative guidelines asmay from time to time be adopted by the Committee.  A copy of the Plan and a set ofadministrative guidelines have been furnished to the Optionee and an additionalcopy may be obtained from the Company. In the event of any conflict between the provisions of the Plan oradministrative guidelines (as the case may be) and the provisions of thisAgreement, the terms, conditions and provisions of the Plan and/oradministrative guidelines shall control, and this Agreement shall be deemed tobe modified accordingly.  The Committeeshall have final authority to interpret and construe the Plan and thisAgreement and to make any and all determinations thereunder, and its decisionshall be binding and conclusive upon the Optionee and his or her legalrepresentative in respect of any questions arising under the Plan, or thisAgreement.

 

**12.****                              ****Tax Withholding****.**

 

A certificate evidencing the shares of Common Stockpurchased as a result of the exercise of this Option will not be issued untilthe Optionee has satisfied his or her obligations with respect to withholdingtax.

 

**13.****                              ****Expiration of Rights****.**

 

Unless earlier terminated in accordance with the termsof this Agreement, all rights to exercise this Option will expire, in anyevent, ten years from the Date of Grant.

 

**14.****                              ****Certificate****.**

 

Certificates evidencing shares transferred uponexercise of this Option may bear a legend setting forth, among other things,such restrictions on the disposition or transfer of the shares as the Companymay deem consistent with applicable federal and state laws.

 

**15.****                              ****No Right to ContinuedEmployment****.**

 

Nothing in this Option shall restrict the right of theCompany to terminate the Optionee’s employment at any time with or withoutcause.

 

**16.****                              ****Successors****.**

 

The terms of this Agreement shall be binding upon andinure to the benefit of the Company, its successors and assigns, and theOptionee and the Optionee’s beneficiaries, executors, administrators, heirs andsuccessors.

 

4

----

 

**17.****                              ****Invalid Provision****.**

 

The invalidity or unenforceability of any particularprovision of this Agreement shall not affect the other provisions of thisAgreement, and this Agreement shall be construed in all respects as if suchinvalid or unenforceable provision has been omitted.

 

**18.****                              ****Modifications****.**

 

Nochange, modification or waiver of any provision of this Agreement shall bevalid unless the same be in writing and signed by the parties.

 

**19.          Noticesand Electronic Delivery and Signature.**

 

All notices to the Company and the exercise of theOption herein granted, shall be addressed to Cinergy Corp., 139 East FourthStreet, Cincinnati, Ohio 45202, Attention: Manager, Compensation, or such otheraddress or in accordance with such other procedure as the Company may, fromtime to time, specify.  Notwithstandingthe foregoing, the Employee hereby consents and agrees to electronic deliveryof any Plan documents, proxy materials, annual reports and other relateddocuments, including all materials required to be distributed pursuant toapplicable securities laws.  If theCompany establishes procedures for an electronic signature system for deliveryand acceptance of Plan documents (including documents relating to any programsadopted under the Plan), the Employee hereby consents to such procedures andagrees that his or her electronic signature is the same as, and shall have thesame force and effect as, his or her manual signature.  The Employee consents and agrees that anysuch procedures and delivery may be effected by a third party engaged by theCompany to provide administrative services related to the Plan, including anyprogram adopted under the Plan.  TheEmployee understands that, unless earlier revoked by the Employee, this consentshall be effective for the duration of the Agreement and that he or she shallhave the right at any time to request written copies of any and all materialsreferred to above.

 

**20.          Headings.**

 

The headings of the Sections of this Agreement areprovided for convenience only and are not to serve as a basis for interpretationor construction, and shall not constitute a part of this Agreement.

 

**21.          GoverningLaw.**

 

This Agreement and the Optionee’s rights under itshall be construed and determined in accordance with the laws of the state ofDelaware.

 

5

----

 

**22.          EntireAgreement.**

 

This Agreement and the Plan contain the entireagreement and understanding of the parties with respect to the subject mattercontained in this Agreement, and supersede all prior communications, representationsand negotiations in respect thereto.

 

**23.          Counterparts.**

 

This Agreement may be executed in counterparts, eachof which shall be deemed an original, but all of which together shallconstitute one and the same instrument.

 

**24.          Satisfactionof Legal Requirements.**

 

This Option may not be exercised until the Company hasbeen advised by counsel that all applicable legal requirements have been met.

 

 

IN WITNESS WHEREOF, this Agreement has been executed by theparties effective as of the _____ day of _______________, _____.

 
| OPTIONEE                                                      | CINERGY CORP.                                                                                             |
|---------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|
|  

 

Signature:  ____________________________ |  

 

By:  _____________________________

         |

 

 

6

----