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Employment Contracts and Termination of Employment and Change-in-Control Arrangements

Duke Energy entered into an employment agreement ("Agreement") with Mr. Anderson which became effective November 1, 2003, ("Effective Time") upon his election as Chairman of the Board and Chief Executive Officer and which will remain in effect until December 31, 2006 ("Agreement Term"). Mr. Anderson's employment may be terminated earlier as a result of his resignation, with ninety days' notice to Duke Energy, or by Duke Energy (1) due to disability that prevents Mr. Anderson from the full time performance of his duties; (2) for "cause" (as defined in the Agreement); or (3) for any reason other than death, disability or for cause, upon ninety days' notice to Mr. Anderson. The Agreement provides that Mr. Anderson was to be awarded a nonqualified stock option grant with respect to 1,100,000 shares, a performance share grant for 360,000 shares and a phantom stock grant for 285,000 units (collectively, "Equity Awards"), with Equity Awards made under the Duke Energy 1998 Long-Term Incentive Plan. The Agreement further provides that Mr. Anderson's compensation will be provided primarily through these Equity Awards and that Mr. Anderson will not be paid a base salary and will not participate in the Duke Energy Corporation Executive Short-Term Incentive Plan or any other annual cash bonus program. The Equity Awards were granted on November 17, 2003, concurrent with the execution of the Agreement.

Pursuant to the Agreement, the stock options have a term of ten years and will vest one-third each on the first three anniversaries of the grant date. The stock options will become exercisable on January 1, 2007, or earlier upon termination of Mr. Anderson's employment with Duke Energy. Forty-five thousand (45,000) units of the phantom stock award vested on January 1, 2004. The remaining 240,000 units will vest 20,000 units each on the first day of each quarter beginning April 1, 2004, and ending on January 1, 2007. Up to one-third of the performance share award (120,000 shares) will vest on each of December 31, 2004, December 31, 2005 and December 31, 2006, but only if the performance goals established by the Compensation Committee with respect to calendar years 2004, 2005 and 2006, respectively, are achieved. As specified in the Agreement, the Compensation Committee may establish goals for each calendar year consisting of a combination of financial objectives and strategic objectives. Performance shares will be forfeited and will cease to be outstanding to the extent performance goals are not achieved for any calendar year. Vested performance shares and phantom stock units will be paid to Mr. Anderson in shares of Duke Energy Common Stock following termination of his Duke Energy employment. Dividend equivalents granted to Mr. Anderson with respect to the performance share and phantom stock awards provide for payment of dividend equivalents in cash while the awards remain outstanding but unpaid, and at the time that cash dividends are paid on the outstanding shares of Duke Energy Common Stock. Upon termination of Mr. Anderson's employment with Duke Energy, all unvested Equity Awards at the time of termination will be forfeited. However, if Mr. Anderson's employment with Duke Energy is terminated as a result of his death, disability or by Duke Energy without cause as defined in the Agreement, two events will occur as follows: (1) a portion of each unvested Equity Award will vest immediately, with such portion vesting equal to the number of full calendar months elapsed between the Effective Time and the time of termination, divided by thirty-eight; and (2) all vested stock options will become immediately exercisable. All outstanding Equity Awards will vest immediately upon occurrence of a Change in Control, as defined in the Duke Energy 1998 Long-Term Incentive Plan.

Mr. Anderson will not be entitled to any retirement, health or welfare benefits, or perquisites, or to participate in any such plan or program, except for the following: (1) vacation; (2) medical and dental health care to the extent available generally to senior executives of Duke Energy and their eligible dependents; (3) participation in the Duke Energy Retirement Cash Balance Plan for purposes of determining his eligibility to qualify for early or normal retirement, but not for any other purpose including eligibility for pay credits or other benefits; (4) reimbursement by Duke Energy for the reasonable cost of financial and tax planning and advisory services incurred through December 31, 2005, including payment for tax gross-up; (5) reimbursement by Duke Energy for certain identified costs associated with the relocation of Mr. Anderson's principal residence to Charlotte, including payment for tax-gross up where applicable and consistent with Duke Energy's standard relocation policy; and (6) reimbursement by Duke Energy for any North Carolina income taxes on income realized by Mr. Anderson during the Agreement Term from certain identified sources that would otherwise not have been subject to such taxes but for his relocation to Charlotte.

The benefits to which Mr. Anderson became entitled under various plans and agreements from his previous employment with Duke Energy or its predecessor entities are unaffected by the Agreement. Likewise, Mr. Anderson's employment under the Agreement will not be deemed or counted as service with Duke Energy or predecessor entity for any purpose, including the determination of retirement dates under such plans and agreements. For security reasons, Mr. Anderson is required by Duke Energy to use Duke Energy aircraft for his business travel. Mr. Anderson is also permitted to use Duke Energy aircraft for his personal travel within North America, with Mr. Anderson responsible for paying any income taxes resulting from such aircraft usage. The Agreement contains restrictive covenants related to confidentiality that continue following the Agreement Term.

Duke Energy does not have any form of employment agreement with Messrs. Fowler and Osborne and Dr. Shaw, either written or oral, that guarantees salaries, salary increases, bonuses or benefits, other than the supplemental compensation agreement with Dr. Shaw described below. Salaries and bonuses for Messrs. Fowler and Osborne and Dr. Shaw are determined as described in the "Report of the Compensation Committee". Duke Energy had entered into severance agreements and change-in-control agreements with Messrs. Fowler and Osborne and Dr. Shaw, which became effective on August 18, 1999, and a severance agreement with Mr. Priory, which became effective on August 19, 1999. The severance agreements and change-in-control agreements for Messrs. Fowler and Osborne and Dr. Shaw currently remain in effect on a month-to-month basis or for such longer period as may be mutually agreed upon by the parties. The principal terms and conditions of the severance agreements and change-in-control agreements are described below.

The severance agreements for Messrs. Priory, Fowler and Osborne and Dr. Shaw provide for severance payments and benefits to the executive in the event of termination of employment other than upon death or disability or for "cause" (as defined in the severance agreements) by Duke Energy as follows: (1) a lump-sum payment equal to two times the sum of the executive's then-current base salary and target bonus, plus a pro rata amount of the executive's target bonus for the year in which the termination occurs; (2) a lump-sum payment equal to the present value of the amount Duke Energy would have contributed or credited to the executive's pension and savings accounts during the two years following the termination date; (3) continued medical, dental and basic life insurance coverage for a two-year period following the termination date or retiree medical benefits, if the executive would have become eligible for such benefits within two years following the termination date, from the date of eligibility; and (4) continued vesting of long-term incentive awards, including stock options or restricted stock but excluding certain performance share awards, held but not vested or exercisable on the termination date, in accordance with their terms for two years following the termination date, with any options or similar rights thereafter remaining exercisable for 90 days, if their term has not expired. If Messrs. Priory, Fowler and Osborne and Dr. Shaw receive a payment under their severance agreements, no payment will be made under the performance share award. The severance agreements contain restrictive covenants which prohibit Messrs. Priory, Fowler and Osborne and Dr. Shaw from competing with Duke Energy or soliciting Duke Energy's employees or customers for one year following termination, and from disclosing certain confidential information.

Severance benefits became payable under Mr. Priory's severance agreement effective November 1, 2003, the effective date of his resignation as Chairman of the Board and Chief Executive Officer. As agreed in connection with his separation, aggregate severance benefits of $4,833,850 were paid to Mr. Priory. Mr. Priory is also entitled to payment by Duke Energy of up to $65,000 for legal fees incurred by Mr. Priory in connection with his separation and to continued access to, and use of, office space and secretarial support at Duke Energy's Charlotte, North Carolina corporate headquarters under the same terms and conditions as such office space and secretarial support is provided to similarly situated, previously retired inside directors of Duke Energy. This obligation to provide continued office space and secretarial support will end upon the earlier of Duke Energy's cessation of this type of support to other similarly situated retired executives or Mr. Priory's acceptance of full-time employment with any third party.

Duke Energy had entered into a severance agreement with Mr. Blackburn with provisions identical to the severance agreements described above for Messrs. Priory, Fowler and Osborne and Dr. Shaw, which became effective August 18, 1999, and expired upon his retirement from Duke Energy effective February 1, 2004. Duke Energy and Mr. Blackburn are currently involved in legal proceedings to resolve differences with respect to severance payments to Mr. Blackburn in connection with his retirement effective February 1, 2004. Severance benefits of $644,406 have been paid to Mr. Blackburn. Pursuant to an agreement with Mr. Blackburn, Duke Energy may pay Mr. Blackburn an additional lump-sum severance payment of $1,360,376 following resolution of, and depending on the outcome of, these proceedings.

Duke Energy entered into a separation agreement with Mr. Brace in connection with his termination of employment effective March 1, 2004. The separation agreement provides for the following: (1) lump-sum severance payments totaling $700,000; (2) reimbursement of up to $10,000 for attorneys' fees incurred by Mr. Brace in connection with the separation agreement; (3) payment by Duke Energy of an amount equal to the premium for six months of COBRA coverage, including payment for income taxes owed by Mr. Brace as a result of this payment, if such coverage is elected by Mr. Brace; (4) payment for Mr. Brace's accrued but unpaid vacation as of December 31, 2003; and (5) retention by Mr. Brace of a laptop computer and a home computer which had been assigned to him, provided that information designated as confidential or proprietary by Duke Energy is deleted by Duke Energy. The separation agreement contains provisions prohibiting Mr. Brace from disclosing certain confidential business information for a period of two years following his termination of employment, with the exception that the confidentiality of trade secret information will continue to survive after the two-year period.

The change-in-control agreements for Messrs. Fowler and Osborne and Dr. Shaw provide for payments and benefits to the executive in the event of termination of employment for "good reason" by the executive or other than for "cause" by Duke Energy within a two-year period following a "change-in-control" (each such term as defined in the change-in-control agreements) as follows: (1) a lump-sum payment equal to the sum of the executive's then-current base salary and target bonus for each year of the three-year period after termination, including a pro rata amount for any partial years in such period, plus a pro rata amount of the executive's target bonus for the year in which the termination occurs; (2) a lump-sum payment equal to the present value of the amount Duke Energy would have contributed or credited to the executive's pension and savings accounts during the three years following the termination date; (3) continued medical, dental and basic life insurance coverage for a three-year period following the termination, or retiree medical benefits, if the executive would have become eligible for such benefits within two years following the termination date, from the date of eligibility; and (4) continued vesting of long-term incentive awards, including stock options or restricted stock but excluding performance share awards, held but not vested or exercisable on the termination date, in accordance with their terms for three years following the termination date, with any options or similar rights thereafter remaining exercisable for 90 days, if their terms have not expired. If the executive becomes eligible for normal retirement at age sixty-five within the three-year period following termination, the three-year period mentioned above will be reduced to the period from the termination date to the eligible executive's normal retirement date. In the event that any of the payments or benefits provided for in the change-in-control agreement would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Internal Revenue Code), the executive is entitled to receive an additional payment such that, after the payment of all income and excise taxes, he will be in the same after-tax position as if no excise tax under Section 4999 of the Internal Revenue Code had been imposed.

Duke Energy had entered into a supplemental compensation agreement with Dr. Shaw effective September 1, 1992, to induce her to accept employment with Duke Energy. The agreement was replaced by a new agreement effective January 1, 1997, following Duke Energy's conversion from a final average pay to a cash balance pension plan, to ensure Dr. Shaw's benefits under the agreement were treated consistently with the conversion of benefits of other similarly situated employees, while recognizing the provisions of the previous agreement. The January 1, 1997, agreement provided for the addition of $50,000 to Dr. Shaw's supplemental account in the Duke Energy Corporation Executive Cash Balance Plan effective January 1, 1997. In addition, if Dr. Shaw's employment is terminated by Duke Energy without cause prior to her reaching age sixty-two, upon attaining age sixty-two, Dr. Shaw will be paid a retirement supplement lump sum cash payment equal to $2,475,000, less the sum of her account balances as of her termination date in the Duke Energy Retirement Cash Balance Plan and Duke Energy Executive Cash Balance Plan, with such sum increased at a rate of seven percent per year from the date of her termination to age sixty-two. If Dr. Shaw becomes disabled or dies after terminating employment with Duke Energy but before reaching age sixty-two, Dr. Shaw, or in the event of her death Dr. Shaw's designated beneficiary, will be paid a lump-sum cash payment equal to the present value of the age sixty-two retirement supplement discounted at a rate of 7% per year to the date of her disability. If Dr. Shaw dies while employed at Duke Energy, Dr. Shaw's designated beneficiary will be paid an amount equal to 1.5 times Dr. Shaw's annual base pay at the time of her death. An additional provision provided that Dr. Shaw was credited for twenty years of service for the purpose of determining vacation benefits.