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

Duke Energy entered into arrangements with Messrs. Coley, Fowler and Osborne which became effective on August 18, 1999, and with Mr. Priory which became effective on August 19, 1999 (the "Effective Time"), upon expiration of employment agreements with each of these executives. The arrangements consist of severance agreements and change-in-control agreements. The severance agreements and change-in-control agreements remain in effect for a two-year period from the Effective Time or for such longer period as may be mutually agreed upon by the parties (the "Employment Period"). The principal terms and conditions of the severance agreements and change-in-control agreements are described below.

The severance agreements for Messrs. Priory, Coley, Fowler and Osborne 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 performance share awards (as described under "Long-Term Incentive Plan – Awards in 1999" above), 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, Coley, Fowler and Osborne 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, Coley, Fowler and Osborne from competing with Duke Energy or soliciting Duke Energy’s employees or customers for one year following termination, and from disclosing certain confidential information.

The change-in-control agreements for Messrs. Priory, Coley, Fowler and Osborne 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 (as described under "Long-Term Incentive Plan – Awards in 1999" above), 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 term has not expired. If Messrs. Priory, Coley, Fowler and Osborne become 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), Messrs. Priory, Coley, Fowler and Osborne are entitled to receive an additional payment such that, after the payment of all income and excise taxes, they 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 entered into an employment agreement with Mr. Padewer, dated January 3, 1999, in connection with his employment as Group President, Energy Services, and a member of the Policy Committee. The term of the employment agreement extended through December 31, 2001, unless earlier terminated. The agreement established an initial annual base salary of $400,000 and an initial target bonus of 70% of annual base salary payable when certain goals were met, with a maximum bonus of 105% of annual base salary. The agreement also provided for an award of 250,000 stock options on January 1, 1999, to vest at a rate of 62,500 options on each of the first four anniversaries of the date of the award. The agreement further provided for the award of 7,500 shares of restricted stock on January 1, 1999, to vest at the rate of 1,875 shares each on January 1, 2000, January 1, 2001, January 1, 2002, and January 1, 2003. It was also agreed that Mr. Padewer would be eligible to participate in the executive benefits plans that are available to other members of the Policy Committee and that Duke Energy would contribute $315,000 to Mr. Padewer’s opening balance in the Duke Energy Executive Cash Balance Retirement Plan vesting on the third anniversary of Mr. Padewer’s employment or upon disability, death, or termination of employment for reasons other than for cause if any of such events occurred before the third anniversary of his employment. In the event of termination due to death, disability, or by Duke Energy for reasons other than for cause during the term of his employment under the agreement, termination payments in an amount equal to 200% of the total of Mr. Padewer’s annual base salary and target bonus in effect at the time of such termination would be made to Mr. Padewer. Mr. Padewer’s employment agreement also contained a confidentiality provision.

Mr. Padewer’s employment agreement, with the exception of certain terms, was replaced with severance and change-in-control agreements similar to those described above for Messrs. Priory, Coley, Fowler and Osborne, effective January 1, 2000.

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