10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended June 30, 2004

Commission File Number 1-4928

DUKE ENERGY CORPORATION

(Exact Name of Registrant as Specified in its Charter)

North Carolina	56-0205520
(State or Other Jurisdiction of Incorporation)	(IRS Employer Identification No.)

526 South Church Street

Charlotte, NC 28202-1803

(Address of Principal Executive Offices)

(Zip code)

704-594-6200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.

Number of shares of Common Stock, without par value, outstanding as of July 30, 2004                    937,782,753

DUKE ENERGY CORPORATION

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

INDEX

Item		Page
PART I. FINANCIAL INFORMATION
1.	Financial Statements	1
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003, as revised	1
	Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	2
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003, as revised	4
	Notes to Consolidated Financial Statements	5
2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	38
3.	Quantitative and Qualitative Disclosures About Market Risk	62
4.	Controls and Procedures	63
PART II. OTHER INFORMATION
1.	Legal Proceedings	63
2.	Changes in Securities and Use of Proceeds	64
4.	Submission of Matters to a Vote of Security Holders	64
6.	Exhibits and Reports on Form 8-K	65
	Signatures	66

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Duke Energy Corporation’s reports, filings and other public announcements may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast” and other similar words. Those statements represent Duke Energy’s intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside Duke Energy’s control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include:

• State, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed at and degree to which competition enters the electric and natural gas industries

• The outcomes of litigation and regulatory investigations, proceedings or inquiries

• Industrial, commercial and residential growth in Duke Energy’s service territories

• The weather and other natural phenomena

• The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates

i

• General economic conditions, including any potential effects arising from terrorist attacks and any consequential hostilities or other hostilities

• Changes in environmental and other laws and regulations to which Duke Energy and its subsidiaries are subject or other external factors over which Duke Energy has no control

• The results of financing efforts, including Duke Energy’s ability to obtain financing on favorable terms, which can be affected by various factors, including Duke Energy’s credit ratings and general economic conditions

• Lack of improvement or further declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans

• The level of creditworthiness of counterparties to Duke Energy’s transactions

• The amount of collateral required to be posted from time to time in Duke Energy’s transactions

• Growth in opportunities for Duke Energy’s business units, including the timing and success of efforts to develop domestic and international power, pipeline, gathering, processing and other infrastructure projects

• The performance of electric generation, pipeline and gas processing facilities

• The extent of success in connecting natural gas supplies to gathering and processing systems and in connecting and expanding gas and electric markets

• The effect of accounting pronouncements issued periodically by accounting standard-setting bodies and

• Conditions of the capital markets and equity markets during the periods covered by the forward-looking statements

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. Duke Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ii

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DUKE ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions, except per-share amounts)

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004			2003
				(as Revised - see Note 1)					(as Revised - see Note 1)
Operating Revenues
Non-regulated electric, natural gas, natural gas liquids and other	$	3,453		$	3,394	$	6,909		$	7,406
Regulated electric		1,272			1,122		2,523			2,401
Regulated natural gas		635			636		1,617			1,515
Total operating revenues		5,360			5,152		11,049			11,322
Operating Expenses
Natural gas and petroleum products purchased		2,594			2,664		5,626			6,156
Operation, maintenance and other		837			881		1,628			1,555
Fuel used in electric generation and purchased power		607			369		1,171			917
Depreciation and amortization		421			438		857			869
Property and other taxes		125			134		279			274
Total operating expenses		4,584			4,486		9,561			9,771
Gains on Sales of Investments in Commercial and Multi-Family Real Estate		62			9		121			11
(Losses) Gains on Sales of Other Assets, net		(11	)		1		(349	)		3
Operating Income		827			676		1,260			1,565
Other Income and Expenses
Equity in earnings of unconsolidated affiliates		43			16		77			50
Gains on sales of equity investments		—			219		—			233
Other income and expenses, net		46			60		71			86
Total other income and expenses		89			295		148			369
Interest Expense		337			325		693			651
Minority Interest Expense		41			50		79			100
Earnings From Continuing Operations Before Income Taxes		538			596		636			1,183
Income Tax Expense from Continuing Operations		133			195		166			390
Income From Continuing Operations		405			401		470			793
Discontinued Operations
Net operating (loss) income, net of tax		(3	)		17		4			20
Net gain (loss) on dispositions, net of tax		30			6		269			(2	)
Income From Discontinued Operations		27			23		273			18
Income Before Cumulative Effect of Change in Accounting Principle		432			424		743			811
Cumulative Effect of Change in Accounting Principle, net of tax and minority interest		—			—		—			(162	)
Net Income		432			424		743			649
Dividends and Premiums on Redemption of Preferred and Preference Stock		3			7		5			10
Earnings Available For Common Stockholders	$	429		$	417	$	738		$	639
Common Stock Data
Weighted-average shares outstanding
Basic		926			902		919			899
Diluted		928			903		921			900
Earnings per share (from continuing operations)
Basic	$	0.43		$	0.44	$	0.50		$	0.87
Diluted	$	0.43		$	0.44	$	0.50		$	0.87
Earnings per share (from discontinued operations)
Basic	$	0.03		$	0.02	$	0.30		$	0.02
Diluted	$	0.03		$	0.02	$	0.30		$	0.02
Earnings per share (before cumulative effect of change in accounting principle)
Basic	$	0.46		$	0.46	$	0.80		$	0.89
Diluted	$	0.46		$	0.46	$	0.80		$	0.89
Earnings per share
Basic	$	0.46		$	0.46	$	0.80		$	0.71
Diluted	$	0.46		$	0.46	$	0.80		$	0.71
Dividends per share	$	0.550		$	0.550	$	0.825		$	0.825

See Notes to Consolidated Financial Statements.

1

DUKE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

	June 30, 2004		December 31, 2003
ASSETS
Current Assets
Cash and cash equivalents	$	2,696	$	1,160
Receivables (net of allowance for doubtful accounts of $223 at June 30, 2004 and $280 at December 31, 2003)		2,982		2,888
Inventory		837		941
Assets held for sale		113		424
Unrealized gains on mark-to-market and hedging transactions		1,346		1,566
Other		604		694
Total current assets		8,578		7,673
Investments and Other Assets
Investments in unconsolidated affiliates		1,331		1,398
Nuclear decommissioning trust funds		1,243		925
Goodwill		3,855		3,962
Notes receivable		244		260
Unrealized gains on mark-to-market and hedging transactions		1,632		1,857
Assets held for sale		692		1,444
Investments in residential, commercial and multi-family real estate (net of accumulated depreciation of $28 at June 30, 2004 and $32 at December 31, 2003)		1,228		1,331
Other		840		1,117
Total investments and other assets		11,065		12,294
Property, Plant and Equipment
Cost		45,530		46,009
Less accumulated depreciation and amortization		12,800		12,139
Net property, plant and equipment		32,730		33,870
Regulatory Assets and Deferred Debits
Deferred debt expense		317		275
Regulatory assets related to income taxes		1,175		1,152
Other		962		939
Total regulatory assets and deferred debits		2,454		2,366
Total Assets	$	54,827	$	56,203

See Notes to Consolidated Financial Statements.

2

DUKE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

	June 30, 2004		December 31, 2003
LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	2,112	$	2,317
Notes payable and commercial paper		437		130
Taxes accrued		398		14
Interest accrued		309		304
Liabilities associated with assets held for sale		44		651
Current maturities of long-term debt		1,535		1,200
Unrealized losses on mark-to-market and hedging transactions		1,147		1,283
Other		1,826		1,799
Total current liabilities		7,808		7,698
Long-term Debt, including debt to affiliates of $258 at June 30, 2004 and $876 at December 31, 2003		19,181		20,622
Deferred Credits and Other Liabilities
Deferred income taxes		4,315		4,120
Investment tax credit		159		165
Unrealized losses on mark-to-market and hedging transactions		1,415		1,754
Liabilities associated with assets held for sale		—		737
Other		5,586		5,524
Total deferred credits and other liabilities		11,475		12,300
Commitments and Contingencies
Minority Interests		1,674		1,701
Preferred and preference stock without sinking fund requirements		134		134
Common Stockholders’ Equity
Common stock, no par, 2 billion shares authorized; 938 million and 911 million shares outstanding at June 30, 2004 and December 31, 2003, respectively		10,492		9,519
Retained earnings		4,053		4,060
Accumulated other comprehensive income		10		169
Total common stockholders’ equity		14,555		13,748
Total Liabilities and Common Stockholders’ Equity	$	54,827	$	56,203

See Notes to Consolidated Financial Statements.

3

DUKE ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

	Six Months Ended June 30,
	2004			2003
				(as Revised - see Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	743		$	649
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization (including amortization of nuclear fuel)		943			972
Cumulative effect of change in accounting principle		—			162
Gains on sales of investments in commercial and multi-family real estate		121			11
Gains on sales of equity investments and other assets		(178	)		(261	)
Deferred income taxes		76			24
Purchased capacity levelization		100			97
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions		150			(42	)
Receivables		(50	)		446
Inventory		104			(72	)
Other current assets		171			(196	)
Increase (decrease) in
Accounts payable		(293	)		(284	)
Taxes accrued		452			487
Other current liabilities		(18	)		208
Capital expenditures for residential real estate		(138	)		(76	)
Cost of residential real estate sold		80			50
Other, assets		(41	)		(188	)
Other, liabilities		120			(163	)
Net cash provided by operating activities		2,342			1,824
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and investment expenditures, net of refund		(1,318	)		(1,413	)
Net proceeds from the sales of equity investment and other assets, and sales of and collections on notes receivable		718			1,279
Proceeds from the sales of commercial and multi-family real estate		303			47
Other		(102	)		(51	)
Net cash used in investing activities		(399	)		(138	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the
Issuance of long-term debt		112			1,707
Issuance of common stock and common stock related to employee benefit plans		947			150
Payments for the redemption of
Long-term debt		(1,138	)		(1,427	)
Guaranteed preferred beneficial interests in subordinated notes		—			(250	)
Preferred stock of a subsidiary		(76	)		—
Notes payable and commercial paper		297			(710	)
Distributions to minority interests		(703	)		(1,484	)
Contributions from minority interests		638			1,467
Dividends paid		(526	)		(524	)
Other		2			10
Net cash used in financing activities		(447	)		(1,061	)
Changes in cash and cash equivalents associated with assets held for sale		40			—
Net increase in cash and cash equivalents		1,536			625
Cash and cash equivalents at beginning of period		1,160			857
Cash and cash equivalents at end of period	$	2,696		$	1,482
Supplemental Disclosures
Significant non-cash transactions:
Non-cash proceeds related to sale of Asia-Pacific operations	$	838		$	—
Dividends declared but not paid		258			249
Proceeds from remarketing of Equity Units for senior notes		875			—

See Notes to Consolidated Financial Statements.

4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Nature of Operations and Basis of Consolidation. Duke Energy Corporation (collectively with its subsidiaries, Duke Energy), is a leading energy company located in the Americas with a real estate subsidiary. The Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of Duke Energy and all majority-owned subsidiaries, and those variable interest entities where Duke Energy is the primary beneficiary. The Consolidated Financial Statements also reflect Duke Energy’s 12.5% undivided interest in the Catawba Nuclear Station.

These Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to fairly present Duke Energy’s financial position and results of operations. Amounts reported in the interim Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods due to the effects of seasonal temperature variations on energy consumption, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors. These Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in Duke Energy’s Form 10-K/A for the year ended December 31, 2003.

Use of Estimates. To conform with generally accepted accounting principles (GAAP) in the United States, management makes estimates and assumptions that affect the amounts reported in the financial statements and notes. Although these estimates are based on management’s best available knowledge at the time, actual results could differ.

Income Tax Expense. The effective income tax rate was 25% for the three months and 26% for the six months ended June 30, 2004, compared to 33% in the prior year periods. The decreased rates were due primarily to the reversal of $52 million of state and federal income tax reserves. These reserves were released in the second quarter of 2004 due to the resolution of various income tax positions taken by Duke Energy and changes in estimates.

Reclassifications and Revisions. In 2004, Duke Energy elected to change its business segments to present Crescent as a separate segment. In connection with this change, management determined that revisions were required to reclassify certain financial statement line items related to Crescent’s activities. In Duke Energy’s Quarterly Report on Form 10-Q for June 30, 2003, the cash outflows related to Crescent’s purchases of commercial, residential and multi-family real estate were presented as a component of capital expenditures within cash flows from investing activities. The proceeds from the sales of these properties, as well as proceeds from the sales of “legacy” land, were shown as part of the reconciliation of net income to net cash flows from operating activities, and thus included in cash flows from operating activities.

Duke Energy has since determined that the cash inflows and outflows from Crescent’s purchases and sales of commercial and multi-family properties, as well as the proceeds from the sales of “legacy” land, should be presented as a component of cash flows from investing activities. All cash inflows and outflows related to Crescent’s residential properties should be presented on a net basis within cash flows from operating activities, whereas in past presentations, only the inflows were presented within cash flows from operating activities. As a result of the change, net cash provided by operating activities decreased by $123 million from $1,947 million to $1,824 million and net cash used in investing activities decreased by $123 million from $261 million to $138 million in the June 30, 2003 Consolidated Statement of Cash Flows.

Also in Duke Energy’s Quarterly Report on Form 10-Q for June 30, 2003, all proceeds from sales of real estate by Crescent were reported in revenues and the cost basis for all properties sold was included in operation and maintenance expenses in the Consolidated Statements of Operations. Consistent with the change in presentation noted

5

above for the Consolidated Statements of Cash Flows, Duke Energy has determined that amounts related to the purchases and sales of commercial and multi-family real estate, as well as the sales proceeds and underlying cost of “legacy” land, should be presented in the Consolidated Statements of Operations as Gains on Sales of Investments in Commercial and Multi-Family Real Estate of $9 million for the three months and $11 million for the six months ended June 30, 2003, rather than presented in revenues, and operation and maintenance expenses. As a result of this change, total operating revenues decreased by $38 million, from $5,190 million to $5,152 million, for the three months and $40 million, from $11,362 million to $11,322 million, for the six months ended June 30, 2003, and total operating expenses decreased by $29 million, from $4,515 million to $4,486 million, for the three months and $29 million, from $9,800 million to $9,771 million, for the six months ended June 30, 2003.

Also included in the reclassified amounts are increases to both Non-Regulated Electric, Natural Gas, Natural Gas Liquids and Other revenues, and to Natural Gas and Petroleum Products Purchased of $223 million for the three months and $459 million for the six months ended June 30, 2003, related to the Field Services segment.

Some prior period amounts have been reclassified to conform to the presentation for the current period.

2. Earnings Per Common Share

Basic earnings per share are computed by dividing earnings available for common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing earnings available for common stockholders by the diluted weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other agreements to issue common stock which have met market price or other contingencies (such as stock options, equity units, stock-based performance unit awards, convertible debt and phantom stock awards) were exercised or converted into common stock. The following table reconciles the weighted-average shares outstanding to the diluted weighted-average shares outstanding.

Weighted-Average Shares Outstanding (in millions)

	Three Months Ended June 30,		Six Months Ended June 30,
	2004	2003	2004	2003
Weighted-average shares outstanding	926	902	919	899
Potential dilution for the period	2	1	2	1
Diluted weighted-average shares outstanding	928	903	921	900

The increase in weighted-average shares outstanding for the three and six-month periods ended June 30, 2004, compared to the same periods in 2003, was due primarily to the issuance of shares in connection with the settlement of the forward purchase contract component of Duke Energy’s Equity Units. For further information see Note 5.

Options, restricted stock, performance and phantom stock awards to purchase approximately 26 million shares as of June 30, 2004 and 27 million shares as of June 30, 2003 were not included in “potential dilution for the period” in the above table because either the option exercise prices were greater than the average market price of the common shares during those periods, or performance measures related to the awards had not yet been met.

Duke Energy’s $750 million of Equity Units, which will result in an issuance of approximately 19 million shares, is not included in “potential dilution for the period” in the above table because their inclusion would be antidilutive.

Additionally, Duke Energy’s $770 million convertible debt issuance, which is potentially convertible into approximately 33 million shares, is not included in “potential dilution for the period” in the above table because the market price and other contingencies for issuance had not been met as of June 30, 2004 and June 30, 2003.

6

3. Stock-Based Compensation

Duke Energy accounts for its stock-based compensation arrangements under the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and Financial Accounting Standards Board (FASB) Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25).” The following table shows what earnings available for common stockholders, basic earnings per share and diluted earnings per share would have been if Duke Energy had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure (an amendment to FASB Statement No. 123),” to all stock-based compensation awards.

Pro Forma Stock-Based Compensation (in millions, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Earnings available for common stockholders, as reported	$	429		$	417		$	738		$	639
Add: stock-based compensation expense included in reported net income, net of related tax effects		3			3			6			5
Deduct: total stock-based compensation expense determined under fair value-based method for all awards, net of related tax effects		(5	)		(11	)		(12	)		(18	)
Pro forma earnings available for common stockholders, net of related tax effects	$	427		$	409		$	732		$	626
Earnings per share
Basic – as reported	$	0.46		$	0.46		$	0.80		$	0.71
Basic – pro forma	$	0.46		$	0.45		$	0.79		$	0.70
Diluted – as reported	$	0.46		$	0.46		$	0.80		$	0.71
Diluted – pro forma	$	0.46		$	0.45		$	0.79		$	0.70

7

4. Inventory

Inventory is recorded at the lower of cost or market value, primarily using the average cost method.

Inventory (in millions)

	June 30, 2004		December 31, 2003
Materials and supplies	$	443	$	445
Natural gas and natural gas liquid products held in storage for transmission, processing, and sales commitments		224		299
Coal held for electric generation		87		87
Petroleum products		83		110
Total inventory	$	837	$	941

5. Debt and Credit Facilities

In February 2004, Duke Energy remarketed $875 million of senior notes, due in 2006, underlying its Equity Units and reset the interest rate from 5.87% to 4.302%. As this action was contemplated in the original Equity Units issuance, the transaction had no immediate accounting implications. Subsequently, Duke Energy exchanged $475 million of the remarketed senior notes for $200 million of 4.37% senior unsecured notes due in 2009, and $288 million of 5.5% senior unsecured notes due in 2014. In accordance with Emerging Issues Task Force (EITF) Issue No. 96-19, “Debtors Accounting for a Modification or Exchange of Debt Instruments,” the $475 million of remarketed senior notes issued earlier at 4.302% was extinguished. This exchange transaction resulted in an approximate $11 million loss, which was included in interest expense in the Consolidated Statement of Operations for the first quarter of 2004.

In May 2004, Duke Energy issued 22,449,000 shares of its common stock in the settlement of the forward purchase contract component of its Equity Units issued in March 2001. Duke Energy issued 35,000,000 Equity Units in March 2001 at $25 per unit. Under the terms of the contract, the Equity Unit holders were required to purchase common stock at a settlement rate based on the current market price of Duke Energy’s common stock at the time of settlement. The rate was 0.6414 shares of stock per Equity Unit.

In March 2004, Duke Energy redeemed the entire issue of its 7.20% debt due to an affiliate in 2037 for approximately $350 million, in connection with the redemption of its Duke Energy Capital Trust I 7.20% Cumulative Quarterly Income Preferred Securities due 2037. As the securities were redeemed at par, security holders received $25 per each note held, plus accrued and unpaid distributions to the redemption date.

In April 2004, approximately $840 million of debt was retired (as a non-cash financing activity) as part of the sale of the Asia-Pacific operations. This does not include approximately $50 million of Australian debt, which has been placed in trust and fully funded in connection with the closing of the sale transaction and will be repaid in September 2004. This trust is included in the Consolidated Financial Statements as Duke Energy is the primary beneficiary of the trust and, therefore, is required to consolidate the trust under provisions of FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The Asia-Pacific debt was classified as Current and Non-Current Liabilities Associated with Assets Held for Sale on the December 31, 2003 Consolidated Balance Sheet. Duke Energy completed the sale of the Asia-Pacific assets, which includes substantially all of Duke Energy’s assets in Australia and New Zealand, to Alinta Ltd. on April 23, 2004.

In April 2004, Duke Capital LLC (Duke Capital) purchased $101 million of its outstanding notes in the open market. These purchases included $49 million of Duke Capital 5.50% senior notes due March 1, 2014 and $52 million of Duke Capital 4.37% senior notes due March 1, 2009. The securities were redeemed at the then current market price plus accrued interest.

8

In May 2004, Duke Energy redeemed its Series C 6.60% senior notes due in 2038, at a $200 million face value. As the securities were redeemed at par, security holders received $25 per each note held, plus accrued interest to the redemption date.

In June 2004, Duke Energy redeemed the entire issue of its 7.20% debt due to an affiliate in 2039 for approximately $250 million, in connection with the redemption of its Duke Energy Capital Trust II 7.20% Trust Preferred Securities. As the securities were redeemed at par, security holders received $25 per preferred security held, plus accrued and unpaid distributions to the redemption date.

In July 2004, Duke Energy announced that on August 31, 2004, it will redeem the entire issue of Duke Capital Financing Trust III 8 ³/8% Trust Preferred Securities due August 31, 2029 with a face value of $250 million. As the securities are being redeemed at par, security holders will receive $25 per preferred security held, plus accrued and unpaid distributions to the redemption date. Additionally, Duke Energy plans to remarket $750 million of its 4.32% senior notes, due in 2006, underlying its 8.00% Equity Units on August 11, 2004. Proceeds from the remarketed notes will be held by a collateral agent and used to purchase U.S. Treasury securities to satisfy the forward stock purchase contract component of the Equity Units in November 2004.

Credit Facilities Capacity and Restrictive Debt Covenants. During the six months ended June 30, 2004, credit facilities capacity was reduced by approximately $860 million compared to December 31, 2003, primarily relating to the divested Australian operations. In addition, Duke Energy, Duke Capital, Duke Energy Field Services, LLC (DEFS), Westcoast Energy Inc. and Union Gas Limited renewed and replaced their credit facilities at lower amounts due to reduced need for surplus credit capacity. The credit facilities as of June 30, 2004 are included in the following table. The issuance of commercial paper, letters of credit and other borrowings reduces the amount available under the credit facilities.

Duke Energy’s credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of June 30, 2004, Duke Energy was in compliance with those covenants. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or to the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the credit agreements contain material adverse change clauses or any covenants based on credit ratings.

9

Credit Facilities Summary as of June 30, 2004 (in millions)

	Expiration Date	Credit Facilities Capacity		Amounts Outstanding
				Commercial Paper		Letters of Credit		Other Borrowings		Total
Duke Energy
$150 two-year bilateral a, b	September 2005
$500 three-year syndicated a, b	June 2007
Total Duke Energy		$	650	$	546	$	—	$	—	$	546
Duke Capital LLC
$600 364-day syndicated a, b, c	June 2005
$600 three-year syndicated a, b, c	June 2007
Total Duke Capital LLC			1,200		—		618		—		618
Westcoast Energy Inc.
$74 two-year syndicated b, d	July 2005
$149 three-year syndicated b, e	June 2007
Total Westcoast Energy Inc.			223		—		—		—		—
Union Gas Limited
$223 364-day syndicated f, g	June 2005		223		—		—		—		—
Duke Energy Field Services, LLC
$250 364-day syndicated c, h, i	March 2005		250		—		—		—		—
Total j		$	2,546	$	546	$	618	$	—	$	1,164

^a Credit facility contains an option allowing borrowing up to the full amount of the facility on the day of expiration for up to one year.

^b Credit facility contains a covenant requiring that the debt-to-total capitalization ratio not exceed 65%.

^c Credit facility contains an interest coverage covenant.

^d Credit facility is denominated in Canadian dollars and was 100 million Canadian dollars as of June 30, 2004.

^e Credit facility is denominated in Canadian dollars and was 200 million Canadian dollars as of June 30, 2004.

^f Credit facility contains a covenant requiring that debt-to-total capitalization ratio not exceed 75%. Credit facility is denominated in Canadian dollars and was 300 million Canadian dollars as of June 30, 2004.

^g Credit facility contains an option at maturity allowing for the conversion of all outstanding loans to a term loan repayable up to one year after maturity date but not exceeding 18 months from the date of first draw.

^h Credit facility contains an option at maturity allowing for conversion of all outstanding loans to a term loan repayable up to one year after maturity date.

ⁱ Credit facility contains a covenant requiring that the debt-to-total capitalization ratio not exceed 53%.

^j Various operating credit facilities and credit facilities that support commodity, foreign exchange, derivative and intra-day transactions are not included in this credit facilities summary.

10

6. Employee Benefit Obligations

The following table shows the components of the net periodic pension costs for Duke Energy’s U.S. retirement plans and Westcoast Energy Inc.’s (Westcoast, a subsidiary of Duke Energy) Canadian retirement plans.

Components of Net Periodic Pension Costs (Income) (in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Duke Energy U.S.
Service cost	$	16		$	18		$	32		$	35
Interest cost on projected benefit obligation		40			44			80			88
Expected return on plan assets		(58	)		(59	)		(116	)		(118	)
Amortization of prior service cost		(1	)		(1	)		(1	)		(2	)
Amortization of net transition asset		(1	)		(1	)		(2	)		(2	)
Amortization of loss		4			—			7			—
Curtailment gain		—			—			(1	)		—
Net Periodic pension costs (income)	$	—		$	1		$	(1	)	$	1
Westcoast
Service cost	$	2		$	1		$	4		$	3
Interest cost on projected benefit obligation		6			6			13			12
Expected return on plan assets		(6	)		(6	)		(12	)		(12	)
Amortization of loss		1			—			1			—
Net periodic pension costs	$	3		$	1		$	6		$	3

Duke Energy’s policy is to fund amounts on an actuarial basis to provide sufficient assets to pay benefits to U.S. plan participants. Duke Energy does not have a required contribution to the U.S. plan for 2004.

Duke Energy’s policy is to fund the Westcoast defined benefit retirement plans on an actuarial basis and in accordance with Canadian pension standards legislation, in order to accumulate sufficient assets to pay benefits. Duke Energy has contributed $6 million to the Westcoast plans during the six months ended June 30, 2004, and anticipates making total contributions of approximately $27 million in 2004.

11

The following table shows the components of the net periodic post-retirement benefit costs for the Duke Energy U.S. and Westcoast plans.

Components of Net Periodic Post-Retirement Benefit Costs (in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Duke Energy U.S.
Service cost benefit	$	1		$	1		$	3		$	3
Interest cost on accumulated post-retirement benefit obligation		11			13			24			26
Expected return on plan assets		(5	)		(5	)		(9	)		(11	)
Amortization of net transition liability		4			5			8			9
Amortization of loss		2			1			5			2
Net periodic post-retirement benefit costs	$	13		$	15		$	31		$	29
Westcoast
Service cost benefit	$	1		$	1		$	1		$	1
Interest cost on accumulated post-retirement benefit obligation		1			1			2			2
Amortization of loss		—			—			1			—
Net periodic post-retirement benefit costs	$	2		$	2		$	4		$	3

In May 2004, the FASB staff issued FASB Staff Position (FSP) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (the Act). The Act introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health care benefit plans. The FSP provides accounting guidance for the subsidy. Duke Energy adopted and retroactively applied this FSP as of the date of issuance, impacting second quarter results for its U.S. plan. As a result, the accumulated post-retirement benefit obligation decreased by $96 million. The effect on net periodic post-retirement benefit cost was a $4 million decrease for the three months and six months ended June 30, 2004.

12

7. Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive Income. Comprehensive income includes net income and all other non-owner changes in equity.

Total Comprehensive Income (in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net Income	$	432		$	424		$	743		$	649
Other comprehensive income
Foreign currency translation adjustments		(241	)		240			(284	)		404
Net unrealized gains on cash flow hedges a		52			241			179			417
Reclassification into earnings from cash flow hedges b		(60	)		(55	)		(54	)		(107	)
Other comprehensive (loss) income, net of tax		(249	)		426			(159	)		714
Total Comprehensive Income	$	183		$	850		$	584		$	1,363

^a Net unrealized gains on cash flow hedges, net of $14 million and $179 million tax expense for the three months ended 2004 and 2003, respectively, and $66 million and $261 million tax expense for the six months ended 2004 and 2003, respectively

^b Reclassification into earnings from cash flow hedges, net of $21 million and $57 million tax benefit for the three months ended 2004 and 2003, respectively, and $18 million and $83 million tax benefit for the six months ended 2004 and 2003, respectively

Accumulated Other Comprehensive Income

Components of and Changes in Accumulated Other Comprehensive Income (in millions)

	Foreign Currency Adjustments			Net Gains on Cash Flow Hedges		Minimum Pension Liability Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2003	$	315		$	298	$	(444	)	$	169
Other comprehensive income changes year-to-date (net of $48 tax expense)		(284	)		125		—			(159	)
Balance as of June 30, 2004	$	31		$	423	$	(444	)	$	10

8. Acquisitions and Dispositions

Acquisitions. Duke Energy consolidates assets and liabilities from acquisitions as of the purchase date, and includes earnings from acquisitions in consolidated earnings after the purchase date. Assets acquired and liabilities assumed are recorded at estimated fair values on the date of acquisition. The purchase price minus the estimated fair value of the acquired assets and liabilities is recorded as goodwill. The allocation of the purchase price may be adjusted if additional information on contingencies existing at the date of acquisition becomes available within one year after the acquisition, and longer for some income tax items.

In the second quarter of 2004, DEFS acquired gathering, processing and transmission assets in southeast New Mexico from ConocoPhillips for a total purchase price of approximately $80 million, consisting of $74 million in cash and the assumption of approximately $6 million of liabilities.

Dispositions. For the six months ended June 30, 2004, the sale of other assets (which excludes assets held for sale as of June 30, 2004 and discontinued operations, both of which are discussed in Note 9, and sales by Crescent which are discussed separately below) resulted in approximately $142 million in proceeds, and

13

net gains of $6 million recorded in (Losses) Gains on Sales of Other Assets, net on the Consolidated Statements of Operations. Significant sales of other assets in 2004 are detailed by business segment as follows:

• Natural Gas Transmission’s asset sales totaled $12 million in net proceeds. Those sales resulted in gains of $9 million which were recorded in (Losses) Gains on Sales of Other Assets, net in the Consolidated Statements of Operations. Sales included the sale of storage gas related to the Canadian distribution operations in the second quarter of 2004.

• Duke Energy North America’s (DENA’s) asset sales totaled $64 million in net proceeds. Those sales resulted in losses of $13 million which were recorded in (Losses) Gains on Sales of Other Assets, net in the Consolidated Statements of Operations. Significant sales included the sale of turbines and surplus equipment in the first and second quarter of 2004, some Duke Energy Trading and Marketing, LLC (DETM) contracts in the first and second quarter of 2004 (DETM held a net liability position in those contracts), and the sale of a 25% undivided interest in DENA’s Vermillion facility in the second quarter of 2004. Duke Energy still owns the remaining 75% interest in the Vermillion facility.

• Asset sales within Other totaled $62 million in net proceeds. Those sales resulted in gains of $7 million which were recorded in (Losses) Gains on Sales of Other Assets, net in the Consolidated Statements of Operations. Significant sales included Duke Energy Royal LLC’s interest in six energy service agreements and DukeSolutions Huntington Beach LLC in the first quarter of 2004, and Duke Energy Merchant LLC’s (DEM’s) 15% ownership interest in Caribbean Nitrogen Company in the first quarter of 2004.

For the six months ended June 30, 2004, Crescent’s commercial and multi-family real estate sales resulted in $303 million of proceeds, and $121 million of net gains recorded in Gains on Sales of Investments in Commercial and Multi-Family Real Estate on the Consolidated Statements of Operations. Significant sales included the Potomac yard retail center in the Washington, D.C. area in March 2004, the Alexandria land tract in the Washington, D.C. area in June 2004 and several large “legacy” land sales closed in the first quarter of 2004.

In May 2004, Duke Energy reached an agreement to sell its 30% equity interest in Compañia de Nitrógeno de Cantarell, S.A. de C.V., a nitrogen production and delivery facility in the Bay of Campeche, Gulf of Mexico for approximately $60 million. Duke Energy recorded a $13 million non-cash charge to Operation, Maintenance and Other expenses on the Consolidated Statement of Operations in the first quarter of 2004 in anticipation of this sale. The sale is expected to close in the third quarter of 2004.

The pro forma results of operations for acquisitions and dispositions do not materially differ from reported results.

9. Assets Held for Sale and Discontinued Operations

Assets Held for Sale. In 2003, Duke Energy decided to exit the merchant power generation business in the southeastern United States. In the first quarter of 2004, as a result of marketing efforts related to DENA’s eight plants in the region, Duke Energy classified the assets and associated liabilities as “held for sale” in the March 31, 2004 Consolidated Balance Sheet and recorded an approximate $360 million pre-tax loss on those assets, which represents the excess of the carrying value over the fair value of the plants, less estimated costs to sell. This loss was included in (Losses) Gains on Sales of Other Assets, net in the Consolidated Statements of Operations. The fair value of the plants was based on the final sales price of $475 million, which Duke Energy announced it had agreed to with KGen Partners LLC (KGen) on May 4, 2004. The sales price consists of $425 million cash and a $50 million note receivable from KGen. The $50 million note receivable bears variable interest at LIBOR (London Interbank Offered Rate) plus 14.25% per annum, compounded quarterly, and is secured by a fourth lien on the assets of KGen’s owner, and matures with a balloon payment of principal and interest due no later than 7.5 years after closing date. The agreement includes the sale of all of Duke Energy’s merchant generation assets in the southeastern United States. The results of operations related to those assets are not reported in Discontinued Operations, due to Duke Energy’s significant continuing involvement in the future operations of the plants, including a long-term operating agreement for one of the plants and retention of certain guarantees related to those assets.

14

Also in the first quarter of 2004, Duke Energy recorded a $238 million after-tax gain related to International Energy’s Asia Pacific power generation and natural gas transmission businesses. The estimated fair value, less costs to sell was classified as “held for sale” as of December 31, 2003. The gain recorded in the first quarter of 2004 restores the loss recorded during the fourth quarter of 2003. The December 31, 2003 estimated fair value was based on third-party bids received by International Energy. During the first quarter, Duke Energy determined that it was likely a bid in excess of the originally determined fair value would be accepted.

In April 2004, Duke Energy completed the sale of the Asia-Pacific businesses to Alinta Ltd. for a gross sales price of approximately $1.2 billion. This resulted in recording an additional $40 million after-tax gain in the second quarter. Duke Energy received approximately $390 million of cash proceeds, net of debt repayment of approximately $840 million of debt retired (as a non-cash financing activity) as part of the Asia-Pacific operations. The $840 million does not include approximately $50 million of Australian debt, which has been placed in trust and fully funded in connection with the closing of the sale transaction and will be repaid in September 2004. This trust is included in the Consolidated Financial Statements as Duke Energy is the primary beneficiary of the trust and, therefore, is required to consolidate the trust under provisions of FIN 46. The Asia-Pacific debt had been classified as Current and Non-Current Liabilities Associated with Assets Held for Sale on the December 31, 2003 Consolidated Balance Sheet. All gains related to this transaction and the results of operations for these assets are included in Net Gain (Loss) on Dispositions, net of tax, within Discontinued Operations, in the Consolidated Statements of Operations. See Note 5 for a discussion of the impact of this transaction to consolidated long-term debt.

In the second quarter of 2004, Duke Energy announced an agreement to sell one of DENA’s deferred facilities, Moapa, to Nevada Power Company for approximately $182 million in cash, with closing expected during the fourth quarter of 2004 pending regulatory approvals. The Moapa asset was classified as “held for sale” in the June 30, 2004 Consolidated Balance Sheet. This facility will not be reported in Discontinued Operations as, among other considerations, the facility never entered into operations and has no associated historical operating revenues or costs.

The following table presents the carrying values as of June 30, 2004 and December 31, 2003 of the major classes of Assets Held for Sale and associated liabilities in the Consolidated Balance Sheets. International Energy’s European operations, some turbines and related equipment owned by DENA and the merchant finance business conducted by Duke Capital Partners, LLC (DCP) were the material items classified as “held for sale” at both June 30, 2004 and December 31, 2003. The December 31, 2003 period also included International Energy’s Asia-Pacific power generation and natural gas transmission businesses, and the June 30, 2004 period also included DENA’s eight plants in the southeastern United States, DENA’s Moapa facility, and certain commercial office buildings owned by Crescent in which it expects continuing involvement through a third party leasing and management agreement with the new owners of the buildings.

Summarized Balance Sheet Information for Assets Held for Sale (in millions)

	June 30, 2004		December 31, 2003
Current assets	$	113	$	424
Investments and other assets		199		379
Property, plant and equipment, net		493		1,065
Total assets held for sale	$	805	$	1,868
Current liabilities	$	44	$	651
Long-term debt		—		514
Deferred credits and other liabilities		—		223
Total liabilities associated with assets held for sale	$	44	$	1,388

15

Discontinued Operations. The following table summarizes the operating results classified as Discontinued Operations in the Consolidated Statements of Operations. The three and six-month periods ended June 30, 2004 include the results for International Energy’s Asia-Pacific power generation and natural gas transmission businesses and its European operations, the merchant finance business conducted by DCP, and some other assets at Field Services. In addition, the three and six-month periods ended June 30, 2003 contain Duke Energy Hydrocarbons LLC and some Crescent real estate projects that were sold in 2003. For additional information related to the exit of those activities, see the Notes to the Consolidated Financial Statements in Duke Energy’s Annual Report on Form 10-K/A for the year ended December 31, 2003.

Discontinued Operations (in millions)

			Operating Income									Net Gain (Loss) on Dispositions
	Operating Revenues		Pre-tax Operating Income (Loss)			Income Tax Expense (Benefit)			Operating Income (Loss), Net of Tax			Pre-tax Gain (Loss) on Dispositions			Income Tax Expense (Benefit)			Gain (Loss) on Dispositions, Net of Tax
Three Months Ended June 30, 2004
International Energy	$	19	$	(1	)	$	2		$	(3	)	$	39		$	9		$	30
Field Services		—		—			—			—			—			—			—
Crescent and Other		1		—			—			—			—			—			—
Total consolidated	$	20	$	(1	)	$	2		$	(3	)	$	39		$	9		$	30
Three Months Ended June 30, 2003
International Energy	$	196	$	14		$	(3	)	$	17		$	(1	)	$	—		$	(1	)
Field Services		98		3			1			2			19			7			12
Crescent and Other		7		1			3			(2	)		(8	)		(3	)		(5	)
Total consolidated	$	301	$	18		$	1		$	17		$	10		$	4		$	6
Six Months Ended June 30, 2004
International Energy	$	82	$	3		$	1		$	2		$	295		$	27		$	268
Field Services		14		1			—			1			2			1			1
Crescent and Other		1		2			1			1			—			—			—
Total consolidated	$	97	$	6		$	2		$	4		$	297		$	28		$	269
Six Months Ended June 30, 2003
International Energy	$	408	$	15		$	(1	)	$	16		$	(1	)	$	—		$	(1	)
Field Services		237		7			2			5			19			7			12
Crescent and Other		25		1			2			(1	)		(20	)		(7	)		(13	)
Total consolidated	$	670	$	23		$	3		$	20		$	(2	)	$	—		$	(2	)

16

10. Business Segments

Duke Energy operates the following business units: Franchised Electric, Natural Gas Transmission, Field Services, DENA, International Energy and Crescent. Duke Energy’s chief operating decision maker regularly reviews financial information about each of these business units in deciding how to allocate resources and evaluate performance. The entities under each business unit, have similar economic characteristics, services, production processes, distribution methods and regulatory concerns. All of the business units offer different products and services, are managed separately and are considered reportable segments under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

Beginning in 2004, Crescent, formerly part of Other Operations, is considered a separate reportable segment. Crescent develops high-quality commercial, residential and multi-family real estate projects, and manages “legacy” land holdings primarily in the southeastern and southwestern United States. All other entities previously part of Other Operations and now within Other still remain, primarily: DukeNet Communications LLC, DEM and Duke Energy’s 50% equity investment in Duke/Fluor Daniel. Unallocated corporate costs are also recorded in Other in the table below.

Accounting policies for the segments are the same as those described in the Notes to the Consolidated Financial Statements in Duke Energy’s Annual Report on Form 10-K/A for December 31, 2003. Management evaluates segment performance primarily based on earnings before interest and taxes from continuing operations, after deducting minority interest expense related to those profits (EBIT).

On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of the minority interest expense related to those profits. Cash and cash equivalents are managed centrally by Duke Energy, so the gains and losses on foreign currency remeasurement associated with cash balances, and interest income on those balances, are generally excluded from the segments’ EBIT.

Transactions between reportable segments are accounted for on the same basis as revenues and expenses in the accompanying Consolidated Financial Statements.

17

Business Segment Data (in millions)

	Unaffiliated Revenues		Intersegment Revenues			Total Revenues			Segment EBIT / Consolidated Earnings from Continuing Operations before Income Taxes
Three Months Ended June 30, 2004
Franchised Electric	$	1,222	$	6		$	1,228		$	338
Natural Gas Transmission		635		53			688			311
Field Services		2,353		3			2,356			94
Duke Energy North America		648		24			672			(39	)
International Energy		147		—			147			68
Crescent		101		—			101			87
Total reportable segments		5,106		86			5,192			859
Other		254		36			290			(26	)
Eliminations		—		(122	)		(122	)		—
Interest expense		—		—			—			(337	)
Minority interest expense and other a		—		—			—			42
Total consolidated	$	5,360	$	—		$	5,360		$	538
Three Months Ended June 30, 2003
Franchised Electric	$	1,104	$	6		$	1,110		$	316
Natural Gas Transmission		636		56			692			306
Field Services		1,972		76			2,048			53
Duke Energy North America		904		58			962			211
International Energy		169		—			169			91
Crescent		76		—			76			21
Total reportable segments		4,861		196			5,057			998
Other		291		71			362			(69	)
Eliminations		—		(267	)		(267	)		—
Interest expense		—		—			—			(325	)
Minority interest expense and other a		—		—			—			(8	)
Total consolidated	$	5,152	$	—		$	5,152		$	596

^a Includes interest income, foreign currency remeasurement gains and losses, and additional minority interest expense not allocated to the segment results.

18

Business Segment Data (in millions)

	Unaffiliated Revenues		Intersegment Revenues			Total Revenues			Segment EBIT / Consolidated Earnings from Continuing Operations before Income Taxes
Six Months Ended June 30, 2004
Franchised Electric	$	2,488	$	11		$	2,499		$	762
Natural Gas Transmission		1,617		109			1,726			709
Field Services		4,670		61			4,731			186
Duke Energy North America		1,275		53			1,328			(596	)
International Energy		301		—			301			97
Crescent		140		—			140			147
Total reportable segments		10,491		234			10,725			1,305
Other		558		76			634			(31	)
Eliminations		—		(310	)		(310	)		—
Interest expense		—		—			—			(693	)
Minority interest expense and other a		—		—			—			55
Total consolidated	$	11,049	$	—		$	11,049		$	636
Six Months Ended June 30, 2003
Franchised Electric	$	2,351	$	10		$	2,361		$	770
Natural Gas Transmission		1,515		145			1,660			729
Field Services		4,054		544			4,598			83
Duke Energy North America		2,212		146			2,358			234
International Energy		341		—			341			131
Crescent		97		—			97			21
Total reportable segments		10,570		845			11,415			1,968
Other		752		127			879			(117	)
Eliminations		—		(972	)		(972	)		—
Interest expense		—		—			—			(651	)
Minority interest expense and other a		—		—			—			(17	)
Total consolidated	$	11,322	$	—		$	11,322		$	1,183

^a Includes interest income, foreign currency remeasurement gains and losses, and additional minority interest expense not allocated to the segment results.

19

Segment assets in the following table are net of intercompany advances, intercompany notes receivable, intercompany current assets, intercompany derivative assets and investments in subsidiaries.

Segment Assets (in millions)

	June 30, 2004			December 31, 2003
Franchised Electric	$	16,595		$	16,088
Natural Gas Transmission		16,108			16,384
Field Services		6,803			6,417
Duke Energy North America		8,118			9,184
International Energy		3,228			4,550
Crescent		1,585			1,653
Total reportable segments		52,437			54,276
Other		2,929			2,585
Eliminations a		(539	)		(658	)
Total consolidated assets	$	54,827		$	56,203

^a Represents elimination of intercompany assets, such as accounts receivable and interest receivable, that have been created based on “arm’s length transactions” (transactions that have been conducted as though the parties were unrelated).

Segment assets include goodwill of $3,855 million as of June 30, 2004 and $3,962 million as of December 31, 2003, with $3,124 million as of June 30, 2004 allocated to Natural Gas Transmission, $490 million to Field Services, $234 million to International Energy and $7 million to Crescent. The $107 million decrease from December 31, 2003 to June 30, 2004 was related solely to foreign currency exchange rate fluctuations of $99 million at Natural Gas Transmission, $5 million at International Energy and $3 million at Field Services.

11. Risk Management Instruments

The following table shows the carrying value of Duke Energy’s derivative portfolio as of June 30, 2004 and December 31, 2003.

Derivative Portfolio Carrying Value (in millions)

	June 30, 2004			December 31, 2003
Hedging	$	626		$	424
Trading		151			177
Undesignated		(361	)		(215	)
Total	$	416		$	386

The amounts in the table above represent the combination of assets and (liabilities) for unrealized gains and losses on mark-to-market and hedging transactions on Duke Energy’s Consolidated Balance Sheets. All amounts represent fair value, except that the net asset amounts for hedging include assets of $196 million as of June 30, 2004 and $267 million as of December 31, 2003, that were frozen upon Duke Energy’s initial application of the normal purchases and normal sales exception to its forward power sales contracts as of July 1, 2001. Those balances will reduce upon settlement of the associated contracts.

The $202 million increase in the hedging derivative portfolio carrying value is due primarily to increases in forward gas prices, partially offset by the realization of gas hedge gains as well as other hedge activity.

The $146 million decrease in the undesignated derivative portfolio fair value is due primarily to increases in power and gas prices on forward contracts formerly designated as hedges of future production from DENA’s southeastern plants and deferred western plants along with settlements of net mark-to-market gains during the six months ended June 30, 2004, partially offset by other hedge activity.

20

Changes in Fair Value of Duke Energy’s Trading Contracts During 2004 (in millions)

Fair value of contracts outstanding as of December 31, 2003	$	177
Contracts realized or otherwise settled during the year		(34	)
Other changes in fair values		8
Fair value of contracts outstanding as of June 30, 2004	$	151

12. Regulatory Matters

FERC Orders No. 2004, 2004-A and 2004-B (Standards of Conduct). In November 2003, the Federal Energy Regulatory Commission (FERC) issued Order 2004, which harmonizes the standards of conduct applicable to natural gas pipelines and electric transmitting public utilities (“Transmission Providers”) previously subject to differing standards. In December 2003, Duke Energy filed a request for clarification and rehearing with the FERC regarding: (1) restrictions on how companies and their affiliates interact and share information, including corporate governance information, and (2) expansion of coverage to affiliated gatherers, processors, and intrastate and Hinshaw pipelines. (A Hinshaw pipeline is a regulated pipeline company engaged in the transportation of interstate natural gas or the sale of interstate natural gas for resale. A Hinshaw pipeline company receives natural gas from another person within or at the boundary of a state, and then consumes that natural gas within that state.) On April 16, 2004, the FERC issued Order 2004-A, revising the standards of conduct governing information flow between Transmission Providers and their “energy affiliates.” Order 2004-A accommodates unique corporate governance issues raised by Duke Energy’s corporate structure and clarifies provisions governing information flow for governance purposes. The FERC also clarified the rules’ expanded coverage to gatherers, processors, and intrastate and Hinshaw pipelines. On August 2, 2004, the FERC issued Order 2004-B, reaffirming the previous two orders and providing clarification on a number of issues. Duke Energy has implemented compliance programs to meet the requirements of the order related to information flow and governance processes. Duke Energy expects to be in full compliance with the orders, including significant training and information posting requirements, by the September 22, 2004 deadline, and expects the orders to have no material adverse effect on its consolidated results of operations, cash flows or financial position.

Franchised Electric. Rate Related Information. The North Carolina Utilities Commision (NCUC) and the Public Service Commission of South Carolina (PSCSC) approve rates for retail electric sales within their states. The FERC approves Franchised Electric’s rates for electric sales to wholesale customers, except for the other joint owners of the Catawba Nuclear Station whose rates are set through contractual agreements.

In 2002, the state of North Carolina passed clean air legislation that freezes electric utility rates from June 20, 2002 to December 31, 2007 (rate freeze period), subject to certain conditions, in order for North Carolina electric utilities, including Duke Energy, to significantly reduce emissions of sulfur dioxide and nitrogen oxides from the state’s coal-fired power plants over the next ten years. The legislation allows electric utilities, including Duke Energy, to accelerate the recovery of compliance costs by amortizing them over seven years (2003-2009). Franchised Electric’s amortization expense related to this clean air legislation totals $148 million from inception, with $33 million recorded for the first six months of 2004 and $35 million recorded for the first six months of 2003. The legislation provides for significant flexibility in the amount of annual amortization recorded, allowing utilities to vary the amount amortized, within limits, although the legislation does require that a minimum of 70% of the total estimated cost of $1.5 billion be amortized within the rate freeze period.

Bulk Power Marketing Profit Sharing. On June 9, 2004, the NCUC approved Duke Energy’s proposal to share an amount equal to 50% of the North Carolina retail allocation of the profits from certain wholesale sales of bulk power from Duke Power generating units at market based rates (BPM Profits). Duke Energy also informed the NCUC that it would no longer include BPM Profits in calculating its North Carolina retail jurisdictional rate of return for its quarterly reports to the NCUC. As approved by the NCUC, the sharing arrangement provides for 50% of the North Carolina allocation of BPM Profits to be distributed through various assistance programs, up to a maximum of $5 million per year. Any amounts exceeding the maximum will be used to reduce rates for industrial customers in North Carolina.

21

On June 29, 2004, Duke Energy informed the PSCSC that it would no longer include BPM Profits in calculating its South Carolina retail jurisdictional rate of return for its quarterly reports to the PSCSC. Duke Energy proposed to establish an entity to receive 50% of the South Carolina allocable share of the BPM Profits to support public assistance programs, education programs to promote economic development, and grants to promote the attraction and retention of industrial customers. The PSCSC has not addressed the proposed change in reporting BPM Profits. Duke Energy’s sharing proposal does not require PSCSC approval.

The sharing agreement in both states applies to BPM Profits from January 1, 2004 until the earlier of December 31, 2007, or the effective date of any rates approved by the respective commission after a general rate case. The 2004 year-to-date total of $27 million of shared profits was recorded as a $14 million decrease to revenues (for the portion related to reduced industrial customers rates) and a $13 million charge to expenses (for the portion related to donations to charitable, educational and economic development programs in North Carolina and South Carolina) in the second quarter of 2004.

Depreciation and Decommissioning Studies. The operating licenses for Duke Energy’s nuclear units are subject to renewal. In December 2003, Duke Energy was granted renewed operating licenses for the Catawba and McGuire Nuclear Stations. In 2000, Duke Energy was granted a renewed operating license for the Oconee Nuclear Station. The renewed license term of the nuclear units will not impact depreciation or nuclear decommissioning rates unless justified by depreciation and decommissioning studies and funding plans filed with the NCUC and the PSCSC. Preparation of the depreciation study is currently underway and is expected to be completed during 2004.

In June 2004 Duke Power filed with the NCUC and PSCSC the results of a 2003 decommissioning study, which indicate an estimated cost of $2.32 billion to decommission the facilities. The previous study, conducted in 1999, estimated a decommissioning cost of $1.91 billion ($2.15 billion in 2003 dollars at 3% inflation). The estimated increase is due primarily to inflation and cost increases for the size of the organization needed to manage the decommissioning project (based on current industry experience at facilities undergoing decommissioning). Duke Power will use information from this new decommissioning study to determine the level of decommissioning expense expected to be incurred over the next several years, and to evaluate potential impacts to the nuclear decommissioning asset retirement obligation. NCUC rules require Duke Power to file a funding plan based on the updated decommissioning study by October 2004, and allow stakeholders time to evaluate and comment on the study and funding plan. The NCUC would then rule on whether any change in Duke Power’s decommissioning expense is necessary. As a result, any potential change in decommissioning expense or the asset retirement obligation cannot be determined at this time.

In the second quarter of 2004, Duke Energy made an approximately $262 million contribution to its external nuclear decommissioning fund. This contribution was shown as an investing activity on the Consolidated Statement of Cash Flows for 2004.

Other Matters. In 2001, the NCUC and the PSCSC began a joint investigation, along with the Public Staff of the NCUC, regarding some Duke Power regulatory accounting entries for 1998, including the classification of nuclear insurance distributions. As part of their investigation, the NCUC and the PSCSC jointly engaged an independent firm to conduct an accounting investigation of Duke Power’s accounting records from 1998 through June 30, 2001. In 2002, Duke Power entered into a settlement agreement with the staffs of the NCUC and the PSCSC in which the parties agreed to accounting changes primarily related to nuclear insurance distributions, a one-time $25 million credit to Duke Power’s deferred fuels account for the benefit of North Carolina and South Carolina customers, the reclassification of $50 million of a $58 million suspense account to a nuclear insurance operation reserve account, and an additional $2 million adjustment to the nuclear insurance operation reserve account. The remaining $8 million in the suspense account was credited to income, resulting in a net $19 million pre-tax charge in 2002. The NCUC and the

22

PSCSC approved the settlement in 2003. A residential retail customer and the Carolina Utility Customers Association Inc., (CUCA), a group that represents certain industrial customers in regulatory proceedings before the NCUC, appealed the NCUC decision to the North Carolina Court of Appeals, which affirmed the NCUC’s decision on February 17, 2004. CUCA has since filed a request with the Supreme Court of North Carolina for review of the Court of Appeals’ decision. This request is pending.

In 2002, the NCUC denied a petition by CUCA to initiate a general rate proceeding and dismissed its complaint alleging unjust and unreasonable rates charged by Duke Power. CUCA appealed this order to the North Carolina Court of Appeals, which ruled on February 17, 2004 that the NCUC’s denial of CUCA’s petition and complaint was proper and affirmed the NCUC’s order. On March 22, 2004, CUCA filed a request with the Supreme Court of North Carolina for review of the Court of Appeals’ decision. This request is also pending.

Natural Gas Transmission. Rate Related Information. On December 1, 2003, The British Columbia Pipeline System (BC Pipeline) filed an application with the National Energy Board (NEB) for approval of 2004 tolls. In March 2004, BC Pipeline reached an agreement in principle with its major stakeholders to establish tolls for the period from January 1, 2004 through December 31, 2005. On June 30, 2004, BC Pipeline filed an application with the NEB for approval of the 2004 tolls established in the settlement agreement.

Union Gas Limited (Union Gas) filed cost of service evidence with the Ontario Energy Board (OEB) in 2003 to establish rates for 2004. The OEB issued a decision in March 2004 and Union Gas implemented these rates in May 2004.

Maritimes & Northeast Pipeline LLC filed its Section 4 rate case with the FERC on June 30, 2004 seeking an increase in rates from $0.695 per Decatherm (Dth) to $1.07/Dth. The FERC has issued an order accepting the rate filing and suspending the rates until January 1, 2005, at which time they will become effective, subject to refund. The rate case has been set for hearing.

13. Commitments and Contingencies

Environmental

Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters.

Remediation activities. Duke Energy and its affiliates are responsible for environmental remediation at various impacted properties and contaminated sites, similar to others in the energy industry. These include some properties that are part of ongoing Duke Energy operations, sites formerly owned or used by Duke Energy entities, and sites owned by third parties. These matters typically involve management of contaminated soils and may involve ground water remediation. Managed in conjunction with relevant federal, state and local agencies, they vary with respect to site conditions and locations, remedial requirements, complexity and sharing of responsibility. If they involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, Duke Energy or its affiliates could potentially be held responsible for contamination caused by other parties. In some instances, Duke Energy may share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. All of these sites generally are managed in the normal course of the respective business or affiliate operations. Management believes that completion or resolution of these matters will have no material adverse effect on consolidated results of operations, cash flows or financial position.

Air Quality Control. In 1998, the Environmental Protection Agency (EPA) issued a final rule on regional ozone control that required 22 eastern states and the District of Columbia to revise their State Implementation Plans (SIPs) to significantly reduce emissions of nitrogen oxide by May 1, 2003. The EPA rule was challenged in court by various states, industry and other interests, including Duke Energy and the states of North Carolina and South Carolina. In 2000, the court upheld most aspects of the EPA rule. The same court subsequently extended the compliance deadline for emission reductions to May 31, 2004. Both North Carolina and South Carolina have revised their SIPs in response to the EPA’s 1998 rule, and the EPA has approved those revisions. Duke Energy has incurred approximately $633 million in capital costs for emission controls through June 2004 for compliance with the EPA’s rule. Management estimates that Duke Energy’s remaining capital expenditures to complete the installation of emission controls needed to comply with the EPA’s rule will be approximately $20 million. Those remaining expenditures will be incurred by Duke Power in the third quarter of 2004.

23

Global Climate Change. The United Nations-sponsored Kyoto Protocol prescribes specific greenhouse gas emission reduction targets for developed countries as a response to concerns over global warming and climate change. The focus is on lowering emissions at the source, including fossil-fueled electric power generation and natural gas operations. Canada is presently the only country in which Duke Energy has assets that would have a greenhouse gas reduction obligation under the Kyoto Protocol. If Russia ratifies the Kyoto Protocol, it will enter into force and Canada will be obligated to reduce its average greenhouse gas emissions to 6% below 1990 levels over the period 2008 to 2012. In anticipation of the Protocol’s entry into force, the Canadian government is developing an implementation plan that includes a carbon dioxide (CO₂) cap and trade program for large final emitters (LFE), and Parliament may consider authorizing legislation by the end of 2004 or early 2005. If an LFE program is enacted, then all of Duke Energy’s Canadian operations would likely be subject to such a program, with compliance options ranging from the purchase of CO₂ emissions credits to actual emissions reductions at the source, or a combination of strategies. It is unclear how, or if, Canada’s current CO₂ emissions management policy direction might change if Russia fails to ratify the Protocol. The recent Canadian elections, which resulted in a minority government led by the Liberal party, might also affect the final policy timing and outcome.

In 2001 President George W. Bush declared that the United States would not ratify the Kyoto Protocol. Instead, the U.S. greenhouse gas policy currently favors voluntary actions, continued research, and technology development over near-term mandatory greenhouse gas reduction requirements. Although several bills have been introduced in Congress that would compel CO₂ emissions reductions, none have advanced through the legislature. Presently there are no federal mandatory greenhouse gas reduction requirements. The likelihood of a federally mandated CO₂ emissions reduction program being enacted in the near future, or the specific requirements of any such regime that were to become law, is highly uncertain. Some states are contemplating or have taken steps to manage greenhouse gas emissions, and while a number of states in the Northeast and far West recently began discussing the possibility of regional greenhouse gas reduction programs in the future, the outcome of such discussions is very uncertain. If significant greenhouse gas emissions reduction policies are legally adopted or promulgated in the United States or its various states, those requirements could have far-reaching and significant implications for industry in those jurisdictions, including the respective energy sectors.

Duke Energy cannot estimate with certainty the potential effect of the Canadian greenhouse gas reduction policy currently under development, or estimate the potential effect of U.S. federal or state level greenhouse gas policy on future consolidated results of operations, cash flows or financial position due to the uncertainty of the Canadian policy and the speculative nature of U.S. federal and state policy. Duke Energy will continue to assess and respond to the potential implications of greenhouse gas policies applicable to Duke Energy’s business operations in the United States, Canada and Latin America.

Extended Environmental Activities, Accruals. Included in Other Current Liabilities and Other Deferred Credits and Other Liabilities were accruals related to extended environmental-related activities of $87 million as of June 30, 2004 and $94 million as of December 31, 2003. The accrual for extended environmental-related activities represents Duke Energy’s provisions for costs associated with remediation activities at some of its current and former sites and certain other environmental matters. Management believes that completion or resolution of these matters will have no material adverse effect on consolidated results of operations, cash flows or financial position.

Litigation

New Source Review (NSR)/EPA Litigation. In 2000, the U.S. Justice Department, acting on behalf of the EPA, filed a complaint against Duke Energy in the U.S. District Court in Greensboro, North Carolina, for alleged violations of the NSR provisions of the Clean Air Act (CAA). The EPA claims that 29 projects performed at 25 of Duke Energy’s coal-fired units were major modifications, as defined in the CAA, and that Duke Energy violated the CAA’s NSR requirements when it undertook those projects without obtaining

24

permits and installing emission controls for sulfur dioxide, nitrogen oxide and particulate matter. The complaint asks the Court to order Duke Energy to stop operating the coal-fired units identified in the complaint, install additional emission controls and pay unspecified civil penalties.

Duke Energy asserts that there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions. Moreover, the EPA’s allegations run counter to previous EPA guidance regarding the applicability of the NSR permitting requirements. In 2003, the Court issued an opinion in response to the parties’ motions for summary judgment which effectively adopted Duke Energy’s position regarding the legal tests for determining what is “routine” and for calculation of emissions. Based upon a joint motion of the parties in the case, the Court on April 15, 2004 entered an Order and Final Judgment finding in favor of Duke Energy. The joint motion notified the Court that the government could not prove its allegations at trial against Duke Energy in light of the legal standards established by the Court in its 2003 order. The judgment reflects that Duke Energy did not violate the NSR program under the CAA. The government filed its appeal of the judgment to the U.S. 4th Circuit Court of Appeals in June 2004. Based on the current rulings by the trial court, Duke Energy does not believe the outcome of this matter will have a material adverse effect on its consolidated results of operations, cash flows or financial position. Subsequent rulings by an appellate court could significantly affect the outcome.

Western Energy Litigation. Commencing in 2000, plaintiffs have filed 31 lawsuits in state and federal courts in California, Montana, Oregon and Washington against energy companies, including Duke Energy affiliates, and current and former Duke Energy executives. Most of the suits seek class-action certification on behalf of electricity and/or natural gas purchasers residing in the states of California, Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Arizona and Montana. The plaintiffs allege that the defendants manipulated the electricity and/or natural gas markets in violation of state and/or federal antitrust, unfair business practices and other laws. Plaintiffs in some of the cases further allege that such activities, including engaging in “round trip” trades, providing false information to natural gas trade publications and unlawfully exchanging information resulted in artificially high energy prices. Plaintiffs seek aggregate damages or restitution of billions of dollars from the defendants. To date, eight suits have been dismissed on filed rate and federal preemption grounds. Plaintiffs are appealing the dismissals. One suit was dismissed voluntarily.

In July 2004, Duke Energy reached an agreement in principle resolving the class-action litigation involving the purchase of electricity filed on behalf of ratepayers and other electricity consumers in California, Washington, Oregon, Utah and Idaho. This agreement is part of a more comprehensive agreement involving FERC refunds and other proceedings. This agreement (the California Settlement) is addressed in more detail in the Western Energy Regulatory Matters and Investigations section below.

Suits filed on behalf of electricity ratepayers in other western states, on behalf of entities that purchased electricity directly from a generator and on behalf of natural gas purchasers, remain pending. It is not possible to predict with certainty whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with these lawsuits, but, based on rulings by trial courts and the California Settlement, Duke Energy does not presently believe the outcome of these matters will have a material adverse effect on its consolidated results of operations, cash flows or financial position. Subsequent rulings by appellate courts could significantly affect the outcome.

In 2003, Pacific Gas and Electric Company (PG&E) initiated arbitration proceedings regarding disputes with DETM relating to amounts owed in connection with the termination of a bilateral power contract between the parties in early 2001. PG&E sought in excess of $25 million from DETM pursuant to a disputed “true-up” agreement between the parties. The PG&E true-up dispute was resolved in connection with the California Settlement.

In 2002, Southern California Edison Company (SCE) initiated arbitration proceedings regarding disputes with DETM relating to amounts owed in connection with the termination of bilateral power contracts between the parties in early 2001. SCE disputes DETM’s termination calculation and seeks in excess of $80 million.

25

This dispute is not resolved in the California Settlement. Based on the level of damages claimed by the plaintiff and Duke Energy’s assessment of possible outcomes in this matter, Duke Energy does not expect that the resolution of this matter will have a material adverse effect on its consolidated results of operations, cash flows or financial position.

Western Energy Regulatory Matters and Investigations. Several investigations and regulatory proceedings at the state and federal levels are looking into the causes of high wholesale electricity prices in the western United States during 2000 and 2001. Duke Energy has resolved these issues, which are described in detail below, through the California Settlement.

In FERC refund proceedings, the FERC has ordered some sellers, including DETM, to refund, or to offset against outstanding accounts receivable, amounts billed for electricity sales in excess of a FERC-established proxy price. In 2002, the presiding administrative law judge in the FERC refund proceedings issued preliminary estimates that indicated DETM had refund liability of approximately $95 million.

The FERC issued staff recommendations and an order in 2003 relating to the refund proceeding and investigations into the causes of high wholesale electricity prices in the western United States during 2000 and 2001. The order modified the prior refund methodology by changing the gas proxy price used in the refund calculation. Duke Energy cannot predict with certainty the outcome of the methodology change, but Platts, an energy industry publication, reported that a FERC spokesman announced that the methodology change could increase the total aggregate refund amount for all generators from $1.8 billion to at least $3.3 billion. The 2003 order allowed generators to receive a gas cost credit in instances where companies incurred fuel costs exceeding the gas proxy price. DENA and DETM submitted gas cost data to the FERC and sought a gas price credit in the range of $72 million. The California parties challenged both the amount and availability of the credit. Resolution of the refund proceeding is included in the California Settlement.

In 2003, the FERC issued an Order to Show Cause concerning “Enron-type gaming behavior,” and a companion order requiring suppliers, including DETM, to justify bids in the CAISO and CalPX markets made above the level of $250 per megawatt hour from May 1, 2000 through October 1, 2000. Also in 2003, the FERC Staff and Duke Energy announced two agreements to resolve all matters at issue in both of those orders. Duke Energy agreed to pay up to $4.59 million to benefit California and western electricity consumers, pending final approval by the FERC. The FERC approved the agreement involving bidding practices and rejected the California parties’ objections to the agreement. The California parties sought review of the FERC’s ruling on this agreement from the 9th Circuit U.S. Court of Appeals. On April 19, 2004, the administrative law judge reviewing the remaining agreement approved the settlement and rejected the California parties’ objections. That agreement was submitted to the FERC for review. The California parties’ challenge of the two agreements is resolved through the California Settlement.

At the state level, the California Public Utilities Commission (CPUC), a California State Senate Select Committee, the California Attorney General (with participation by the Attorneys General of Washington and Oregon) and the San Diego District Attorney are conducting formal and informal investigations involving Duke Energy regarding the California energy markets, including review of alleged manipulation of energy prices. In addition, the U.S. Attorney’s Office in San Francisco served a grand jury subpoena on Duke Energy in 2002 seeking information relating to possible manipulation of the California electricity markets, including potential antitrust violations. All investigations, other than criminal investigations, are resolved through the California Settlement. Duke Energy does not believe the outcome of any remaining criminal investigation will have a material adverse effect on its consolidated results of operations, cash flows or financial position.

In July 2004, Duke Energy reached an agreement in principle (the California Settlement), to settle the FERC refund proceedings and other significant litigation related to the western energy markets during 2000-2001. The parties to the settlement agreement include the FERC staff, the state of California, the state of Washington, the state of Oregon, PG&E, SCE, San Diego Gas & Electric Company, the California Department of Water Resources, the CPUC staff, private litigants and Duke Energy. The settlement is subject to approval by the FERC and the CPUC, and the class-action settlements are subject to court approval.

26

As part of the agreement, Duke Energy will provide approximately $208 million in cash and credits. In exchange, the parties to the agreement will forgo all claims relating to refunds or other monetary damages for sales of electricity during the settlement period, and claims alleging Duke Energy received unjust or unreasonable rates for the sale of electricity during the settlement period. The settlement resolves:

• All western refund proceedings pending before the FERC

• Market price investigations by attorneys general in California, Washington and Oregon

• Private electricity-related class-action litigation filed on behalf of California, Washington, Oregon, Idaho and Utah ratepayers

• Natural gas price issues raised by the California attorney general, PG&E, SCE and San Diego Gas & Electric Company.

Duke Energy recorded an approximate $105 million pre-tax charge in the second quarter of 2004 at DENA to reflect the settlement agreement. This charge was recorded in Operation, Maintenance and Other on the Consolidated Statements of Operations.

Financial Effect of California Settlement (in millions)

Cash	$	85
Write-off of receivables and credits due to Duke Energy		123
Settlement total		208
Reserves and offsets		(103	)
Second quarter 2004 pre-tax earnings impact	$	105

Trading Related Litigation. Beginning in 2002, 17 shareholder class-action lawsuits were filed against Duke Energy: 13 in the U.S. District Court for the Southern District of New York and four in the U.S. District Court for the Western District of North Carolina. These lawsuits arose out of allegations that Duke Energy improperly engaged in “round trip” trades which resulted in an alleged overstatement of revenues over a three-year period. By late 2003, the two federal courts had dismissed all 17 lawsuits. Plaintiffs in the New York cases have appealed the dismissal order to the 2nd Circuit U.S. Court of Appeals. Duke Energy intends to vigorously defend against that appeal. By letter dated April 16, 2004, Duke Energy received notice that a shareholder has reactivated a litigation demand sent to Duke Energy in 2002. Arising out of the same issues raised in the dismissed shareholder lawsuits, the notice states that the shareholder intends to initiate derivative shareholder litigation within 90 days from the date of the letter. Duke Energy’s Board of Directors appointed a special committee to review the demand. The committee determined that there are no grounds to the allegations made in the derivative demand to commence or maintain an action on behalf of Duke Energy against the individuals named in the derivative demand, and that, accordingly, it would not be in the best interests of Duke Energy to bring such claims.

Since August 2003, plaintiffs have filed three class-action lawsuits in U.S. District Court for the Southern District of New York on behalf of entities who bought and sold natural gas futures and options contracts on the New York Mercantile Exchange during the years 2000 through 2002. The lawsuits initially named Duke Energy as a defendant, along with numerous other entities. In the latest consolidated complaint filed in January 2004, the plaintiffs dropped Duke Energy from the cases and added DETM as a defendant. Claiming defendants violated the Commodity Exchange Act by reporting false and misleading trading information to trade publications, resulting in monetary losses to the plaintiffs, plaintiffs seek class action certification, unspecified damages and other relief. These cases are in very early stages. It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur.

27

Trading Related Investigations. In 2002 and 2003, Duke Energy responded to information requests and subpoenas from the Securities and Exchange Commission (SEC) and to grand jury subpoenas issued by the U.S. Attorney’s office in Houston, Texas. The information requests and subpoenas sought documents and information related to trading activities, including so-called “round-trip” trading. Duke Energy received notice in 2002 that the SEC formalized its trading-related investigation and is cooperating with the SEC. The investigation remains open, and Duke Energy cannot predict the outcome.

On April 21, 2004, the Houston-based federal grand jury issued indictments for three former employees of DETMI Management Inc. (DETMI), which is one of two members of DETM. The indictments state that the employees “did knowingly devise, intend to devise, and participate in a scheme to defraud and to obtain money and property from Duke Energy by means of materially false and fraudulent pretenses, representations and promises, and material omissions, and to deprive Duke Energy and its shareholders of the intangible right to the honest services of employees of Duke Energy.” They further state that the alleged conduct was purportedly motivated, in part, by a desire to increase individual bonuses. Statements made by the U.S. Attorney’s office characterized Duke Energy as a victim in this activity and commended Duke Energy for its cooperation with the investigation. The alleged conduct was identified in the spring and summer of 2002 and was related to DETM’s Eastern Region trading activities. In 2002, Duke Energy recorded the appropriate financial adjustments associated with the cited activities, and did not consider the financial effect to be material. In February 2004, Duke Energy received a request for information from the U.S. Attorney’s office in Houston focused on the natural gas price reporting activity of a former DETM trader. Duke Energy is cooperating with the government in this investigation and cannot predict the outcome.

Sonatrach/Citrus Trading Corporation (Citrus). Duke Energy LNG Sales Inc. (Duke LNG) claims in an arbitration that Sonatrach, the Algerian state-owned energy company, together with its subsidiary, Sonatrading Amsterdam B.V. (Sonatrading), breached their shipping obligations under a liquefied natural gas (LNG) purchase agreement and related transportation agreements (the LNG Agreements) relating to Duke LNG’s purchase of LNG from Algeria and its transportation by LNG tanker to Lake Charles, Louisiana. Sonatrading and Sonatrach claim that Duke LNG repudiated the LNG Agreements by allegedly failing to perform LNG marketing obligations. In 2003, an arbitration panel issued a Partial Award on liability issues, finding that Sonatrach and Sonatrading breached their obligations to provide shipping, making them liable to Duke LNG for any resulting damages. The panel also found that Duke LNG breached the LNG Purchase Agreement by failing to perform marketing obligations. Also in 2003, Sonatrading terminated the LNG Agreements and seeks to recover resulting damages from Duke LNG. The final hearing on damages issues has been tentatively scheduled for September 2005.

In conjunction with the Sonatrach LNG Agreements, Duke LNG entered into a natural gas purchase contract (the Citrus Agreement) with Citrus. Citrus filed a lawsuit in Texas against Duke LNG (now pending in U.S. District Court in Houston, Texas) alleging that Duke LNG breached the Citrus Agreement by failing to provide sufficient volumes of gas to Citrus. Duke LNG contends that Sonatrach caused Duke LNG to experience a loss of LNG supply that affected Duke LNG’s obligations and termination rights under the Citrus Agreement. Citrus seeks monetary damages and a judicial determination that Duke LNG did not experience such a loss. After Citrus filed its lawsuit, Duke LNG terminated the Citrus Agreement and filed a counterclaim asserting that Citrus had breached the agreement by, among other things, failing to provide sufficient security for the gas transactions. Citrus denies that Duke LNG had the right to terminate the agreement and contends that Duke LNG’s termination of the agreement was itself a breach, entitling Citrus to terminate the agreement and recover damages. On March 16, 2004, Citrus filed suit against PanEnergy Corp in Harris County, Texas district court, alleging that PanEnergy is financially responsible for losses incurred by Citrus as a result of Duke LNG’s alleged breaches. The action against PanEnergy has now been consolidated with the original Citrus lawsuit in federal court. No trial date has been set, and discovery is proceeding. It is not possible to predict with certainty whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with the Sonatrach and Citrus matters.

28

Enron Bankruptcy. In December 2001, Enron filed for relief pursuant to Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. Other Enron affiliates have since filed for bankruptcy. Duke Energy affiliates engaged in transactions with various Enron entities prior to the bankruptcy filings. In 2001, Duke Energy recorded a reserve to offset its exposure to Enron. In 2002, various Enron trading entities demanded payment from DETM and DEM for some energy commodity sales transactions without regard to any set-off rights. DETM and DEM filed an adversary proceeding against Enron, seeking, among other things, a declaration affirming each plaintiff’s right to set off its respective debts to Enron. In 2003, DETM, DEM and other Duke Energy affiliates entered into an agreement in principle with Enron and its trading entities to resolve the outstanding disputes pending before the bankruptcy court. The proposed agreement was approved by the Unsecured Creditor’s Committee and on March 11, 2004, the bankruptcy court approved the settlement. No party appealed the court’s approval of the agreement prior to the April 12, 2004 deadline, and the agreement is now final. The terms of the agreement are confidential but resulted in a net pre-tax gain in the second quarter of 2004 of approximately $130 million (net of minority interest expense of $5 million), due to the write-off of net payables to Enron that were on the Consolidated Balance Sheet. Of the gain, $113 million was recorded at DENA, $21 million at DEM and $1 million at Field Services as a credit to Operation, Maintenance and Other on the Consolidated Statements of Operations.

ExxonMobil Disputes. On April 8, 2004, Mobil Natural Gas, Inc. (MNGI) and 3946231 Canada, Inc. (3946231, and collectively with MNGI, ExxonMobil) filed a Demand for Arbitration against Duke Energy, DETMI, DTMSI Management Ltd. (DTMSI) and other affiliates of Duke Energy. MNGI and DETMI are the sole members of DETM. DTMSI and 3946231 are the sole beneficial owners of Duke Energy Marketing Limited Partnership (DEMLP, and with DETM, the Ventures). Among other allegations, ExxonMobil alleges that DETMI and DTMSI engaged in wrongful actions relating to affiliate trading, payment of service fees, expense allocations and distribution of earnings in breach of agreements and fiduciary duties relating to the Ventures. ExxonMobil seeks to recover actual damages, plus attorneys’ fees and exemplary damages not clearly quantified in the arbitration demand. Duke Energy denies these allegations, will vigorously defend against ExxonMobil’s claims, and has filed counterclaims asserting that ExxonMobil breached its Ventures obligations and other contractual obligations. These matters are in very early stages. It is not possible to predict with certainty whether Duke Energy or any of its affiliates will incur any liability as a result of these matters, or to estimate the damages, if any, that might be incurred.

On November 13, 2003, MNGI filed a Demand for Arbitration against Duke Energy and DETMI. MNGI claims that, under the terms of the limited liability company agreement of DETM and general fiduciary principles, DETMI and Duke Energy have full financial responsibility for the settlement reached between DETM and the Commodity Futures Trading Commission (CFTC). MNGI demands reimbursement for a 40% share of the $28 million CFTC settlement, plus 40% of all related expenses incurred by DETM. On March 5, 2004, MNGI filed an amended claim, adding DENA as a party. In June 2004, the parties settled the dispute. Due to a previously established reserve, the settlement did not have a material adverse effect on Duke Energy’s consolidated results of operations, cash flows or financial position.

Asbestos-related Injuries and Damages Claims. Duke Energy has experienced numerous claims relating to damages for personal injuries alleged to have arisen from the exposure to or use of asbestos in connection with construction and maintenance activities conducted by Duke Power on its electric generation plants during the 1960s and 1970s. In late 1999, after experiencing a significant increase in claims and conducting a comprehensive review, Duke Energy recorded an $800 million accrual to reflect the purchase of a third-party insurance policy and to cover anticipated future claims not recoverable under that policy. The insurance policy, combined with amounts covered by self-insurance reserves, provides for paid claims to an aggregate of $1.6 billion. Duke Energy conducted another review in 2003, and continues to estimate that claims will not exceed such amount. Duke Energy is uncertain as to when claims will be received, and portions may not be received and paid for 30 or more years. While Duke Energy has recorded an accrual related to this estimated liability, such estimates cannot be made with certainty and may change. Factors such as the frequency and magnitude of claims could change the estimates of the injuries and damages liability and insurance recoveries and result in a different amount than is currently reflected in the

29

Consolidated Financial Statements. However, due to Duke Energy’s insurance program relating to this liability, management believes that any changes in the estimates would have no material adverse effect on consolidated results of operations, cash flows or financial position.

Other Litigation and Legal Proceedings. Duke Energy and its subsidiaries are involved in other legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding performance, contracts, royalty disputes, mismeasurement and mispayment claims (some of which are brought as class actions), and other matters arising in the ordinary course of business, some of which involve substantial amounts. Management believes that the final disposition of these proceedings will have no material adverse effect on consolidated results of operations, cash flows or financial position.

14. Guarantees and Indemnifications

Duke Energy and its subsidiaries have various financial and performance guarantees and indemnifications which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, stand-by letters of credit, debt guarantees, surety bonds and indemnifications. Duke Energy enters into these arrangements to facilitate a commercial transaction with a third party by enhancing the value of the transaction to the third party.

Mixed Oxide (MOX) Guarantees. Duke COGEMA Stone & Webster LLC (DCS) is the prime contractor to the U.S. Department of Energy (the DOE) under a contract (the Prime Contract) pursuant to which DCS will design, construct, operate and deactivate a MOX fuel fabrication facility (the MOX FFF). The domestic MOX fuel project was prompted by an agreement between the United States and the Russian Federation to dispose of excess plutonium in their respective nuclear weapons programs by fabricating MOX fuel and irradiating such MOX fuel in commercial nuclear reactors. As of June 30, 2004, Duke Energy, through its indirect wholly owned subsidiary, Duke Project Services Group Inc. (DPSG), held a 40% ownership interest in DCS.

The Prime Contract consists of a “Base Contract” phase and successive option phases. The DOE has the right to extend the term of the Prime Contract to cover the option phases on a sequential basis, subject to DCS and the DOE reaching agreement, through good-faith negotiations on certain remaining open terms applying to each of the option phases. As of June 30, 2004, DCS’ performance obligations under the Prime Contract included only the Base Contract phase and an initial option phase.

DPSG and the other owners of DCS have issued a guarantee to the DOE which, in conjunction with the applicable guarantee provisions as recently clarified in a contract amendment to the Prime Contract (collectively, the DOE Guarantee), obligates the owners of DCS to jointly and severally guarantee to the DOE that the owners of DCS will reimburse the DOE (in the event that DCS fails to provide such reimbursement) for any payments made by the DOE to DCS pursuant to the Prime Contract that DCS expends on costs that are not “allowable” under certain applicable federal acquisition regulations. DPSG has recourse to the other owners of DCS for any amounts paid under the DOE Guarantee in excess of its proportional ownership percentage of DCS. Although the DOE Guarantee does not provide for a specific limitation on a guarantor’s reimbursement obligations, Duke Energy estimates that the maximum potential amount of future payments DPSG could be required to make under the DOE Guarantee is immaterial. As of June 30, 2004, Duke Energy had no liabilities recorded on its Consolidated Balance Sheet for the DOE Guarantee due to the immaterial amount of the estimated fair value of such guarantee.

In connection with the Prime Contract, Duke Energy, through its Duke Power franchised electric business, has entered into a subcontract with DCS (the Duke Power Subcontract) pursuant to which Duke Power will prepare its McGuire and Catawba nuclear reactors (the Mission Reactors) for use of the MOX fuel, and which also includes terms and conditions applicable to Duke Power’s purchase of MOX fuel produced at the MOX FFF for use in the Mission Reactors. The Duke Power Subcontract consists of a “Base

30

Subcontract” phase and successive option phases. DCS has the right to extend the term of the Duke Power Subcontract to cover the option phases on a sequential basis, subject to Duke Power and DCS reaching agreement, through good-faith negotiations on certain remaining open terms applying to each of the option phases. As of June 30, 2004, DCS’ performance obligations under the Duke Power Subcontract included only the Base Subcontract phase and the first option phase.

DPSG and the other owners of DCS have issued a guarantee to Duke Power (the Duke Power Guarantee) pursuant to which the owners of DCS jointly and severally guarantee to Duke Power all of DCS’ obligations under the Duke Power Subcontract or any other agreement between DCS and Duke Power implementing the Prime Contract. DPSG has recourse to the other owners of DCS for any amounts paid under the Duke Power Guarantee in excess of its proportional ownership percentage of DCS. Even though the Duke Power Guarantee does not provide for a specific limitation on a guarantor’s guarantee obligations, it does provide that any liability of such guarantor under the Duke Power Guarantee is directly related to and limited by the terms and conditions in the Duke Power Subcontract and any other agreements between Duke Power and DCS implementing the Prime Contract. Duke Energy is unable to estimate the maximum potential amount of future payments DPSG could be required to make under the Duke Power Guarantee due to the uncertainty of whether:

• DCS will exercise its options under the Duke Power Subcontract, which will depend upon whether the DOE will exercise its options under the Prime Contract

• the parties to the Prime Contract and the Duke Power Subcontract, respectively, will reach agreement on the remaining open terms for each option phase under the contracts, and if so, what the terms and conditions might be and

• the U.S. Congress will authorize funding for DCS’ work under the Prime Contract, which will affect DCS’ decision whether to exercise its options under the Duke Power Subcontract.

Duke Energy has not recorded on its Consolidated Balance Sheet any liability for the potential exposure under the Duke Power Guarantee per FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” because DPSG and Duke Power are under common control.

Other Guarantees and Indemnifications. Duke Capital has issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including certain non-wholly owned entities. The maximum potential amount of future payments Duke Capital could have been required to make under these performance guarantees as of June 30, 2004 was approximately $750 million. Of this amount, approximately $475 million relates to guarantees of the payment and performance of less than wholly owned consolidated entities. Approximately $45 million of the performance guarantees expire between 2004 and 2005, and approximately $300 million expires in 2006 and thereafter; the remaining performance guarantees have no contractual expiration. Additionally, Duke Capital has issued joint and several guarantees to some of the D/FD project owners, guaranteeing the performance of D/FD under its engineering, procurement and construction contracts and other contractual commitments. These guarantees have no contractual expiration and no stated maximum amount of future payments that Duke Capital could be required to make. Additionally, Fluor Enterprises Inc., as 50% owner in D/FD, has issued similar joint and several guarantees to the same D/FD project owners. In accordance with the D/FD partnership agreement, each of the partners is responsible for 50% of any payments to be made under those guarantees.

Westcoast has issued performance guarantees to third parties guaranteeing the performance of unconsolidated entities, such as equity method projects, and of entities previously sold by Westcoast to third parties. Those guarantees require Westcoast to make payment to the guaranteed third party upon the failure of an unconsolidated entity to make payment under some of its contractual obligations, such as debt, purchase contracts and leases. The maximum potential amount of future payments Westcoast could have been required to make under those performance guarantees as of June 30, 2004 was approximately $100 million. Of those guarantees, approximately $30 million expire from 2004 to 2006, with the remainder expiring after 2006 or having no contractual expiration.

31

Duke Capital uses bank-issued stand-by letters of credit to secure the performance of non-wholly owned entities to a third party or customer. Under these arrangements, Duke Capital has payment obligations to the issuing bank which are triggered by a draw by the third party or customer due to the failure of the non-wholly owned entity to perform according to the terms of its underlying contract. Most of these letters of credit expire in 2004. The maximum potential amount of future payments Duke Capital could have been required to make under these letters of credit as of June 30, 2004 was approximately $100 million. Of this amount, approximately $15 million relates to letters of credit issued on behalf of less than wholly owned consolidated entities.

Duke Capital has guaranteed the issuance of surety bonds, obligating itself to make payment upon the failure of a non-wholly owned entity to honor its obligations to a third party. As of June 30, 2004, Duke Capital had guaranteed approximately $100 million of outstanding surety bonds related to obligations of non-wholly owned entities. The majority of these bonds expire in various amounts between 2004 and 2005. Of this amount, approximately $15 million relates to obligations of less than wholly owned consolidated entities.

Natural Gas Transmission and International Energy have issued guarantees of debt and performance guarantees associated with non-consolidated entities and less than wholly-owned entities. If such entities were to default on payments or performance, Natural Gas Transmission or International Energy would be required under the guarantees to make payment on the obligation of the non-consolidated entity. As of June 30, 2004, Natural Gas Transmission was the guarantor of approximately $15 million of debt at Westcoast associated with less than wholly owned entities, with no contractual expiration. International Energy was the guarantor of approximately $10 million of performance guarantees associated with less than wholly-owned entities, most of which expire in 2004.

Duke Energy has issued guarantees to customers or other third parties related to the payment or performance obligations of certain entities that were previously wholly owned but which have been sold to third parties, such as DukeSolutions Inc. (DukeSolutions) and Duke Engineering & Services Inc (DE&S). These guarantees are primarily related to payment of lease obligations, debt obligations, and performance guarantees related to goods and services provided. Duke Energy has received back-to-back indemnification from the buyer of DE&S indemnifying Duke Energy for any amounts paid by Duke Energy related to the DE&S guarantees. Duke Energy also received indemnification from the buyer of DukeSolutions for the first $2.5 million paid by Duke Energy related to the Duke Solutions guarantees. Further, Duke Energy granted indemnification to the buyer with respect to losses arising under some energy services agreements retained by DukeSolutions after the sale, provided that the buyer agreed to bear 100% of the performance risk and 50% of any other risk up to an aggregate maximum of $2.5 million (less any amounts paid by the buyer under the indemnity discussed above). Additionally, for certain performance guarantees, Duke Energy has recourse to subcontractors involved in providing services to a customer. These guarantees have various terms ranging from 2004 to 2019, with others having no specific term. Duke Energy is unable to estimate the total maximum potential amount of future payments under these guarantees, since some of the underlying agreements have no limits on potential liability.

Duke Energy has entered into various indemnification agreements related to purchase and sale agreements and other types of contractual agreements with vendors and other third parties. These agreements typically cover environmental, tax, litigation and other matters, as well as breaches of representations, warranties and covenants. Typically, claims may be made by third parties for various periods of time, depending on the nature of the claim. Duke Energy’s maximum potential exposure under these indemnification agreements can range from a specified to an unlimited dollar amount, depending on the nature of the claim and the particular transaction. Duke Energy is unable to estimate the total maximum potential amount of future payments under these indemnification agreements due to several factors, including uncertainty as to whether claims will be made.

As of June 30, 2004, the amounts recorded for the guarantees and indemnifications mentioned above are immaterial, both individually and in the aggregate.

32

15. New Accounting Standards

The following new accounting standards have been adopted by Duke Energy subsequent to January 1, 2003 and the impact of such adoption, if applicable, has been presented in the accompanying Consolidated Financial Statements:

SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” In April 2003, the FASB issued SFAS No. 149, which amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities, including the qualifications for the normal purchases and normal sales exception, under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This amendment reflects decisions made by the FASB and the Derivative Implementation Group (DIG) process in connection with issues raised about the application of SFAS No. 133. Generally, the provisions of SFAS No. 149 are to be applied prospectively for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 which resulted from the DIG process and became effective in quarters beginning before June 15, 2003 continue to be applied based on their original effective dates. Duke Energy adopted the provisions of SFAS No. 149 on July 1, 2003. Certain modifications and changes to the applicability of the normal purchase and normal sales scope exception for contracts to deliver electricity led Duke Energy to re-evaluate its accounting policy for forward sales contracts. As a result, Duke Energy elected to designate substantially all forward contracts to sell power entered into after July 1, 2003 as cash flow hedges on a prospective basis. Contracts that were being accounted for under the normal purchases and normal sales exception under SFAS No. 133 as of June 30, 2003 will continue to be accounted for under such exception, including any modifications to those contracts, as long as the requirements for applying the normal purchases and normal sales exception are met.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” In May 2003, the FASB issued SFAS No. 150 which establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equities. Under SFAS No. 150, those instruments are required to be classified as liabilities in the statement of financial position. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets, and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and has been applied to Duke Energy’s existing financial instruments beginning July 1, 2003.

Duke Energy’s financial statements do not include any effects for the application of SFAS No. 150 to non-controlling interests in certain limited-life entities, which are required to be liquidated or dissolved on a certain date, based on the decision of the FASB in November 2003 to defer these provisions indefinitely with the issuance of FASB Staff Position 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” Duke Energy has a controlling interest in a limited-life entity in Bolivia, which is required to be liquidated 99 years after formation. A non-controlling interest in the entity is held by third parties. Upon termination or liquidation of the entity in 2094, the remaining assets of the entity are to be sold, the liabilities liquidated and any remaining cash distributed to the owners based upon their ownership percentages. As of June 30, 2004 the carrying value of the entity’s non-controlling interest of approximately $47 million approximates its fair value. Duke Energy continues to evaluate the potential significance of these aspects of SFAS No. 150, but does not anticipate this will have a material impact on Duke Energy’s consolidated results of operations, cash flows or financial position. SFAS No. 150 continues to be interpreted by the FASB and it is possible that significant future changes could be made by the FASB. Therefore, Duke Energy is not able to conclude whether such future changes would materially affect the amounts already recorded and disclosed under the provisions of SFAS No. 150.

FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” In January 2003, the FASB issued FIN 46 which requires the primary beneficiary of a variable interest entity’s activities to

33

consolidate the variable interest entity. FIN 46 defines a variable interest entity as an entity in which the equity investors do not have substantive voting rights and there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The primary beneficiary absorbs a majority of the expected losses and/or receives a majority of the expected residual returns of the variable interest entity’s activities. In December 2003, the FASB issued FIN 46 (Revised December 2003) (FIN 46R), “Consolidation of Variable Interest Entities – An Interpretation of ARB No. 51,” which supercedes and amends the provisions of FIN 46. While FIN 46R retains many of the concepts and provisions of FIN 46, it also provides additional guidance and additional scope exceptions, and incorporates FASB Staff Positions related to the application of FIN 46.

The provisions of FIN 46 apply immediately to variable interest entities created, or interests in variable interest entities obtained, after January 31, 2003, while the provisions of FIN 46R are required to be applied to those entities, except for special purpose entities, by the end of the first reporting period ending after March 15, 2004 (March 31, 2004 for Duke Energy). For variable interest entities created, or interests in variable interest entities obtained, on or before January 31, 2003, FIN 46 or FIN 46R was required to be applied to special-purpose entities by the end of the first reporting period ending after December 15, 2003 (December 31, 2003 for Duke Energy), and was required to be applied to all other non-special purpose entities by the end of the first reporting period ending after March 15, 2004 (March 31, 2004 for Duke Energy). FIN 46 and FIN 46R may be applied prospectively with a cumulative-effect adjustment as of the date it is first applied, or by restating previously issued financial statements with a cumulative-effect adjustment as of the beginning of the first year restated. FIN 46 and FIN 46R also require certain disclosures of an entity’s relationship with variable interest entities.

Duke Energy has not identified any material variable interest entities created, or interests in variable entities obtained, after January 31, 2003 which require consolidation or disclosure under FIN 46R. Under the provisions of FIN 46R, effective March 31, 2004, Duke Energy has consolidated certain non-special purpose operating entities, previously accounted for under the equity method of accounting. These entities, which are substantive entities, had total assets of approximately $210 million as of June 30, 2004. As a result of consolidating these entities, inclusive of intercompany eliminations, the impact to Duke Energy’s total assets was not material. Duke Energy adopted the provisions of FIN 46R on December 31, 2003, related to its special-purpose entities consisting of the trust subsidiaries that issued trust preferred securities. Since Duke Energy is not the primary beneficiary of those trust subsidiaries, those entities have been deconsolidated in the accompanying Consolidated Financial Statements. As a result, affiliate debt to the trusts is reflected in Long-term Debt in the Consolidated Balance Sheets. Interest paid to the subsidiary trust is classified as Interest Expense in the accompanying Consolidated Statements of Operations for periods after December 31, 2003. Additionally, Duke Energy previously had a significant variable interest in, but was not the primary beneficiary of, DCS. However, as further discussed in Note 14, Duke Energy no longer holds a significant variable interest in DCS as a result of the clarification in a contract amendment received in April 2004.

Various changes and clarifications to the provisions of FIN 46 have been made by the FASB since its original issuance in January 2003. While not anticipated at this time, any additional clarifying guidance or further changes to these complex rules could have an impact on Duke Energy’s Consolidated Financial Statements.

EITF Issue No. 01-08, “Determining Whether an Arrangement Contains a Lease.” In May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The guidance in the consensus is designed to broaden the scope of arrangements accounted for as leases. EITF Issue No. 01-08 requires both parties to an arrangement to determine whether a service contract or similar arrangement is or includes a lease within the scope of SFAS No. 13, “Accounting for Leases.” Duke Energy has historically provided and leased storage capacity to outside parties, as well as entered into pipeline and electricity capacity agreements, both as the lessee and as a lessor. The accounting requirements under the consensus may impact the timing of revenue and expense recognition, and amounts previously reported as revenues may be required to be reported as rental or lease income. Should capital lease treatment be necessary, purchasers of transportation, electricity capacity and storage services are required to recognize assets on their balance sheets. The

34

consensus is being applied prospectively to arrangements agreed to, modified, or acquired on or after July 1, 2003. Previous arrangements that would be leases or would contain a lease according to the consensus will continue to be accounted for under historical accounting. The adoption of EITF Issue No. 01-08 did not have a material effect on Duke Energy’s consolidated results of operations, cash flows or financial position.

EITF Issue No. 03-06, “Participating Securities and the Two-Class Method under FASB Statement No. 128, ‘Earnings Per Share’.” In March 2004, the EITF reached consensus in EITF Issue No. 03-06, which requires the two-class method for calculating basic earnings per share (EPS) for certain securities that are considered to participate in earnings with common shareholders. EITF Issue No. 03-06 is effective for Duke Energy beginning with the second quarter of 2004, and may require restatement of previously reported EPS measures if any changes to the EPS calculation are required pursuant to the consensus. Duke Energy’s Equity Units are considered participating securities under the consensus; however, such participation is contingent upon future events. As a result, the Equity Units will not impact the calculation of EPS until the occurrence of the future events.

EITF Issue No. 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not Held for Trading Purposes.” In July 2003, the EITF reached consensus in EITF Issue No. 03-11 that determining whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis is a matter of judgment that depends on relevant facts and circumstances and the economic substance of the transaction. In analyzing those facts and circumstances, EITF Issue No. 99-19, “Reporting Revenue Gross as a Principle versus Net as an Agent,” and APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” should be considered. EITF Issue No. 03-11 was effective for transactions or arrangements entered into after September 30, 2003. The adoption of EITF Issue No. 03-11 did not have a material effect on Duke Energy’s consolidated results of operations, cash flows or financial position.

FASB Staff Position (FSP) FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” In May 2004, the FASB staff issued FSP FAS 106-2, which superseded FSP FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP FAS 106-2 provides accounting guidance for the effects of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act). The Act introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health care benefit plans that include prescription drug benefits. FSP FAS 106-2 requires a sponsor to determine if its prescription drug benefits are actuarially equivalent to the drug benefit provided under Medicare Part D as of the date of enactment of the Act, and if it is therefore entitled to receive the subsidy. If a sponsor determines that its prescription drug benefits are actuarially equivalent to the Medicare Part D benefit, the sponsor should recognize the expected subsidy in the measurement of the accumulated postretirement benefit obligation (APBO) under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” Any resulting reduction in the APBO is to be accounted for as an actuarial experience gain. The subsidy’s reduction, if any, of the sponsor’s share of future costs under its prescription drug plan is to be reflected in current-period service cost.

The provisions of FSP FAS 106-2 are effective for the first interim period beginning after June 15, 2004 for all public companies, with early application encouraged. Duke Energy adopted FSP FAS 106-2 retroactively to the date of enactment of the Act, December 8, 2003, as allowed by the FSP. See Note 6 for discussion of the effects of adopting this FSP.

35

The following new accounting standard has been issued but has not yet been fully adopted by Duke Energy as of June 30, 2004:

Revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” In December 2003, the FASB revised the provisions of SFAS No. 132 to include additional disclosures related to defined-benefit pension plans and other defined-benefit post-retirement plans, such as the following:

• The long-term rate of return on plan assets, along with a narrative discussion on the basis for selecting the rate of return used

• Information about plan assets for each major asset category (i.e. equity securities, debt securities, real estate, etc.) along with the targeted allocation percentage of plan assets for each category and the actual allocation percentages at the measurement date

• The amount of benefit payments expected to be paid in each of the next five years and the following five-year period in the aggregate

• The current best estimate of the range of contributions expected to be made in the following year

• The accumulated benefit obligation for defined-benefit pension plans

• Disclosure of the measurement date utilized.

Additionally, interim reports require additional disclosures related to the components of net periodic pension costs and the amounts paid or expected to be paid to the plan in the current fiscal year, if materially different than amounts previously disclosed. The provisions of revised SFAS No. 132 do not change the measurement or recognition provisions of defined-benefit pension and post-retirement plans as required by previous accounting standards. The provisions of revised SFAS No. 132 were applied by Duke Energy effective December 31, 2003 with the interim period disclosures applied for the quarter ended June 30, 2004, except for the disclosure provisions of estimated future benefit payments which will be effective for Duke Energy for the year ending December 31, 2004.

16. Subsequent Events

On July 2, 2004, Duke Energy realigned certain subsidiaries resulting in all of its wholly owed merchant generation facilities being owned by a newly created entity, Duke Energy Americas, LLC (DEA), a directly wholly owned subsidiary of Duke Capital. DEA and Duke Capital are pass-through entities for U.S. income tax purposes. As a result of these changes, Duke Capital will recognize a federal and state tax expense of approximately $900 million in the third quarter of 2004 from the elimination of the deferred tax assets that existed on its balance sheet prior to the July 2, 2004 reorganization. Correspondingly, Duke Energy, the parent of Duke Capital, will reflect, through consolidation, the elimination of the $900 million deferred tax asset at Duke Capital and the creation of a deferred tax asset of approximately $900 million on its balance sheet. Duke Energy will additionally recognize an approximate $45 million income tax benefit and corresponding deferred tax asset as a result of restating its deferred taxes to reflect a change in state tax rates. In future periods, as these deferred tax assets are converted into cash due to the realization of certain tax losses, Duke Energy intends to infuse the related cash flows back into Duke Capital. Most of these cash benefits result from tax losses arising from the sales of DENA’s southeastern U.S. generation assets and the Moapa facility.

In July 2004, Duke Energy entered into the California Settlement, an agreement in principle to settle the FERC refund proceedings and other significant litigation related to the western energy markets during 2000-2001. For information related to this agreement, see Note 13.

As disclosed in Note 8 to the Consolidated Financial Statements, Assets Held for Sale and Discontinued Operations, in Duke Energy’s Quarterly Report on Form 10-Q/A for March 31, 2004, on May 4, 2004 Duke Energy announced the sale of its merchant generation business in the southeastern United States to KGen Partners LLC (KGen). The sale transaction has obtained all required regulatory approvals and consents and closed on August 5, 2004. This transaction resulted in a cumulative pre-tax loss of approximately $367 million, of which approximately $360 million was recognized in the first quarter of 2004 to reduce the carrying value of those assets to their estimated fair values, while the remaining amount of the loss will be recognized by Duke

36

Energy in the third quarter of 2004. Subsequent to the closing of the transaction, DENA will continue to provide certain transitional services and operating and maintenance services for the sold assets, including potential exercise of limited plant dispatch rights for a period not to exceed six months form the date of August 5, 2004. DENA anticipates recognizing the sale transaction in the third quarter of 2004, pending resolution of certain continuing involvement provisions.

In conjunction with the sale of DENA’s southeastern assets to KGen, Duke Energy arranged a letter of credit with a face amount of $120 million in favor of Georgia Power Company, to secure obligations of a KGen subsidiary under a seven-year power sales agreement, commencing in May 2005, under which KGen will provide power from its Murray facility to Georgia Power. Duke Energy is the primary obligor to the letter of credit provider, but KGen has an obligation to reimburse Duke Energy for any payments made by it under the letter of credit, as well as expenses incurred by Duke Energy in connection with the letter of credit. Duke Energy will operate the Murray facility under an operation and maintenance agreement with a KGen subsidiary.

For information on subsequent events related to debt and credit facilities, see Note 5.

37

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition.

INTRODUCTION

Management’s Discussion and Analysis should be read with the Consolidated Financial Statements.

Overview of Business Strategy and Economic Factors

Duke Energy’s business strategy is to develop integrated energy businesses in targeted regions where Duke Energy’s capabilities in developing energy assets; operating power plants, natural gas liquid (NGL) plants and natural gas pipelines; optimizing commercial operations, including an affiliated real estate operation; and managing risk can provide comprehensive energy solutions for customers and create value for shareholders. For an in-depth discussion of Duke Energy’s business strategy and economic factors, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in Duke Energy’s Annual Report on Form 10-K/A for the year ended December 31, 2003.

RESULTS OF OPERATIONS

Results of Operations and Variances (in millions)

	Three Months Ended June 30,								Six Months Ended June 30,
	2004			2003a		Increase (Decrease)			2004			2003a			Increase (Decrease)
Operating revenues	$	5,360		$	5,152	$	208		$	11,049		$	11,322		$	(273	)
Operating expenses		4,584			4,486		98			9,561			9,771			(210	)
Gains on sales of investments in commercial and multi-family real estate		62			9		53			121			11			110
(Losses) gains on sales of other assets, net		(11	)		1		(12	)		(349	)		3			(352	)
Operating income		827			676		151			1,260			1,565			(305	)
Other income and expenses, net		89			295		(206	)		148			369			(221	)
Interest expense		337			325		12			693			651			42
Minority interest expense		41			50		(9	)		79			100			(21	)
Earnings from continuing operations before income taxes		538			596		(58	)		636			1,183			(547	)
Income tax expense from continuing operations		133			195		(62	)		166			390			(224	)
Income from continuing operations		405			401		4			470			793			(323	)
Income from discontinued operations, net of tax		27			23		4			273			18			255
Income before cumulative effect of change in accounting principle		432			424		8			743			811			(68	)
Cumulative effect of change in accounting principle, net of tax and minority interest		—			—		—			—			(162	)		162
Net income		432			424		8			743			649			94
Dividends and premiums on redemption of preferred and preference stock		3			7		(4	)		5			10			(5	)
Earnings available for common stockholders	$	429		$	417	$	12		$	738		$	639		$	99

^aAs revised, see Note 1 to the Consolidated Financial Statements

38

Overview of Drivers and Variances

Three Months Ended June 30, 2004 as Compared to June 30, 2003. Earnings available for common stockholders were relatively flat for the quarter, compared to the prior year. Significant increases for the quarter included:

• A $130 million (net of minority interest) pre-tax gain related to the settlement of the Enron bankruptcy proceedings (see Note 13 to the Consolidated Financial Statements)

• A $39 million net increase in the pre-tax gains ($30 million increase to the after tax gains) originally recorded on the sales of International Energy’s Asia-Pacific power generation and natural gas transmission business (see Note 9 to the Consolidated Financial Statements) and its European operations

• The release of various income tax reserves totaling approximately $52 million (see Note 1 to the Consolidated Financial Statements)

• Increased earnings at Crescent, due to the sale of the Alexandria land tract in the Washington, D.C. area and increased residential developed lot sales, and

• Increased earnings at Field Services, due primarily to the favorable effects of commodity prices, net of hedging.

Those items were offset by:

• A $105 million pre-tax charge related to the California and western U.S. energy markets settlement (see Note 13 to the Consolidated Financial Statements)

• A $175 million pre-tax gain in 2003 from the sale of Duke Energy North America’s (DENA’s) 50% interest in Duke/UAE Ref-Fuel, and

• An $80 million decrease in DENA’s 2004 total gross margin from lower net sales, lower values realized from hedge positions and lower mark-to-market earnings.

Six Months Ended June 30, 2004 as Compared to June 30, 2003. In addition to the quarterly items described above, significant items that contributed to increased earnings available for common stockholders for the six months included:

• A $256 million pre-tax gain ($238 million net of tax) recorded in the first quarter of 2004 on the sale of International Energy’s Asia-Pacific power generation and natural gas transmission business (see Note 9 to the Consolidated Financial Statements)

• Charges in 2003 related to changes in accounting principles of $162 million, net of tax and minority interest

• Increased 2004 earnings at Field Services due to improved results from trading and marketing activities, and

• Increased land management (“legacy” land sales) at Crescent, due to several large sales closed in the first quarter of 2004.

Those items were partially offset by:

• An approximate $360 million pre-tax charge in the first quarter of 2004 associated with the announced sale of DENA’s southeastern plants (see Note 9 to the Consolidated Financial Statements), and

• An additional $229 million decrease in DENA’s 2004 total gross margin from lower net sales, lower values realized from hedge positions and lower mark-to-market earnings.

On a consolidated and a segment reporting basis, June 30, 2004 results may not be indicative of the full year. Management has not changed its financial outlook for the remainder of the year for Duke Energy, nor the estimated EBIT growth targets for any of the business segments over the next three years.

39

Consolidated Operating Revenues

Three Months Ended June 30, 2004 as Compared to June 30, 2003. The increase was driven by:

• A $150 million increase in Regulated Electric revenues, due primarily to favorable weather and increased unbilled fuel revenues at Franchised Electric; and

• A $59 million increase in Non-regulated Electric, Natural Gas, Natural Gas Liquids and Other revenues, driven by increased revenues at Field Services, due primarily to increased natural gas and NGL prices, partially offset by decreased revenues at DENA related to decreased sales volumes as a result of the wind-down of Duke Energy Trading and Marketing, LLC (DETM, Duke Energy’s 60/40 joint venture with ExxonMobil Corporation).

Six Months Ended June 30, 2004 as Compared to June 30, 2003. The decrease was driven by a $497 million decrease in Non-regulated Electric, Natural Gas, Natural Gas Liquids and Other revenues, due primarily to:

• Decreased revenues at DENA related to decreased sales volumes as a result of the wind-down of DETM and decreased gas prices, and

• Decreased revenues at Duke Energy Merchants LLC (DEM), as a result of the decision in 2003 to exit the refined products and NGL business at DEM, partially offset by

• Increased revenues at Field Services, due primarily to an increase in NGL prices and volumes.

Partially offsetting the decrease in Non-regulated Electric, Natural Gas, Natural Gas Liquids and Other revenues were:

• A $122 million increase in Regulated Electric revenues, due primarily to favorable weather and increased unbilled fuel revenues at Franchised Electric, and

• A $102 million increase in Regulated Natural Gas revenues, due primarily to foreign currency impacts related to Natural Gas Transmission’s Canadian operations due to the strengthening Canadian dollar.

For a more detailed discussion of operating revenues, see the segment discussions that follow.

Consolidated Operating Expenses

Three Months Ended June 30, 2004 as Compared to June 30, 2003. The increase was driven by a $238 million increase in Fuel Used in Electric Generation and Purchased Power, due primarily to:

• Increased plant fuel costs at DENA, due primarily to overall higher average realized natural gas prices due to lower value recognized from financial gas hedges, and

• Increased fuel expenses at Franchised Electric, due to increased coal costs and increased sales to retail customers.

Partially offsetting the above increase was a $70 million decrease in Natural Gas and Petroleum Products Purchased, due primarily to:

• Decreased natural gas purchases at DENA as a result of the continued wind down of DETM’s operations, and

• Decreased purchases at DEM, due to the decision in 2003 to exit the refined products and NGL business at DEM, partially offset by

• Increased costs for raw natural gas at Field Services.

Also offsetting the above increase was a $44 million decrease in Operation, Maintenance and Other, due primarily to:

• The pre-tax gain related to the settlement of the Enron bankruptcy proceedings, as previously described, partially offset by

• The charge related to the California and western U.S. energy markets settlement, as previously described.

40

Six Months Ended June 30, 2004 as Compared to June 30, 2003. The decrease was driven by a $530 million decrease in Natural Gas and Petroleum Products Purchased, due primarily to:

• Decreased natural gas purchases at DENA as a result of the continued wind down of DETM’s operations, and

• Decreased purchases at DEM, due to the decision in 2003 to exit the refined products and NGL business at DEM.

Partially offsetting the above decrease was a $254 million increase in Fuel Used in Electric Generation and Purchased Power, due to the same factors that caused the quarterly variance, as described above.

Also offsetting the above decrease was a $73 million increase in Operation, Maintenance and Other, due primarily to:

• The charge related to the California and western U.S. energy markets settlement, as previously described

• Increased foreign currency impacts related to Natural Gas Transmission’s Canadian operations due to the strengthening Canadian dollar, and

• An increase in the volume of Crescent’s developed lot sales, partially offset by

• The pre-tax gain related to the settlement of the Enron bankruptcy proceedings, as previously described.

For a more detailed discussion of operating expenses, see the segment discussions that follow.

Consolidated Gains on Sales of Investments in Commercial and Multi-Family Real Estate

Three Months Ended June 30, 2004 as Compared to June 30, 2003. The increase was due to a $49 million increase in real estate land sales due primarily to the sale of the Alexandria land tract in the Washington, D.C. area in June 2004.

Six Months Ended June 30, 2004 as Compared to June 30, 2003. The increase was due primarily to:

• A $20 million increase in commercial project sales, due to the sale of a commercial project in the Washington, D.C. area in March 2004, compared to no commercial project sales in the first six months of 2003

• A $49 million increase in real estate land sales due primarily to the sale of the Alexandria land tract in the Washington, D.C. area in June 2004, and

• A $42 million increase in “legacy” land sales, due to several large sales closed in the first quarter of 2004.

Consolidated (Losses) Gains on Sales of Other Assets, net

Three Months Ended June 30, 2004 as Compared to June 30, 2003. Consolidated (losses) gains on sales of other assets for the quarter were relatively flat, compared to the prior year quarter.

Six Months Ended June 30, 2004 as Compared to June 30, 2003. The decrease was due primarily to an approximate $360 million loss in 2004 associated with the announced sale of DENA’s southeastern plants, as discussed above.

41

Consolidated Operating Income

Three Months Ended June 30, 2004 as Compared to June 30, 2003. The increase was due primarily to:

• Increased operating income at Field Services, due to the favorable effects of commodity prices, net of hedging, and

• Increased operating income at Crescent, due to the sale of the Alexandria land tract in the Washington, D.C. area and increased residential developed lot sales, partially offset by

• Decreased operating income at DENA, due primarily to decreased total gross margin from lower net sales, lower values realized from hedge positions and lower mark-to-market earnings.

Six Months Ended June 30, 2004 as Compared to June 30, 2003. The decrease was due primarily to:

• Decreased operating income at DENA, due primarily to the 2004 loss on the sale of DENA’s southeastern plants, and decreased total gross margin from lower net sales, lower values realized from hedge positions and lower mark-to-market earnings, partially offset by:

• Increased operating income at Field Services, due to the favorable effects of commodity prices, net of hedging, and improved results from Duke Energy Field Services LLC’s (DEFS’) trading and marketing activities, and

• Increased operating income at Crescent, due to the sale of a commercial project and the Alexandria land tract in the Washington, D.C. area, increased “legacy” land sales and increased residential developed lot sales.

For more detailed discussions, see the segment discussions that follow.

Consolidated Other Income and Expenses

Other Income and Expenses decreased $206 million for the three months and $221 million for the six months ended June 30, 2004, compared to the same periods in 2003, due primarily to a $175 million gain in the second quarter of 2003 from the sale of DENA’s 50% interest in Duke/UAE Ref-Fuel and gains of $31 million on the sales of Natural Gas Transmission’s interests in Alliance Pipeline and the associated Aux Sable liquids plant in the second quarter of 2003.

Segment Results

Beginning in 2004, Crescent, formerly part of Other Operations, is considered a separate reportable segment. Crescent develops high-quality commercial, residential and multi-family real estate projects, and manages “legacy” land holdings, primarily in the southeastern and southwestern United States. All other entities previously part of Other Operations and now within Other still remain, primarily: DukeNet Communications LLC, DEM and Duke Energy’s 50% equity investment in Duke/Fluor Daniel (D/FD). Unallocated corporate costs are also recorded in Other in the following table.

Management evaluates segment performance primarily based on earnings before interest and taxes from continuing operations, after deducting minority interest expense related to those profits (EBIT). On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of the minority interest expense related to those profits. Cash and cash equivalents are managed centrally by Duke Energy, so the gains and losses on foreign currency remeasurement associated with cash balances, and interest income on those balances, are generally excluded from the segments’ EBIT. Management considers segment EBIT to be a good indicator of each segment’s operating performance from its continuing operations, as it represents the results of Duke Energy’s ownership interest in operations without regard to financing methods or capital structures.

42

EBIT is viewed as a non-Generally Accepted Accounting Principles (GAAP) measure under the rules of the Securities and Exchange Commission (SEC). EBIT should not be considered an alternative to, or more meaningful than, operating income or operating cash flow as determined in accordance with GAAP. Duke Energy’s EBIT may not be comparable to a similarly titled measure of another company because other entities may not calculate EBIT in the same manner.

EBIT by Business Segment (in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Franchised Electric	$	338		$	316		$	762		$	770
Natural Gas Transmission		311			306			709			729
Field Services		94			53			186			83
Duke Energy North America		(39	)		211			(596	)		234
International Energy		68			91			97			131
Crescent		87			21			147			21
Total reportable segment EBIT		859			998			1,305			1,968
Other		(26	)		(69	)		(31	)		(117	)
Total reportable segment and Other EBIT		833			929			1,274			1,851
Interest expense		(337	)		(325	)		(693	)		(651	)
Minority interest expense and other a		42			(8	)		55			(17	)
Consolidated earnings from continuing operations before income taxes	$	538		$	596		$	636		$	1,183

^a Includes interest income, foreign currency remeasurement gains and losses, and additional minority interest expense not allocated to the segment results.

The amounts discussed below include intercompany transactions that are eliminated in the Consolidated Financial Statements.

43

Franchised Electric

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions, except where noted)	2004		2003		Increase (Decrease)			2004		2003		Increase (Decrease)
Operating revenues	$	1,228	$	1,110	$	118		$	2,499	$	2,361	$	138
Operating expenses		896		809		87			1,747		1,622		125
Gains on sales of other assets, net		3		—		3			3		1		2
Operating income		335		301		34			755		740		15
Other income, net of expenses		3		15		(12	)		7		30		(23	)
EBIT	$	338	$	316	$	22		$	762	$	770	$	(8	)
Sales, Gigawatt-hours (GWh)		20,087		19,415		672			42,050		41,458		592

The following table shows the changes in GWh sales and average number of customers for Franchised Electric.

Increase (decrease) over prior year	Three Months Ended		Six Months Ended
Residential sales a	18.6	%	9.6	%
General service sales a	9.1	%	5.9	%
Industrial sales a	2.2	%	(0.8	)%
Wholesale sales	(39.4	)%	(17.9	)%
Total Franchised Electric sales b	3.5	%	1.4	%
Average number of customers	1.7	%	1.6	%

^a Major components of Franchised Electric’s retail sales

^b Consists of all components of Franchised Electric’s sales, including retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.

Three Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The increase was driven primarily by:

• A $66 million increase in GWh sales to retail customers, due to favorable weather during the quarter

• A $47 million increase in unbilled fuel revenues, due to increased fuel expense, primarily resulting from increased coal costs, not yet collected in rates

• A $22 million increase in collected fuel revenues, driven by increased fuel rates for retail customers due primarily to increased coal costs and increased sales resulting from favorable weather

• An $8 million increase due to continued growth in the number of residential and general service customers in Franchised Electric’s service territory

• A $14 million decrease due to sharing of profits from wholesale power sales with customers in North Carolina in 2004 (see Note 12 to the Consolidated Financial Statements)

• A $13 million decrease in wholesale power revenues, due primarily to lower sales volumes resulting from lower generation availability

• A $9 million decrease in sales to industrial customers, due primarily to the continuing decline in sales to textile customers in North Carolina and South Carolina.

44

Operating Expenses. The increase was driven primarily by:

• Increased fuel expenses of $66 million, due primarily to increased coal costs and increased sales to retail customers

• Increased donations of $13 million, due to sharing of profits from wholesale power sales with charitable, educational and economic development programs in North Carolina and South Carolina (see Note 12 to the Consolidated Financial Statements)

• Increased fossil expenses of $14 million, driven by increased fossil outage costs during the period.

Other Income, net of expenses. The decrease in other income was driven primarily by a decrease in the allowance for funds used during construction, due primarily to large construction projects that were completed in 2003, and a decrease in the return on deferred costs related to the purchase of capacity from the joint owners of the Catawba Nuclear Station.

EBIT. The increase in EBIT resulted primarily from increased sales to retail customers due to favorable weather, and continued growth in the number of residential and general service customers. These changes were partially offset by the sharing of profits from wholesale power sales, lower sales to wholesale customers and increased expenses related to fossil outages.

Six Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The increase was driven primarily by:

• A $72 million increase in GWh sales to retail customers, due to favorable weather during the period

• A $49 million increase in unbilled fuel revenues, due to increased fuel expense, primarily resulting from increased coal costs, not yet collected in rates

• A $48 million increase in collected fuel revenues, driven by increased fuel rates for retail customers, due primarily to increased coal costs, and increased sales resulting from favorable weather

• A $16 million increase due to continued growth in the number of residential and general service customers in Franchised Electric’s service territory

• A $31 million decrease in wholesale power revenues, due primarily to increased fuel costs and lower sales volumes resulting from lower generation availability

• A $17 million decrease in sales to industrial customers, due primarily to the continuing decline in sales to textile customers in North Carolina and South Carolina

• A $14 million decrease due to sharing of profits from wholesale power sales with customers in North Carolina in 2004 (see Note 12 to the Consolidated Financial Statements).

Operating Expenses. The increase was driven primarily by:

• Increased fuel expenses of $98 million, due primarily to increased coal costs and increased sales to retail customers

• Increased nuclear and fossil outage costs of $22 million, driven by increased outage days during the period

• Increased donations of $13 million, due to sharing of profits from wholesale power sales with charitable, educational and economic development programs in North Carolina and South Carolina (see Note 12 to the Consolidated Financial Statements)

• Decreased storm costs of $16 million.

Other Income, net of expenses. The decrease in other income was driven primarily by:

• A $14 million decrease in the allowance for funds used during construction, due primarily to large construction projects that were completed in 2003

• A $9 million decrease in the return on deferred costs related to the purchase of capacity from the joint owners of the Catawba Nuclear Station.

45

EBIT. The decrease in EBIT resulted primarily from lower sales to wholesale customers, sharing of profits from wholesale power sales, increased expenses related to nuclear and fossil outages, and lower sales to industrial customers. These changes were partially offset by increased sales to retail customers due to favorable weather, continued growth in the number of residential and general service customers, and lower storm costs.

Natural Gas Transmission

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions, except where noted)	2004		2003		Increase (Decrease)			2004		2003		Increase (Decrease)
Operating revenues	$	688	$	692	$	(4	)	$	1,726	$	1,660	$	66
Operating expenses		397		421		(24	)		1,035		988		47
Gains on sales of other assets, net		9		—		9			9		1		8
Operating income		300		271		29			700		673		27
Other income, net of expenses		13		45		(32	)		19		79		(60	)
Minority interest expense		2		10		(8	)		10		23		(13	)
EBIT	$	311	$	306	$	5		$	709	$	729	$	(20	)
Proportional throughput, TBtu a		726		742		(16	)		1,815		1,824		(9	)

^a Trillion British thermal units. Revenues are not significantly impacted by pipeline throughput fluctuations, since revenues are primarily composed of demand charges.

Three Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The decrease was driven primarily by:

• A $22 million decrease as a result of the sale of Pacific Northern Gas Limited (PNG) in December 2003

• A $20 million decrease in gas distribution revenues, due primarily to reduced volumes

• A $13 million increase due to foreign exchange rates favorably impacting revenues from the Canadian operations as a result of the strengthening Canadian dollar (partially offset by currency impacts to expenses)

• A $10 million increase due to improved operational results

• A $10 million increase from completed and operational business expansion projects in the United States.

Operating Expenses. The decrease was driven primarily by:

• A $20 million decrease as a result of operations sold in 2003

• An $18 million decrease in gas purchases for distribution, due primarily to reduced volumes

• A $17 million decrease related to the 2004 resolution of ad valorem tax adjustments in various states, partly offset by the resolution of contingency items of $5 million in the second quarter of 2003

• A $10 million increase caused by foreign exchange impacts.

Other Income, net of expenses. The decrease was driven primarily by gains of $31 million on the sales of Natural Gas Transmission’s interests in Alliance Pipeline and the associated Aux Sable liquids plant in April 2003.

EBIT. EBIT increased primarily as a result of contributions from improved operational results, U.S. business expansions, and foreign exchange EBIT impacts from the strengthening Canadian currency, partially offset by gains from sales of equity investments (included in other income) recorded in the prior year second quarter and forgone earnings from various equity investments sold during 2003.

46

Six Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The increase was driven primarily by:

• A $104 million increase due to foreign exchange rates favorably impacting revenues from the Canadian operations as a result of the strengthening Canadian dollar (partially offset by currency impacts to expenses)

• A $27 million increase due to improved operational results

• A $21 million increase from completed and operational business expansion projects in the United States

• A $53 million decrease as a result of the sale of Empire State Pipeline in February 2003 and of PNG in December 2003

• A $40 million decrease in gas distribution revenues, resulting from lower volumes partly offset by higher commodity costs that are passed through to customers without mark-up.

Operating Expenses. The increase was driven primarily by:

• A $75 million increase caused by foreign exchange impacts

• An $8 million increase associated with the business expansion projects placed in service

• Cost increases of $18 million, including depreciation and processing plant maintenance activity in Canada.

• A $30 million decrease in gas purchases for distribution, due primarily to reduced volumes partly offset by higher commodity costs

• A $44 million decrease as a result of operations sold in 2003

• A $17 million decrease related to the 2004 resolution of ad valorem tax adjustments in various states, offset by the resolution of various contingencies of $25 million in the 2003 period.

Other Income, net of expenses. The decrease was driven primarily by:

• A $15 million decrease in equity earnings as a result of investments sold in 2003

• A $47 million decrease as a result of prior year gains on sales, primarily the gain on the sale of Natural Gas Transmission’s interests in Northern Border Partners L.P. in January 2003 and in Alliance Pipeline and the Aux Sable liquids plant in April 2003.

Minority Interest Expenses. The decrease was driven primarily by the sale of PNG in 2003.

EBIT. EBIT decreased primarily as a result of gains from sales of equity investments (included in other income) recorded in the prior year and forgone earnings from various equity investments sold during 2003. Those decreases were partially offset by contributions from improved operational results, U.S. business expansions, and foreign exchange EBIT impacts from the strengthening Canadian currency.

47

Field Services

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions, except where noted)	2004		2003		Increase (Decrease)			2004		2003		Increase (Decrease)
Operating revenues	$	2,356	$	2,048	$	308		$	4,731	$	4,598	$	133
Operating expenses		2,225		1,991		234			4,474		4,500		(26	)
Operating income		131		57		74			257		98		159
Other income, net of expenses		15		24		(9	)		33		39		(6	)
Minority interest expense		52		28		24			104		54		50
EBIT	$	94	$	53	$	41		$	186	$	83	$	103
Natural gas gathered and processed/transported, TBtu/d a		7.5		7.6		(0.1	)		7.4		7.6		(0.2	)
NGL production, MBbl/d b		371		352		19			364		360		4
Average natural gas price per MMBtu c, d, e	$	5.99	$	5.41	$	0.58		$	5.84	$	6.00	$	(0.16	)
Average NGL price per gallon d, e	$	0.61	$	0.49	$	0.12		$	0.60	$	0.54	$	0.06

^a Trillion British thermal units per day

^b Thousand barrels per day

^c Million British thermal units

^d Index-based market price

^e Does not reflect results of commodity hedges.

Three Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The increase was driven primarily by:

• A $175 million increase due to higher average NGL prices

• A $125 million increase due to higher average natural gas prices

• A $35 million increase related to the acquisition of gathering, processing and transmission assets in southeast New Mexico from ConocoPhillips during the three months ended June 30, 2004

• A $30 million decrease primarily related to lower wholesale propane marketing activity partially offset by higher NGL sales volumes

• A $5 million increase from higher processed volumes resulting from favorable processing economics. Overall, throughput decreased due primarily to slightly lower gathering and transportation volumes.

• A $5 million decrease related to cash flow hedging, which reduced revenues by approximately $50 million for the three months ended June 30, 2004 and by $45 million for the three months ended June 30, 2003.

Operating Expenses. The increase was driven primarily by:

• A $240 million increase due to higher average costs of raw natural gas supply

• A $25 million decrease from lower processed raw natural gas supply volume and lower wholesale propane marketing activity

• A $30 million increase related to the acquisition of gathering, processing and transmission assets in southeast New Mexico from ConocoPhillips during the three months ended June 30,2004

• A $5 million decrease in operating, and general and administrative expenses, due to lower repairs, maintenance, environmental and labor and benefits.

Minority Interest Expense. Minority interest expense increased due to increased earnings from DEFS, Duke Energy’s joint venture with ConocoPhillips. The increase was not proportionate to the increase in Field Services’ earnings, as the Field Services segment includes the results of incremental hedging activities contracted at the Duke Energy corporate level that are not included in DEFS’ results.

48

EBIT. The increase in EBIT resulted primarily from the favorable effects of commodity prices. The full impact from the effects of commodity prices were not realized as some of DEFS’ sales volumes were previously hedged at prices different than actual market prices.

Six Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The increase was driven primarily by:

• A $190 million increase due to higher average NGL prices

• A $120 million decrease from lower throughput related to reduced raw natural gas supply volume, due to reservoir decline exceeding supply from new drilling activity and increased plant downtime due to maintenance

• A $60 million decrease due to lower average natural gas prices

• A $35 million increase related to the acquisition of gathering processing and transmission assets in southeast New Mexico from ConocoPhillips during the six months ended June 30, 2004

• A $35 million increase from trading and marketing net margin, due primarily to natural gas asset based trading and marketing

• A $25 million increase related to cash flow hedging, which reduced revenues by approximately $95 million for the six months ended June 30, 2004 and by $120 million for the six months ended June 30, 2003

• A $20 million increase related to higher NGL sales volumes.

Operating Expenses. The decrease was driven primarily by:

• A $90 million decrease from lower processed raw natural gas supply volume

• A $55 million increase due to higher average costs of raw natural gas supply which is primarily due to an increase in average NGL prices partially offset by a decrease in average natural gas prices

• A $30 million increase related to the acquisition of gathering, processing and transmission assets in southeast New Mexico from ConocoPhillips during the six months ended June 30, 2004

• A $15 million decrease in operating, and general and administrative expenses, due to lower repairs, maintenance, environmental and labor and benefits expenses.

Minority Interest Expense. Minority interest expense increased due to increased earnings from DEFS. The increase was not proportionate to the increase in Field Services’ earnings, as the Field Services segment includes the results of incremental hedging activities contracted at the Duke Energy corporate level that are not included in DEFS’ results.

EBIT. The increase in EBIT primarily resulted from the favorable effects of commodity prices and improved results from trading and marketing activities. The full impact from the effects of commodity prices were not realized as some of DEFS’ sales volumes were previously hedged at prices different than actual market prices.

49

Duke Energy North America

	Three Months Ended June 30,									Six Months Ended June 30,
(in millions, except where noted)	2004			2003			Increase (Decrease)			2004			2003			Increase (Decrease)
Operating revenues	$	672		$	962		$	(290	)	$	1,328		$	2,358		$	(1,030	)
Operating expenses		705			945			(240	)		1,576			2,327			(751	)
Losses on sales of other assets, net		(16	)		—			(16	)		(368	)		—			(368	)
Operating (loss) income		(49	)		17			(66	)		(616	)		31			(647	)
Other income, net of expenses		3			187			(184	)		(1	)		196			(197	)
Minority interest benefit		(7	)		(7	)		—			(21	)		(7	)		(14	)
EBIT	$	(39	)	$	211		$	(250	)	$	(596	)	$	234		$	(830	)
Actual plant production, GWh a		5,895			4,510			1,385			11,356			9,620			1,736
Proportional megawatt capacity in operation											15,660			15,206			454

^a Includes plant production from plants accounted for under the equity method

Three Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The decrease was driven primarily by:

• A $359 million decrease from lower natural gas sales volumes, due primarily to the continued wind down of DETM’s operations. This decrease was partially offset by approximately $32 million from higher average natural gas prices realized in the current quarter. The second quarter of 2004 experienced relatively high volatility in gas prices, which has been a market trend since the latter part of 2003.

• $63 million in lower net trading margins, due primarily to the continued wind down of DETM’s operations, including the absence of 2003 positive net trading margins. DENA recognized approximately $22 million in net mark-to-market gains incurred primarily from undesignated power and gas hedges, which resulted in an offsetting increase of $14 million over prior quarter.

• A $112 million increase from higher power generation volumes, due primarily to two plants entering into commercial operation late in the second quarter of 2003; overall higher plant run-times in the western region as a result of higher average spark spreads; and consolidation of a partial interest in one of DENA’s Canadian power facilities, which was previously accounted for under the equity method. Offsetting this increase was an approximate $22 million decrease in revenues from lower average realized power prices, primarily as a result of the recognition of losses related to certain DENA power sales contracts. The unrealized power sales losses will continue to be recognized as the underlying contracts settle through 2015, and accordingly, will continue to impact DENA’s results of operations.

Operating Expenses. The decrease was driven primarily by:

• A $379 million decrease from lower natural gas purchase volumes, due primarily to the continued wind down of DETM’s operations. This decrease was partially offset by approximately $19 million from higher average natural gas prices realized in the current quarter. The second quarter of 2004 experienced relatively high volatility in gas prices, which has been a market trend since the latter part of 2003.

• A $113 million ($108 million net of minority interest expense) decrease in operating expenses from a gain related to the settlement of the Enron bankruptcy proceeding in April 2004 (see Note 13 to the Consolidated Financial Statements).

• $25 million in lower depreciation expense, primarily from the reduction in plant cost basis as a result of plant impairment charges taken in the fourth quarter of 2003, and discontinuing depreciation related to the southeast region plants which were classified as “assets held for sale” in March 2004. Offsetting this decrease was $6 million of higher depreciation due to two plants entering

50

into commercial operation late in the second quarter of 2003 and the 2004 consolidation of a partial interest in one of DENA’s Canadian power facilities, which was previously accounted for under the equity method.

• $17 million in lower general and administrative expenses, primarily from the impact of workforce reductions and associated office costs, travel and other benefits, reduced consulting costs and lower bad debt expense.

• $139 million of higher plant fuel costs, due to overall higher average realized natural gas prices in the current quarter, due primarily to lower value recognized from financial gas hedges. The unrealized gains from the financial gas hedges will continue to be recognized as the underlying contracts settle through 2017, and accordingly, will continue to impact DENA’s results of operations. Additionally, there was an approximate $15 million increase in plant fuel costs due primarily to two plants entering into commercial operation late in the second quarter of 2003; overall higher plant run-times in the Western region as a result of higher average spark spreads; and the consolidation of a partial interest in one of DENA’s Canadian power facilities beginning in 2004, which was previously accounted for under the equity method.

• A $105 million increase in operating expenses from a charge related to the California and western U.S. energy markets settlement in June 2004 (see Note 13 to the Consolidated Financial Statements).

• An $11 million increase in operations and maintenance expense, due primarily to two plants entering into commercial operation late in the second quarter of 2003 and the 2004 consolidation of a partial interest in one of DENA’s Canadian power facilities, which was previously accounted for under the equity method.

Losses on Sales of Other Assets, net. Losses in 2004 were $16 million ($10 million net of minority interest expense) due to the liquidation of contractual positions in connection with the continued wind down of DETM’s operations.

Other Income, net of expenses. The decrease in other income, net of expenses was due primarily to a $175 million pre-tax gain in 2003 from the sale of DENA’s 50% interest in Duke/UAE Ref-Fuel.

EBIT. The decrease in EBIT was due primarily to the $175 million gain in 2003 from the sale of DENA’s 50% interest in Duke/UAE Ref-Fuel and an $80 million decrease in total gross margin from lower net sales, lower values realized from hedge positions, and lower mark-to-market earnings as outlined above.

Six Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The decrease was driven primarily by:

• A $752 million decrease from lower natural gas sales volumes, due primarily to the continued wind down of DETM’s operations. Overall higher average year-to-date gas prices in 2003 versus 2004 contributed another approximate $157 million decrease in natural gas sales realized.

• $115 million in lower net trading margins, due to the continued wind down of DETM’s operations, including the absence of 2003 positive net trading margins and $56 million in net mark-to-market losses incurred from undesignated power and gas hedge positions.

• A $191 million increase from higher power generation volumes, due primarily to two plants entering into commercial operation late in the second quarter of 2003; overall higher plant run-times in the Western region as a result of higher average spark spreads; and the 2004 consolidation of a partial interest in one of DENA’s Canadian power facilities, which was previously accounted for under the equity method. Offsetting this increase was an approximate $142 million decrease in revenues from lower average realized power prices, primarily as a result of the recognition of losses related to certain DENA power sales contracts. The unrealized power sales losses will continue to be recognized as the underlying contracts settle through 2015, and accordingly, will continue to impact DENA’s results of operations.

51

Operating Expenses. The decrease was driven primarily by:

• A $768 million decrease from lower natural gas purchase volumes, due primarily to the continued wind down of DETM’s operations. Overall higher average year-to-date gas prices in 2003 versus 2004 contributed another approximate $157 million decrease in natural gas purchase costs.

• A $113 million ($108 million net of minority interest expense) decrease in operating expenses from a gain related to the settlement of the Enron bankruptcy proceedings in April 2004 (see Note 13 to the Consolidated Financial Statements).

• $41 million of lower depreciation expense, primarily from the reduction in plant cost basis as a result of plant impairment charges taken in the fourth quarter of 2003 and discontinuing depreciation related to the southeast region plants which were classified as “assets held for sale” in March 2004. Offsetting this decrease was $16 million of higher depreciation due to two plants entering into commercial operation late in the second quarter of 2003 and the 2004 consolidation of a partial interest in one of DENA’s Canadian power facilities, which was previously accounted for under the equity method.

• $21 million of lower general and administrative expenses, primarily from the impact of workforce reductions and associated office costs, travel and other benefits, reduced consulting costs and lower bad debt expense.

• $143 million of higher plant fuel costs due to overall higher average realized natural gas prices in the current year, due primarily to lower value recognized from financial gas hedges. The unrealized gains from the financial gas hedges will continue to be recognized as the underlying contracts settle through 2017, and accordingly, will continue to impact DENA’s results of operations. Additionally, there was an approximate $60 million increase in plant fuel costs due to two plants entering into commercial operation late in the second quarter of 2003; overall higher plant run-times in the Western region as a result of higher average spark spreads; and the 2004 consolidation of a partial interest in one of DENA’s Canadian power facilities, which was previously accounted for under the equity method.

• A $105 million increase in operating expenses from a charge related to the California and western U.S. energy markets settlement in June 2004 (see Note 13 to the Consolidated Financial Statements).

• A $23 million increase in operations and maintenance expense, due primarily to two plants entering into commercial operation late in the second quarter of 2003 and the 2004 consolidation of a partial interest in one of DENA’s Canadian power facilities, which was previously accounted for under the equity method.

Losses on Sales of Other Assets, net. Losses on sales of other assets for the six months ended June 30, 2004 were due primarily to an approximate $360 million pre-tax loss associated with the announced sale of DENA’s southeastern plants. (See Note 9 to the Consolidated Financial Statements.)

Other Income, net of expenses. The decrease in other income, net of expenses was due primarily to the $175 million pre-tax gain in 2003 from the sale of DENA’s 50% interest in Duke/UAE Ref-Fuel and current year foreign currency remeasurement losses associated with DENA’s Canadian business activity.

Minority Interest Benefit. Minority interest benefit increased due primarily to increased DETM losses in 2004 from the continued wind down of its operations.

EBIT. The decrease in EBIT was due primarily to the $360 million pre-tax loss on the sale of the southeast plants, a $175 million pre-tax gain in 2003 from the announced sale of DENA’s 50% interest in Duke/UAE Ref-Fuel and a $309 million decrease in total gross margin from lower net sales, lower values realized from hedge positions, and lower mark-to-market earnings as outlined above.

52

International Energy

	Three Months Ended June 30,							Six Months Ended June 30,
(in millions, except where noted)	2004		2003		Increase (Decrease)			2004		2003		Increase (Decrease)
Operating revenues	$	147	$	169	$	(22	)	$	301	$	341	$	(40	)
Operating expenses		98		90		8			229		225		4
Gains on sales of other assets, net		—		1		(1	)		—		1		(1	)
Operating income		49		80		(31	)		72		117		(45	)
Other income, net of expenses		22		15		7			31		22		9
Minority interest expense		3		4		(1	)		6		8		(2	)
EBIT	$	68	$	91	$	(23	)	$	97	$	131	$	(34	)
Sales, GWh		4,248		4,446		(198	)		8,811		8,416		395
Proportional megawatt capacity in operation									4,130		4,013		117

Three Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The decrease was driven primarily by:

• A $13 million decrease in revenues in Guatemala and El Salvador, due to unfavorable market conditions

• An $11 million decrease due to adjustments in the second quarter of 2003 as a result of a regulatory audit in Brazil

Operating Expenses. The increase was driven primarily by:

• An $18 million increase due to a reserve reversal in 2003 related to the early termination of a natural gas sales contract from the liquefied natural gas business

• An $8 million increase due to adjustments in the second quarter of 2003 as a result of a regulatory audit in Brazil

• A $12 million decrease in spot market purchases in Guatemala and El Salvador, due to unfavorable market conditions

• A $10 million decrease due to a change in the method of revenue recognition in Peru to reflect a netting of volumes transferred to/from the electricity grid in 2003, which is offset in operating revenues

• A $6 million decrease due to a reduction in bad debt expense.

EBIT. The decrease in EBIT was due primarily to adjustments of $19 million in the second quarter of 2003 as a result of a regulatory audit in Brazil and an $18 million reserve reversal in 2003 related to the early termination of a natural gas sales contract from the liquefied natural gas business.

53

Six Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The decrease was driven primarily by:

• A $33 million decrease in natural gas sales, due to the termination of a natural gas sales contract from the liquefied natural gas business

• A $23 million decrease in revenues in Guatemala and El Salvador, due to unfavorable market conditions

• An $11 million decrease due to adjustments in the second quarter of 2003 as a result of a regulatory audit in Brazil

• A $14 million increase which is equally attributed to higher sales prices and volumes realized from the initial contracts in Brazil

• A $12 million increase due to the commencement of operations at Planta Arizona in Guatemala.

Operating Expenses. The increase was driven primarily by:

• An $18 million increase due to a reserve reversal in 2003 related to the early termination of a natural gas sales contract from the liquefied natural gas business

• A $13 million charge associated with the planned disposition of the ownership share in the Cantarell nitrogen facility in Mexico

• A $13 million increase due partially to the commencement of operations at Planta Arizona in Guatemala, and partially to increased energy purchases and transmission fees in Brazil

• An $11 million increase in administrative and general expenses

• An $8 million increase due to adjustments in the second quarter of 2003 as a result of a regulatory audit in Brazil

• A $34 million decrease in natural gas sales purchases due to the termination of a natural gas sales contract from the liquefied natural gas business

• A $21 million decrease in spot market purchases in Guatemala and El Salvador, due to unfavorable market conditions.

EBIT. The decrease in EBIT was due primarily to adjustments of $19 million as a result of the regulatory audit in Brazil in 2003, a $17 million decrease due to the termination of a natural gas sales contract from the liquefied natural gas business, a $13 million charge associated with the planned disposition of the ownership share in the Cantarell facility, an $11 million increase in administrative and general expenses, an $11 million increase included in other income due to a 2003 adjustment related to revenue recognition for the Cantarell equity investment, and a $10 million increase due to Planta Arizona operations in Guatemala and favorable prices in Peru.

54

Crescent

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2004		2003		Increase (Decrease)		2004		2003		Increase (Decrease)
Operating revenues	$	101	$	76	$	25	$	140	$	97	$	43
Operating expenses		75		63		12		112		86		26
Gains on sales of investments in commercial and multi-family real estate		62		9		53		121		11		110
Operating income		88		22		66		149		22		127
Minority interest expense		1		1		—		2		1		1
EBIT	$	87	$	21	$	66	$	147	$	21	$	126

Three Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The increase was driven primarily by a $27 million increase in residential developed lot sales, due to increased sales at the Palmetto Bluff project in Bluffton, South Carolina and the LandMar division in northeastern Florida, offset by decreased sales at the Twin Creeks project near Austin, Texas as a result of a large bulk sale of lots in the second quarter of 2003.

Operating Expenses. The increase was driven primarily by a $20 million increase in the cost of residential developed lot sales, due to increased sales at the projects noted above, offset by a $10 million decrease due to the contribution of a conservation easement and related write-off of land basis in April 2003.

Gains on Sales of Investments in Commercial and Multi-Family Real Estate. The increase was driven primarily by a $49 million increase in real estate land sales due primarily to the sale of the Alexandria land tract in the Washington, D.C. area in June 2004.

EBIT. As discussed above, the increase in EBIT was driven primarily by the sale of the Alexandria land tract in the Washington, D.C. area and an increase in residential developed lot sales.

Six Months Ended June 30, 2004 as Compared to June 30, 2003

Operating Revenues. The increase was driven primarily by a $45 million increase in residential developed lot sales, due to increased sales at the Palmetto Bluff project in Bluffton, South Carolina, the LandMar division in northeastern Florida and the Lake Keowee projects in northwestern South Carolina, offset by decreased developed lot sales at the Twin Creeks project near Austin, Texas as a result of the large bulk sale of lots in the second quarter of 2003.

Operating Expenses. The increase was driven primarily by a $31 million increase in the cost of residential developed lot sales, due to increased developed lot sales at the projects noted above.

Gains on Sales of Investments in Commercial and Multi-Family Real Estate. The increase was driven primarily by:

• A $20 million increase in commercial project sales, due to the sale of a commercial project in the Washington, D.C. area in March 2004 compared to no commercial project sales in the first six months of 2003

• A $49 million increase in real estate land sales due primarily to the sale of the Alexandria land tract in the Washington, D.C. area in June 2004

• A $42 million increase in land management or “legacy” land sales, due to several large sales closed in the first quarter of 2004

55

EBIT. As discussed above, the increase in EBIT was driven primarily by sales of a commercial project and the Alexandria land tract in the Washington, D.C. area, an increase in “legacy” land sales and an increase in residential developed lot sales.

Other

EBIT for Other increased $43 million for the three months ended June 30, 2004, compared to the same period in 2003, due primarily to a $22 million increase in DEM’s EBIT. That increase was largely due to a $21 million reduction in operating expenses as a result of a gain related to the settlement of the Enron bankruptcy proceedings in April 2004 (see Note 13 to the Consolidated Financial Statements). Also contributing to the increase were higher D/FD profits resulting from profit eliminations in Other in the prior year not occurring in 2004 as a result of the wind down of D/FD.

EBIT for Other increased $86 million for the six months ended June 30, 2004, compared to the same period in 2003. The increase was due primarily to a $70 million increase in DEM’s EBIT due to a $13 million gain on the sale of DEM’s 15% investment in Caribbean Nitrogen Company (an ammonia plant in Trinidad), a $21 million reduction in operating expenses as a result of a gain related to the settlement of the Enron bankruptcy proceedings in April 2004, the absence of 2003 losses of $32 million from adverse market movements against certain commodity positions, and lower activity as a result of the decision in 2003 to exit DEM’s refined products and NGL businesses. Also contributing to the increase were higher D/FD profits resulting from profit eliminations in Other in the prior year not occurring in 2004 as a result of the wind down of D/FD.

Other Impacts on Earnings Available for Common Stockholders

For the three months ended June 30, 2004, the increase in interest expense was due primarily to:

• $12 million of interest expense related to a litigation reserve

• An $11 million decrease in capitalized interest

• $10 million of expenses related to financial instruments with characteristics of both liabilities and equity whose related distributions are now classified as interest expense instead of minority interest expense. Those instruments were classified as debt as of July 1, 2003, in accordance with Statement of Financial Accounting Standards (SFAS) No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”

• A $22 million net decrease resulting from net debt reduction, refinancing, swap impacts and interest costs in Brazil.

For the six months ended June 30, 2004, the increase in interest expense was due primarily to:

• $26 million of expenses related to financial instruments with characteristics of both liabilities and equity whose related distributions are now classified as interest expense instead of minority interest expense

• A $25 million decrease in capitalized interest

• $12 million of interest expense related to a litigation reserve

• An $11 million charge related to re-marketing costs associated with the Equity Units at Duke Capital LLC (Duke Capital, a wholly owned subsidiary of Duke Energy)

• An $11 million increase associated with Canadian exchange rates

• A $40 million net decrease resulting from net debt reduction, refinancing, swap impacts and interest costs in Brazil.

Through June 30, 2003, minority interest expense included expense related to regular distributions on trust preferred securities of Duke Energy and its subsidiaries. As of July 1, 2003, those distributions were accounted for as interest expense on a prospective basis in accordance with the adoption of SFAS No.150. As a result of this accounting change, minority interest expense decreased $28 million for the three months and $55 million for the six months ended June 30, 2004.

56

Minority interest expense as shown and discussed in the preceding business segment EBIT sections includes only minority interest expense related to EBIT of Duke Energy’s joint ventures. It does not include minority interest expense related to interest and taxes of the joint ventures. Total minority interest expense related to the joint ventures (including the portion related to interest and taxes) increased $19 million for the three months and $34 million for the six months ended June 30, 2004, compared to the same periods in 2003. The changes for both periods were driven by increased earnings at DEFS, offset by decreased minority interest at Natural Gas Transmission due to the sale of PNG in 2003. For the six-month period, decreased earnings at DETM also partially offset the increased earnings at DEFS.

Income tax expense from continuing operations decreased 32% for the three months and 57% for the six months ended June 30, 2004, compared to the same periods in 2003. The decrease was due primarily to the release of income tax reserves of approximately $52 million, resulting from the resolution of various outstanding income tax issues in the second quarter of 2004 and changes in estimates. Also contributing to the tax decreases were decreases in earnings from continuing operations before income taxes of 10% for the three months and 46% for the six months ended June 30, 2004.

Income from discontinued operations for the three months ended June 30, 2004 was flat, compared to the same period in 2003. The increase in income from discontinued operations for the six months ended June 30, 2004 was due primarily to a $268 million after-tax gain in 2004 surrounding the sale of International Energy’s Asia-Pacific power generation and natural gas transmission business and its European operations. (See Note 9 to the Consolidated Financial Statements.)

During 2003, Duke Energy recorded a net-of-tax and minority interest cumulative effect adjustment for a change in accounting principles of $162 million, or $0.18 per basic share, as a reduction in earnings. The change in accounting principles included an after-tax and minority interest charge of $151 million, or $0.17 per basic share, related to the implementation of Emerging Issues Task Force (EITF) Issue No. 02-03, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and for Contracts Involved in Energy Trading and Risk Management Activities,” and an after-tax charge of $11 million, or $0.01 per basic share, related to the implementation of SFAS No. 143, “Accounting for Asset Retirement Obligations.”

LIQUIDITY AND CAPITAL RESOURCES

Operating Cash Flows

Net cash provided by operating activities increased $518 million for the six months ended June 30, 2004, compared to the same period in 2003, due primarily to higher cash settlements from trading and marketing activities and changes in working capital in the 2004 period. Cash flow from changes in working capital for the 2004 period was higher than the 2003 period due primarily to the receipt of a $505 million tax refund in 2004, the liquidation of inventory in 2004 at DENA and Natural Gas Transmission, net of higher receivables balances driven by higher NGL and gas prices at Field Services.

Investing Cash Flows

Net cash used in investing activities increased $261 million for the six months ended June 30, 2004, compared to the same period in 2003. Of this increase in cash used, $608 million related to decreased net proceeds from the sales of equity investments and other assets due primarily to sales in the 2003 period of DENA’s 50% ownership interest in American Ref Fuel; Natural Gas Transmission’s sale of its wholly owned Empire State Pipeline and its investment in the Alliance Pipeline; Field Services’ sale of assets to Crosstex & Scissortail; Duke Energy’s sale of the TEPPCO class B units; DEM’s sale of DE Hydrocarbons; and the monetization of various investments at DCP, which were partially offset by the sale of International Energy’s Asia-Pacific power generation and natural gas transmission businesses in the 2004 period. The decreased net proceeds from the sales of equity investments and other assets was partially offset by the increase of $256 million in proceeds from the sales of commercial and multi-family real estate at Crescent, due primarily to sales of the Potomac Yard retail center and the Alexandria land tract in the Washington, D.C. area in the 2004 period.

57

For 2004, Duke Energy expects annual capital and investment expenditures to be approximately $2.5 billion, including approximately $400 million for Crescent to be included in operating cash flows, an increase of approximately $300 million from the $2.2 billion disclosed in “Management’s Discussion and Analysis of Results of Operations and Financial Condition, Liquidity and Capital Resources – Known Trends and Uncertainties” in Duke Energy’s Annual Report on form 10-K/A for December 31, 2003. The projected increase is due largely to the approximately $262 million contribution to Duke Energy’s external nuclear decommissioning fund in the second quarter of 2004.

Financing Cash Flows and Liquidity

The fixed charges coverage ratio, calculated using SEC guidelines, was 1.9 times for the six months ended June 30, 2004 and 2.6 times for the six months ended June 30, 2003.

Net cash used in financing activities decreased $614 million for the six months ended June 30, 2004, compared to the same period in 2003. This change was due primarily to approximately $800 million of higher proceeds from common stock issuances during 2004, driven by the settlement of the forward purchase contract component of Duke Energy’s Equity Units in 2004. This was partially offset by approximately $125 million of higher redemptions and net paydowns of long-term debt, commercial paper and notes payable during 2004. Total debt reductions of approximately $1.7 billion in 2004 consisted of $800 million in net cash redemptions (primarily $600 million of trust preferred securities and $200 million of senior debt), approximately $50 million of Australian debt held in trust and fully funded, and approximately $840 million of debt retired (as a non-cash financing activity) as part of the sale of the Asia-Pacific operations. The $840 million does not include the approximately $50 million of Australian debt which has been placed in trust and fully funded in connection with the closing of the sale transaction and will be repaid in September 2004. This trust is included in the Consolidated Financial Statements as Duke Energy is the primary beneficiary of the trust and, therefore, is required to consolidate the trust under provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.”

Duke Energy’s cash requirements for 2004 are expected to be funded by cash from operations, the sale of non-strategic assets, and the settlement of the forward stock purchase component of outstanding Equity Units in November 2004, and are expected to be adequate for funding capital expenditures, dividend payments and planned debt reductions.

Significant Financing Activities. For discussion of Duke Energy’s significant financing activities, see Note 5 to the Consolidated Financial Statements.

Additionally, on June 1, 2004, Westcoast Energy, Inc. redeemed all remaining outstanding Cumulative Redeemable First Preferred Shares, Series 6. The Series 6 Shares were redeemed for 25.00 per share in Canadian dollars plus all accrued and unpaid dividends to the date of redemption for a total redemption amount of approximately 104 million Canadian dollars.

Available Credit Facilities and Restrictive Debt Covenants. Duke Energy’s credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of June 30, 2004, Duke Energy was in compliance with those covenants. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or to the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the credit agreements contain material adverse change clauses or any covenants based on credit ratings.

Credit Ratings. The credit ratings of Duke Energy, Duke Capital and its subsidiaries have not changed since March 1, 2004 as disclosed in “Management’s Discussion and Analysis of Results of Operations and

58

Financial Condition – Liquidity and Capital Resources” in Duke Energy’s Annual Report on Form 10-K/A for December 31, 2003. The outlook for DETM was changed from Negative Outlook to Stable on July 9, 2004. The following table summarizes the August 1, 2004 credit ratings from the agencies retained by Duke Energy to rate its securities, its principal funding subsidiaries and its trading and marketing subsidiary DETM.

Credit Ratings Summary as of August 1, 2004

	Standard and Poor’s	Moody’s Investor Service	Dominion Bond Rating Service
Duke Energy a	BBB	Baa1	Not applicable
Duke Capital LLC a	BBB-	Baa3	Not applicable
Duke Energy Field Services a	BBB	Baa2	Not applicable
Texas Eastern Transmission, LP a	BBB	Baa2	Not applicable
Westcoast Energy Inc. a	BBB	Not applicable	A(low)
Union Gas Limited a	BBB	Not applicable	A
Maritimes & Northeast Pipeline, LLC b	A	A1	A
Maritimes & Northeast Pipeline, LP b	A	A1	A
Duke Energy Trading and Marketing, LLC c	BBB-	Not applicable	Not applicable

^a Represents senior unsecured credit rating

^b Represents senior secured credit rating

^c Represents corporate credit rating

Duke Energy’s credit ratings are dependent on, among other factors, the ability to generate sufficient cash to fund capital and investment expenditures and dividends, while strengthening the balance sheet through debt reductions. If, as a result of market conditions or other factors, Duke Energy is unable to execute its business plan, or if its earnings outlook materially deteriorates, Duke Energy’s ratings could be further affected.

Duke Energy and its subsidiaries are required to post collateral under trading and marketing and other contracts. Typically, the amount of the collateral is dependent upon Duke Energy’s economic position at points in time during the life of a contract and the credit rating of the subsidiary (or its guarantor, if applicable) obligated under the collateral agreement. Business activity by DENA generates the majority of Duke Energy’s collateral requirements. DENA transacts business through DETM or Duke Energy Marketing America, a wholly owned subsidiary of Duke Capital.

A reduction in the credit rating of Duke Capital to below investment grade as of June 30, 2004 would have resulted in Duke Capital posting additional collateral of up to approximately $360 million, compared to $510 million as of December 31, 2003. The other potential collateral posting requirements as disclosed in “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Liquidity and Capital Resources” in Duke Energy’s Annual Report on Form 10-K/A for December 31, 2003 – Financing Cash Flows and Liquidity have not materially changed as of June 30, 2004. As a result, the total potential collateral requirement, including additional collateral, cash segregation and settlement payments, has declined since December 31, 2003.

Other Financing Matters. As of June 30, 2004, Duke Energy and its subsidiaries had effective SEC shelf registrations for up to $2,450 million in gross proceeds from debt and other securities. This represents an increase of approximately $500 million as compared to December 31, 2003, providing future funding flexibility. Not included in this total is $750 million in shelf capacity reserved for the remarketing of the Duke Capital 4.32% senior notes, due 2006, underlying the Duke Energy 8% Equity Units, Series B. Additionally, as of June 30, 2004, Duke Energy had access to 900 million Canadian dollars (U.S. $669 million) available under the Canadian shelf registrations for issuances in the Canadian market. A shelf registration is effective in Canada for a 25-month period. Of the total amount available under Canadian shelf registrations, 500 million Canadian dollars will expire in November 2005 and 400 million Canadian dollars will expire in July 2006.

59

Duke Energy’s InvestorDirect Choice Plan allows investors to reinvest dividends in common stock and to purchase common stock directly from Duke Energy. Duke Energy also sponsors employee savings plans that cover substantially all employees. To better manage cash flows, financing activities and reduce the growth in the number of shares outstanding, Duke Energy began satisfying its share requirements for these plans through the purchase of shares in the open market during the second quarter of 2004. Additionally, Duke Energy will continue to issue authorized but previously unissued shares of its common stock to meet its other employee benefit requirements.

Contractual Obligations and Commercial Commitments

Duke Energy enters into contracts that require cash payment at specified periods, based on specified minimum quantities and prices. For an in-depth discussion of Duke Energy’s contractual obligations and commercial commitments, see “Contractual Obligations and Commercial Commitments” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in Duke Energy’s Annual Report on Form 10-K/A for December 31, 2003 and in Duke Energy’s Quarterly Report on Form 10-Q/A for March 31, 2004.

CURRENT ISSUES

For information on current issues related to Duke Energy, see the following Notes to the Consolidated Financial Statements: Note 12, Regulatory Matters, and Note 13, Commitments and Contingencies.

New Accounting Standards

The following new accounting standard has been issued, but has not yet been fully adopted by Duke Energy as of June 30, 2004:

Revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” In December 2003, the FASB revised the provisions of SFAS No. 132 to include additional disclosures related to defined-benefit pension plans and other defined-benefit post-retirement plans, such as the following:

• The long-term rate of return on plan assets, along with a narrative discussion on the basis for selecting the rate of return used

• Information about plan assets for each major asset category (i.e. equity securities, debt securities, real estate, etc.) along with the targeted allocation percentage of plan assets for each category and the actual allocation percentages at the measurement date

• The amount of benefit payments expected to be paid in each of the next five years and the following five-year period in the aggregate

• The current best estimate of the range of contributions expected to be made in the following year

• The accumulated benefit obligation for defined-benefit pension plans

• Disclosure of the measurement date utilized.

Additionally, interim reports require additional disclosures related to the components of net periodic pension costs and the amounts paid or expected to be paid to the plan in the current fiscal year, if materially different than amounts previously disclosed. The provisions of revised SFAS No. 132 do not change the measurement or recognition provisions of defined-benefit pension and post-retirement plans as required by previous accounting standards. The provisions of revised SFAS No. 132 were applied by Duke Energy effective December 31, 2003 with the interim period disclosures applied for the quarter ended June 30, 2004, except for the disclosure provisions of estimated future benefit payments which will be effective for Duke Energy for the year ending December 31, 2004.

60

Subsequent Events

On July 2, 2004, Duke Energy realigned certain subsidiaries resulting in all of its wholly owed merchant generation facilities being owned by a newly created entity, Duke Energy Americas, LLC (DEA), a directly wholly owned subsidiary of Duke Capital. DEA and Duke Capital are pass-through entities for U.S. income tax purposes. As a result of these changes, Duke Capital will recognize a federal and state tax expense of approximately $900 million in the third quarter of 2004 from the elimination of the deferred tax assets that existed on its balance sheet prior to the July 2, 2004 reorganization. Correspondingly, Duke Energy, the parent of Duke Capital, will reflect, through consolidation, the elimination of the $900 million deferred tax asset at Duke Capital and the creation of a deferred tax asset of approximately $900 million on its balance sheet. Duke Energy will additionally recognize an approximate $45 million income tax benefit and corresponding deferred tax asset as a result of restating its deferred taxes to reflect a change in state tax rates. In future periods, as these deferred tax assets are converted into cash due to the realization of certain tax losses, Duke Energy intends to infuse the related cash flows back into Duke Capital. Most of these cash benefits result from tax losses arising from the sales of DENA’s southeastern U.S. generation assets and the Moapa facility.

In July 2004, Duke Energy reached an agreement in principle to settle the Federal Energy Regulatory Commission refund proceedings and other significant litigation related to the western energy markets during 2000-2001. For information related to this agreement, see Note 13 to the Consolidated Financial Statements.

As disclosed in Note 8 to the Consolidated Financial Statements, Assets Held for Sale and Discontinued Operations, in Duke Energy’s Quarterly Report on Form 10-Q/A for March 31, 2004, on May 4, 2004 Duke Energy announced the sale of its merchant generation business in the southeastern United States to KGen Partners LLC (KGen). The sale transaction has obtained all required regulatory approvals and consents and closed on August 5, 2004. This transaction resulted in a cumulative pre-tax loss of approximately $367 million, of which approximately $360 million was recognized in the first quarter of 2004 to reduce the carrying value of those assets to their estimated fair values, while the remaining amount of the loss will be recognized by Duke Energy in the third quarter of 2004. Subsequent to the closing of the transaction, DENA will continue to provide certain transitional services and operating and maintenance services for the sold assets, including potential exercise of limited plant dispatch rights for a period not to exceed six months form the date of August 5, 2004. DENA anticipates recognizing the sale transaction in the third quarter of 2004, pending resolution of certain continuing involvement provisions.

In conjunction with the sale of DENA’s southeastern assets to KGen, Duke Energy arranged a letter of credit with a face amount of $120 million in favor of Georgia Power Company, to secure obligations of a KGen subsidiary under a seven-year power sales agreement, commencing in May 2005, under which KGen will provide power from its Murray facility to Georgia Power. Duke Energy is the primary obligor to the letter of credit provider, but KGen has an obligation to reimburse Duke Energy for any payments made by it under the letter of credit, as well as expenses incurred by Duke Energy in connection with the letter of credit. Duke Energy will operate the Murray facility under an operation and maintenance agreement with a KGen subsidiary.

For information on subsequent events related to debt and credit facilities, see Note 5 to the Consolidated Financial Statements.

61

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K/A for December 31, 2003.

Commodity Price Risk

Normal Purchases and Normal Sales. The unrealized loss associated with power forward sales contracts designated under the normal purchases and normal sales exemption was approximately $915 million as of June 30, 2004 and $700 million as of December 31, 2003. This unrealized loss represents the difference between the normal purchases and normal sales contract prices and the forward market prices of power and is partially offset by unrealized gains on natural gas positions of approximately $605 million as of June 30, 2004 and $400 million as December 31, 2003, which are recorded on the Consolidated Balance Sheets in Unrealized Gains and Losses on Mark-to-Market and Hedging Transactions. Duke Energy intends to fulfill those contractual obligations with production from its power generation fleet and, assuming that occurs, the above unrealized gains and losses would not be recognized in DENA’s EBIT.

Trading and Undesignated Contracts. The risk in the mark-to-market (MTM) portfolio is measured and monitored on a daily basis using a value-at-risk model to determine the potential one-day favorable or unfavorable daily earnings at risk (DER) as described below. DER is monitored daily in comparison to established thresholds. Other measures, including limits on the nominal size of positions, are also used to limit and monitor risk in the trading portfolio on monthly and annual bases.

DER computations are based on historical simulation. Duke uses price movements over the most recent 11-day period, which it considers the most relevant predictor of immediate future market movements for natural gas, electricity and other energy-related products. DER computations use several key assumptions, including a 95% confidence level for price movements and a one-day holding period specified for the calculation. Duke Energy’s DER amounts for commodity derivatives recorded using the MTM accounting method are shown in the following table.

Daily Earnings at Risk (in millions)

	June 30, 2004 One-Day Impact on Operating Income for 2004 a		Estimated Average One- Day Impact on Operating Income for 2nd Quarter 2004 a		Estimated Average One- Day Impact on Operating Income for the Year 2003 a		High One-Day Impact on Operating Income for 2nd Quarter 2004 a		Low One-Day Impact on Operating Income for 2nd Quarter 2004 a
Calculated DER	$	12	$	16	$	8	$	30	$	8

^a DER measures the MTM portfolio’s impact on earnings. While this calculation includes both trading and undesignated contracts, the trading portion, as defined by EITF Issue No. 02-03.

Equity Price Risk

As mentioned in the investing cash flows section of liquidity and capital resources, Duke Energy contributed cash of $262 million in the second quarter of 2004 to a trust fund for some nuclear decommissioning costs. The entire trust invests funds primarily in equity securities, fixed-rate and fixed-income securities, and cash and cash equivalents. Therefore, the contribution will be exposed to price fluctuations in equity markets and changes in interest rates.

62

Item 4. Controls and Procedures.

Duke Energy’s management, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of Duke Energy’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) (Disclosure Controls Evaluation) and concluded that, as of the end of the period covered by this report, the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. The required information was effectively recorded, processed, summarized and reported within the time period necessary to prepare this quarterly report. Duke Energy’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in Duke Energy’s reports under the Exchange Act are accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As disclosed in Duke Energy’s 2003 Annual Report on Form 10-K/A, Duke Energy’s independent registered public accounting firm, Deloitte & Touche LLP (Deloitte), noted certain matters involving Duke Energy’s internal controls that it considered to be a reportable condition under the standards established by the Public Company Accounting Oversight Board (United States). The reportable condition was not considered by Deloitte to be a material weakness under the applicable auditing standards and had no material affect on Duke Energy’s financial statements. Management continues to implement procedures and controls to address the identified conditions and enhance the reliability of Duke Energy’s internal control procedures.

Management has concluded that the Disclosure Controls Evaluation identified no changes in Duke Energy’s internal control over financial reporting that occurred during the second quarter of 2004 that have materially affected, or are reasonably likely to materially affect, Duke Energy’s internal control over financial reporting.

As disclosed in the Notes to the Consolidated Financial Statements in Duke Energy’s 2003 Annual Report on Form 10-K/A and March 31, 2004 Quarterly Report on Form 10-Q/A, in 2004 Duke Energy elected to change its business segments to present Crescent Resources, LLC as a separate segment. In connection with this change, management determined that revisions were required to the presentation of the Consolidated Statements of Cash Flows, Statements of Operations and Balance Sheets related to its real estate activities. Management evaluated such revision and determined that while this represents a significant deficiency, it is not a material weakness and that its disclosure controls are effective.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For additional information concerning litigation and other contingencies, see Note 13 to the Consolidated Financial Statements, “Commitments and Contingencies;” and Item 3, “Legal Proceedings,” and Note 17 to the Consolidated Financial Statements, “Commitments and Contingencies,” in Duke Energy’s Annual Report on Form 10-K/A for December 31, 2003, which are incorporated herein by reference.

63

Item 2. Changes in Securities and Use of Proceeds.

Issuer Purchases of Equity Securities for Second Quarter of 2004

Period	Total Number of Shares (or Units) Purchaseda	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs b	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under Plans or Programs b
April 1 to April 30	240,365	$	21.36	—	—
May 1 to May 31	210,557	$	19.80	—	—
June 1 to June 30	205,807	$	20.01	—	—

^a Shares purchased to satisfy company matching obligations for participants in the Duke Energy Retirement Savings Plan.

^b As of June 30, 2004, Duke Energy does not have any publicly announced plans or programs to purchase shares of its common stock.

Item 4. Submission of Matters to a Vote of Security Holders.

At the Duke Energy Corporation Annual Meeting of Shareholders held on May 13, 2004, the shareholders elected Paul M. Anderson, Ann M. Gray, Michael E. J. Phelps and James T. Rhodes to serve as Class I directors with terms expiring in 2007. Below is a tabulation of votes with respect to each nominee for director at the meeting:

Nominee	For	Against/Withheld
Paul M. Anderson	821,008,392	20,346,358
Ann M. Gray	790,254,347	51,100,404
Michael E. J. Phelps	693,080,956	148,273,795
James T. Rhodes	792,298,687	49,056,064

Class II directors whose terms continued after the meeting are G. Alex Bernhardt, Sr., A. Max Lennon, and Leo E. Linbeck, Jr. Class III directors whose terms continued after the meeting are Robert J. Brown, William T. Esrey, George Dean Johnson, Jr., and James G. Martin.

The following paragraphs provide voting results for the other two matters submitted to a shareholder vote at the annual meeting:

With respect to the proposal to ratify the selection of Deloitte & Touche LLP to act as independent auditors to make examination of Duke Energy’s accounts for the year 2004, 821,278,307 shares voted for the proposal, 13,383,214 shares voted against the proposal and 6,693,227 shares abstained.

With respect to the shareholder proposal relating to declassification of Duke Energy’s Board of Directors, 414,747,106 shares voted for the proposal, 248,561,503 shares voted against the proposal and 15,434,870 shares abstained. Duke Energy’s senior management has committed to working with the Board of Directors to take steps necessary to eliminate the classified board structure and move toward annual elections of the entire board.

64

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibits filed herewith are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**).

Exhibit Number
*10-1	$600,000,000 364-Day Credit Agreement dated as of June 30, 2004, among Duke Capital LLC, the Banks listed therein and JPMorgan Chase Bank, as Administrative Agent.
*10-2	$600,000,000 Three-Year Credit Agreement dated as of June 30, 2004, among Duke Capital LLC, the Banks listed therein and JPMorgan Chase Bank, as Administrative Agent.
*10-3	$500,000,000 Three-Year Credit Agreement dated as of June 30, 2004, among Duke Energy Corporation, the Banks listed therein and Citicorp USA Inc,, as Administrative Agent.
*31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the Securities and Exchange Commission, to furnish copies of any or all of such instruments to it.

(b) Reports on Form 8-K

A Current Report on Form 8-K furnished on May 4, 2004 contained disclosures under Item 7, “Financial Statements and Exhibits,” and Item 12, “Results of Operations and Financial Condition.”

A Current Report on Form 8-K furnished on April 29, 2004 contained disclosures under Item 7, “Financial Statements and Exhibits,” and Item 12, “Results of Operations and Financial Condition.”

65

SIGNATURES

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

	DUKE ENERGY CORPORATION
Date: August 9, 2004	/s/ David L. Hauser
	David L. Hauser
	Group Vice President and Chief Financial Officer
Date: August 9, 2004	/s/ Keith G. Butler
	Keith G. Butler
	Vice President and Controller

66

EX-10.1

EXHIBIT 10-1

$600,000,000

364-DAY

CREDIT AGREEMENT

dated as of

June 30, 2004

among

Duke Capital LLC,

The Banks Listed Herein,

JPMorgan Chase Bank,

as Administrative Agent

and

Wachovia Bank, National Association,

as Syndication Agent

J.P. Morgan Securities Inc. and

Wachovia Capital Markets, LLC

Joint Lead Arrangers and

Joint Bookrunners

ABN Amro Bank, N.V.,

Barclays Bank PLC and

Citicorp USA, Inc.

Documentation Agents

TABLE OF CONTENTS

		PAGE
	ARTICLE 1
	DEFINITIONS
Section 1.01.	Definitions	1
Section 1.02.	Accounting Terms and Determinations	11
Section 1.03.	Types of Borrowings	11
	ARTICLE 2
	THE CREDITS
Section 2.01.	Commitments to Lend	12
Section 2.02.	Notice of Borrowings	13
Section 2.03.	Notice to Banks; Funding of Loans	13
Section 2.04.	Registry; Notes	14
Section 2.05.	Maturity of Loans; Effect of Cash Collateralization of Letters of Credit	15
Section 2.06.	Interest Rates	15
Section 2.07.	Fees	17
Section 2.08.	Optional Termination Or Reduction Of Commitments	17
Section 2.09.	Method of Electing Interest Rates	17
Section 2.10.	Mandatory Termination of Commitments	19
Section 2.11.	Optional Prepayments	19
Section 2.12.	General Provisions as to Payments	19
Section 2.13.	Funding Losses	20
Section 2.14.	Computation of Interest and Fees	20
Section 2.15.	Letters Of Credit	21
Section 2.16.	Regulation D Compensation	25
	ARTICLE 3
	CONDITIONS
Section 3.01.	Effectiveness	26
Section 3.02.	Borrowings and Issuance of Letters of Credit	27
	ARTICLE 4
	REPRESENTATIONS AND WARRANTIES
Section 4.01.	Organization and Power	27
Section 4.02.	Company and Governmental Authorization; No Contravention	28
Section 4.03.	Binding Effect	28
Section 4.04.	Financial Information	28
Section 4.05.	Regulation U	29

Section 4.06.	Litigation	29
Section 4.07.	Compliance with Laws	29
Section 4.08.	Taxes	29
Section 4.09.	Public Utility Holding Company Act	30
	ARTICLE 5
	COVENANTS
Section 5.01.	Information	30
Section 5.02.	Payment of Taxes	32
Section 5.03.	Maintenance of Property; Insurance	32
Section 5.04.	Maintenance of Existence	32
Section 5.05.	Compliance with Laws	33
Section 5.06.	Books and Records	33
Section 5.07.	Maintenance of Ownership of Principal Subsidiaries	33
Section 5.08.	Negative Pledge	33
Section 5.09.	Consolidations, Mergers and Sales of Assets	35
Section 5.10.	Use of Proceeds	35
Section 5.11.	Transactions with Affiliates	35
Section 5.12.	Indebtedness/Capitalization Ratio	36
Section 5.13.	Interest Coverage Ratio	36
	ARTICLE 6
	DEFAULTS
Section 6.01.	Events of Default	36
Section 6.02.	Notice of Default	38
Section 6.03.	Cash Cover	38
	ARTICLE 7
	THE ADMINISTRATIVE AGENT
Section 7.01.	Appointment and Authorization	39
Section 7.02.	Administrative Agent and Affiliates	39
Section 7.03.	Action by Administrative Agent	39
Section 7.04.	Consultation with Experts	39
Section 7.05.	Liability of Administrative Agent	39
Section 7.06.	Indemnification	40
Section 7.07.	Credit Decision	40
Section 7.08.	Successor Administrative Agent	40
Section 7.09.	Administrative Agent’s Fee	41
Section 7.10.	Other Agents	41

ii

	ARTICLE 8
	CHANGE IN CIRCUMSTANCES
Section 8.01.	Basis for Determining Interest Rate Inadequate or Unfair	41
Section 8.02.	Illegality	42
Section 8.03.	Increased Cost and Reduced Return	42
Section 8.04.	Taxes	44
Section 8.05.	Base Rate Loans Substituted for Affected Euro-Dollar Loans	46
Section 8.06.	Substitution of Bank; Termination Option	47
	ARTICLE 9
	MISCELLANEOUS
Section 9.01.	Notices	48
Section 9.02.	No Waivers	48
Section 9.03.	Expenses; Indemnification	48
Section 9.04.	Sharing of Set-offs	49
Section 9.05.	Amendments and Waivers	49
Section 9.06.	Successors and Assigns	49
Section 9.07.	Collateral	51
Section 9.08.	Confidentiality	51
Section 9.09.	Governing Law; Submission to Jurisdiction	52
Section 9.10.	Counterparts; Integration	52
Section 9.11.	WAIVER OF JURY TRIAL	52
Section 9.12.	USA Patriot Act	52

PRICING SCHEDULE

SCHEDULE I -	Duke Capital LLC Credit Facilities (Being Replaced by this Agreement and the Related Agreement)
SCHEDULE 1.01 -	Existing Letters of Credit
EXHIBIT A -	Note
EXHIBIT B-1 -	Opinion of Associate General Counsel of the Borrower
EXHIBIT B-2 -	Opinion of Special Counsel for the Borrower
EXHIBIT C -	Opinion of Davis Polk & Wardwell, Special Counsel for the Agents
EXHIBIT D -	Assignment and Assumption Agreement
EXHIBIT E -	Extension Agreement
EXHIBIT F -	Notice of Issuance
EXHIBIT G -	Approved Form of Letter of Credit

iii

364-DAY

CREDIT AGREEMENT

364-DAY CREDIT AGREEMENT dated as of June 30, 2004 among DUKE CAPITAL LLC, the BANKS listed on the signature pages hereof, JPMORGAN CHASE BANK, as Administrative Agent, and WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent.

The parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions. The following terms, as used herein, have the following meanings:

“Additional Bank” means any financial institution that becomes a Bank for purposes hereof in connection with the replacement of a Bank pursuant to Section 8.06.

“Administrative Agent” means JPMorgan Chase Bank in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity.

“Administrative Questionnaire” means, with respect to each Bank, the administrative questionnaire in the form submitted to such Bank by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank.

“Affiliate” means, as to any Person (the “specified Person”) (i) any Person that directly, or indirectly through one or more intermediaries, controls the specified Person (a “Controlling Person”) or (ii) any Person (other than the specified Person or a Subsidiary of the specified Person) which is controlled by or is under common control with a Controlling Person. As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless otherwise specified, “Affiliate” means an Affiliate of the Borrower.

“Agent” means any of the Administrative Agent, the Syndication Agent or the Documentation Agents.

“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.

“Approved Fund” means any Fund that is administered or managed by (i) a Bank, (ii) an Affiliate of a Bank or (iii) an entity or an Affiliate of an entity that administers or manages a Bank.

“Approved Officer” means the president, a vice president, the treasurer, an assistant treasurer or the controller of the Borrower or such other representative of the Borrower as may be designated by any one of the foregoing with the consent of the Administrative Agent.

“Assignee” has the meaning set forth in Section 9.06(c).

“Bank” means each bank or other financial institution listed on the signature pages hereof, each Additional Bank, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. Each reference herein to a “Bank” shall, unless the context otherwise requires, include each Issuing Bank in such capacity.

“Base Rate” means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day.

“Base Rate Loan” means (i) a Loan which bears interest at the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue.

“Borrower” means Duke Capital LLC, a Delaware limited liability company, and its successors.

“Borrowing” has the meaning set forth in Section 1.03.

“Commitment” means (i) with respect to each Bank listed on the signature pages hereof (other than Bank One, NA, which is acting only as an Issuing Bank and shall have no Commitment hereunder), the amount set forth opposite the name of such Bank on the signature pages hereof, and (ii) with respect to each Additional Bank or Assignee which becomes a bank pursuant to Sections 8.06 and 9.06(c), the amount of the Commitment thereby assumed by it, in each case as such amount may from time to time be reduced pursuant to Section 2.08, 2.10, 8.06 or 9.06(c) or increased pursuant to Section 8.06 or 9.06(c).

“Commitment Termination Date” means, for each Bank, June 29, 2005, as such date may be extended from time to time with respect to such Bank pursuant to Section 2.01(c) or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

2

“Consolidated Capitalization” means the sum of (i) Consolidated Indebtedness, (ii) consolidated members’ equity as would appear on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles, (iii) the aggregate liquidation preference of preferred member or other similar preferred or priority equity interests (other than preferred member or other similar preferred or priority equity interests subject to mandatory redemption or repurchase) of the Borrower and its Consolidated Subsidiaries upon involuntary liquidation, (iv) the aggregate outstanding amount of all Equity Preferred Securities and (v) minority interests as would appear on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles.

“Consolidated EBITDA” means, for any period, with respect to the Borrower and its Consolidated Subsidiaries, an amount equal to Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) taxes based on or measured by income, (ii) Interest Expense, (iii) depreciation and amortization expense, (iv) non-cash losses resulting from asset or goodwill impairment and (v) non-cash losses resulting from asset sales.

“Consolidated Indebtedness” means, at any date, all Indebtedness of Borrower and its Consolidated Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles.

“Consolidated Interest Coverage Ratio” means the ratio of (i) Consolidated EBITDA for each period of four consecutive fiscal quarters, commencing with the four quarters ending March 31, 2004, to (ii) Interest Expense for such period.

“Consolidated Net Income” means, for any period, the net income of the Borrower and its Consolidated Subsidiaries for such period determined in accordance with generally accepted accounting principles; provided, however, Consolidated Net Income shall not include (i) extraordinary gains or extraordinary losses, (ii) the cumulative effect of a change in accounting principles and (iii) any unrealized net margin recognized in operating income, all as reported in the Borrower’s consolidated statement(s) of income for the relevant period(s) prepared in accordance with generally accepted accounting principles.

“Consolidated Subsidiary” means, for any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date; unless otherwise specified “Consolidated Subsidiary” means a Consolidated Subsidiary of the Borrower.

3

“Continuing LC Issuer” means each Issuing Bank, other than Bank One, NA.

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“Documentation Agent” means each of ABN Amro Bank, N.V., Barclays Bank PLC and Citicorp USA, Inc., in its capacity as a documentation agent in connection with the credit facility provided under this Agreement.

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York City or, with respect to any Letter of Credit issued or to be issued in the State of North Carolina, in the State of North Carolina are authorized by law to close.

“Domestic Lending Office” means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent.

“Effective Date” means the date this Agreement becomes effective in accordance with Section 3.01.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

“Equity Preferred Securities” means any securities, however denominated, (i) issued by the Borrower or any Consolidated Subsidiary of the Borrower, (ii) that are not subject to mandatory redemption or the underlying securities, if any, of which are not subject to mandatory redemption, (iii) that are perpetual or mature no less than 20 years from the date of issuance, (iv) the indebtedness issued in connection with which, including any guaranty, is subordinated in right of payment to the unsecured and unsubordinated indebtedness of the issuer of such indebtedness or guaranty and (v) the terms of which permit the deferral of interest or distributions thereon to date occurring

4

after the first anniversary of the later of (A) the Commitment Termination Date and (B) the “Commitment Termination Date” under the Related Agreement.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

“Euro-Dollar Business Day” means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London.

“Euro-Dollar Lending Office” means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

“Euro-Dollar Loan” means (i) a Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue.

“Euro-Dollar Margin” means the applicable rate per annum determined in accordance with the Pricing Schedule.

“Euro-Dollar Rate” means a rate of interest determined pursuant to Section 2.06(b) on the basis of a London Interbank Offered Rate.

“Euro-Dollar Reference Banks” means the principal London offices of JPMorgan Chase Bank and Wachovia Bank, National Association.

“Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.16.

“Event of Default” has the meaning set forth in Section 6.01.

“Existing Credit Agreements” means the credit facilities identified in Schedule I hereto, as amended and in effect on the Effective Date.

“Existing LC Issuers” means Bank One, NA, Wachovia Bank, National Association and JPMorgan Chase Bank, provided that Bank One, NA shall not be

5

deemed an Existing LC Issuer upon the expiration, termination or cancellation of all the Existing Letters of Credit issued by Bank One, NA.

“Existing Letters of Credit” means the letters of credit issued by the Existing LC Issuers before the date hereof and listed on Schedule 1.01 attached hereto.

“Facility Fee Rate” has the meaning set forth in the Pricing Schedule.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to JPMorgan Chase Bank (or its successor as Administrative Agent) on such day on such transactions as determined by the Administrative Agent.

“Final Maturity Date” means, for each Bank, the first anniversary of its Commitment Termination Date or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“Group of Loans” means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been if it had not been so converted or made.

“Indebtedness” of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all indebtedness of such Person for the deferred purchase price of property or services purchased (excluding current accounts payable incurred in the ordinary course of business), (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired, (iv) all indebtedness under leases which shall have been or should be, in accordance with generally accepted

6

accounting principles, recorded as capital leases in respect of which such Person is liable as lessee, (v) the face amount of all outstanding letters of credit issued for the account of such Person (other than letters of credit relating to indebtedness included in Indebtedness of such Person pursuant to another clause of this definition) and, without duplication, the unreimbursed amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on property or assets of such Person, whether or not assumed (but in any event not exceeding the fair market value of the property or asset), (vii) all direct guarantees of Indebtedness referred to above of another Person, (viii) all amounts payable in connection with mandatory redemptions or repurchases of preferred stock or member interests or other preferred or priority equity interests and (ix) any obligations of such Person (in the nature of principal or interest) in respect of acceptances or similar obligations issued or created for the account of such Person.

“Interest Expense” means interest expense as would appear on a consolidated statement of income of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles.

“Interest Period” means, with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six, or, if deposits of a corresponding maturity are generally available in the London interbank market, nine or twelve, months thereafter, as the Borrower may elect in such notice; provided that:

(a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and

(b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month;

provided further that: (x) no Interest Period applicable to any Loan of any Bank which begins before such Bank’s Commitment Termination Date may end after such Bank’s Commitment Termination Date; and (y) no Interest Period applicable to any Loan of any Bank may end after such Bank’s Final Maturity Date.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor statute.

7

“Investment Grade Status” exists as to any Person at any date if all senior long-term unsecured debt securities of such Person outstanding at such date which had been rated by S&P or Moody’s are rated BBB- or higher by S&P or Baa3 or higher by Moody’s, as the case may be.

“Issuing Bank” means (i) each Existing LC Issuer and (ii) any other Bank that may agree to issue letters of credit hereunder, in each case as issuer of a Letter of Credit hereunder.

“Letter of Credit” means a letter of credit issued or to be issued hereunder by the Issuing Bank in accordance with Section 2.15 and each Existing Letter of Credit.

“Letter of Credit Liabilities” means, for any Bank and at any time, such Bank’s ratable participation in the sum of (x) the amounts then owing by the Borrower in respect of amounts drawn under Letters of Credit and (y) the aggregate amount then available for drawing under all Letters of Credit.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan” means a Loan made by a Bank pursuant to Section 2.01(a) or 2.01(b); provided that, if any loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“London Interbank Offered Rate” has the meaning set forth in Section 2.06(b).

“Material Debt” means Indebtedness of the Borrower or any of its Material Subsidiaries in an aggregate principal amount exceeding $150,000,000.

“Material Plan” has the meaning set forth in Section 6.01(i).

“Material Subsidiary” means at any time any Subsidiary of the Borrower that is a “significant subsidiary” (as such term is defined on the Effective Date in Regulation S-X of the Securities and Exchange Commission (17 CFR 210.1-02(w)), but treating all references therein to the “registrant” as references to the

8

Borrower); provided, however, in no event shall Duke Energy Field Services, LLC be deemed a Material Subsidiary.

“Moody’s” means Moody’s Investors Service, Inc.

“Notes” means promissory notes of the Borrower, in the form required by Section 2.04, evidencing the obligation of the Borrower to repay the Loans, and “Note” means any one of such promissory notes issued hereunder.

“Notice of Borrowing” has the meaning set forth in Section 2.02.

“Notice of Interest Rate Election” has the meaning set forth in Section 2.09(b).

“Notice of Issuance” has the meaning set forth in Section 2.15(c).

“Parent” means, with respect to any Bank, any Person controlling such Bank.

“Participant” has the meaning set forth in Section 9.06(b).

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Plan” means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and is either (i) maintained by a member of the ERISA Group for employees of a member of the ERISA Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.

“Pricing Schedule” means the Pricing Schedule attached hereto.

“Prime Rate” means the rate of interest publicly announced by JPMorgan Chase Bank in New York City from time to time as its Prime Rate. Each change in the Prime Rate shall be effective from and including the day such change is publicly announced.

9

“Principal Subsidiary” means each of Texas Eastern Transmission Limited Partnership, Algonquin Gas Transmission Company, PanEnergy Corp, Westcoast Energy Inc. and their respective successors.

“Quarterly Payment Date” means the first Domestic Business Day of each January, April, July and October.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Reimbursement Obligations” means, at any time, the aggregate of all obligations of the Borrower then outstanding under Section 2.15 to reimburse the Issuing Banks for amounts paid by the Issuing Banks in respect of any one or more drawings under Letters of Credit.

“Related Agreement” means the Three-Year Credit Agreement dated as of the date hereof among the Borrower, the banks and other financial institutions and Agents from time to time parties thereto, as amended and in effect from time to time.

“Required Banks” means at any time Banks (i) having at least 51% of the sum of the aggregate amount of the Commitments or (ii) if all the Commitments shall have been terminated, holding at least 51% of the sum of the aggregate unpaid principal amount of the Loans and the aggregate Letter of Credit Liabilities.

“Revolving Credit Loan” means a loan made or to be made by a Bank pursuant to Section 2.01(a); provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Revolving Credit Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Revolving Credit Period” means, with respect to any Bank, the period from and including the Effective Date to but not including its Commitment Termination Date.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc.

“Subsidiary” means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, “Subsidiary” means a Subsidiary of the Borrower.

10

“Substantial Assets” means assets sold or otherwise disposed of in a single transaction or a series of related transactions representing 25% or more of the consolidated assets of the Borrower and its Consolidated Subsidiaries, taken as a whole.

“Syndication Agent” means Wachovia Bank, National Association, in its capacity as syndication agent for the Banks hereunder, and its successors in such capacity.

“Term Loan” means a loan made or to be made by a Bank pursuant to Section 2.01(b); provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Term Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“United States” means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

“Unfunded Vested Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.

“Utilization” has the meaning set forth in the Pricing Schedule.

Section 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower’s independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks.

Section 1.03. Types of Borrowings. The term “Borrowing” denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement by reference to the pricing of Loans comprising such Borrowing (e.g., a “Euro-Dollar Borrowing” is a Borrowing comprised of Euro Dollar Loans).

11

ARTICLE 2

THE CREDITS

Section 2.01. Commitments to Lend. (a) Revolving Credit Loans. During its Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this subsection from time to time in amounts such that the aggregate principal amount of Revolving Credit Loans by such Bank, together with its Letter of Credit Liabilities, at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this subsection shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments in effect on the date of Borrowing; provided that, if the Interest Period selected by the Borrower for a Borrowing would otherwise end after the Commitment Termination Dates of some but not all Banks, the Borrower may in its Notice of Borrowing elect not to borrow from those Banks whose Commitment Termination Dates fall prior to the end of such Interest Period. Within the foregoing limits, the Borrower may borrow under this subsection (a), or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Periods under this subsection (a).

(b) Term Loans. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a loan to the Borrower on its Commitment Termination Date in an amount such that the principal amount of the Term Loan by such Bank, together with its Letter of Credit Liabilities, shall not exceed its Commitment; provided that no Bank shall be obligated to make a loan pursuant to this subsection if any Commitment is extended on such date pursuant to Section 2.01(c). Each Borrowing under this Section 2.01(b) shall be made from the several Banks having the same Commitment Termination Date ratably in proportion to their respective Commitments.

(c) Extension of Commitments. The Borrower may, upon not less than 45 days but no earlier than 60 days notice prior to the then current Commitment Termination Dates to the Administrative Agent (which shall notify each Bank of receipt of such request), propose to extend the Commitment Termination Dates for an additional one-year period measured from the Commitment Termination Dates then in effect. Each Bank shall endeavor to respond to such request, whether affirmatively or negatively (such determination in the sole discretion of such Bank), by notice to the Borrower and the Administrative Agent not more than 45 days nor less than 28 days prior to such Bank’s Commitment Termination Date. Subject to the execution by the Borrower, the Administrative Agent and such Banks of a duly completed Extension Agreement in substantially the form of Exhibit E, the Commitment Termination Date applicable to the Commitment of each Bank so affirmatively notifying the Borrower and the Administrative Agent

12

shall be extended for the period specified above; provided that no Commitment Termination Date of any Bank shall be extended unless Banks having Commitments in an aggregate amount equal to at least the greater of (i) 66 2/3% in aggregate amount of the Commitments in effect at the time any such extension is requested and (ii) the sum of the aggregate principal amount of the Loans outstanding at such time plus the aggregate amount of the Letter of Credit Liabilities at such time, after giving effect to any repayment of Loans and/or termination of Letters of Credit on such date, shall have elected so to extend their Commitments. Any Bank which does not give such notice to the Borrower and the Administrative Agent shall be deemed to have elected not to extend as requested, and the Commitment of each non-extending Bank shall terminate on its Commitment Termination Date determined without giving effect to such requested extension. The Borrower may, in accordance with Section 8.06, designate another bank or other financial institution (which may be, but need not be, an extending Bank) to replace a non-extending Bank.

Section 2.02. Notice of Borrowings. The Borrower shall give the Administrative Agent notice (a “Notice of Borrowing”) not later than 11:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:

(a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing;

(b) the aggregate amount of such Borrowing;

(c) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate; and

(d) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Section 2.03. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b) Not later than 1:00 P.M. (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition

13

specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent’s aforesaid address.

(c) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank’s share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.03 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and, if such Bank shall not have made such payment within two Domestic Business Days of demand therefor, the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank’s Loan included in such Borrowing for purposes of this Agreement.

(d) The failure of any Bank to make the Loan to be made by it as part of any Borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make a Loan on the date of such Borrowing, but no Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank.

Section 2.04. Registry; Notes. (a) The Administrative Agent shall maintain a register (the “Register”) on which it will record the Commitment of each Bank, each Loan made by such Bank and each repayment of any Loan made by such Bank. Any such recordation by the Administrative Agent on the Register shall be conclusive, absent manifest error. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower’s obligations hereunder.

(b) The Borrower hereby agrees that, promptly upon the request of any Bank at any time, the Borrower shall deliver to such Bank a duly executed Note, in substantially the form of Exhibit A hereto, payable to the order of such Bank and representing the obligation of the Borrower to pay the unpaid principal amount of the Loans made to the Borrower by such Bank, with interest as provided herein on the unpaid principal amount from time to time outstanding.

14

(c) Each Bank shall record the date, amount and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and each Bank receiving a Note pursuant to this Section, if such Bank so elects in connection with any transfer or enforcement of its Note, may endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of such Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required.

Section 2.05. Maturity of Loans; Effect of Cash Collateralization of Letters of Credit. (a) Each Revolving Credit Loan made by any Bank shall mature, and the principal amount thereof shall be due and payable together with accrued interest thereon, on the Commitment Termination Date of such Bank.

(b) The Term Loan of each Bank shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Final Maturity Date.

(c) If any provision of any debt instrument or other agreement or instrument binding upon the Borrower, including without limitation this Agreement, would be contravened by any deposit required to cash collateralize any letter of credit obligations under any other debt instrument or other agreement or instrument, the Borrower shall either (x) obtain a waiver of such provision, (y) prepay the debt incurred under such debt instrument and terminate such debt instrument or (z) make other arrangements satisfactory to the Required Banks; it being understood and agreed that the risk of any such contravention shall be borne solely by the Borrower and not by the Banks and shall in no event constitute a defense available to the Borrower for nonperformance of its obligations hereunder.

Section 2.06. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Payment Date, at maturity and on the date of termination of the Commitments in their entirety. Any overdue principal of or overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.

(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such

15

day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.

The “London Interbank Offered Rate” applicable to any Interest Period means the rate appearing on Page 3750 of the Telerate Service Company (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of the Telerate Service, as may be nominated by the British Bankers’ Association for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) as of 11:00 A.M. (London time) two Euro-Dollar Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not so available at such time for any reason, then the “London Interbank Offered Rate” for such Interest Period shall be the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. If any Euro-Dollar Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation furnished by the remaining Euro-Dollar Reference Bank or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply.

(c) Any overdue principal of or overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 1% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan at the date such payment was due and (ii) the Base Rate for such day.

(d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks by telecopy, telex or cable of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error unless the Borrower raises an objection thereto within five Domestic Business Days after receipt of such notice.

16

Section 2.07. Fees. (a) Facility Fee. The Borrower shall pay to the Administrative Agent for the account of each Bank a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding such Bank’s Commitment Termination Date, on the daily average aggregate amount of such Bank’s Commitment (whether used or unused) and (ii) from and including such Bank’s Commitment Termination Date to but excluding the date such Bank’s Loans and Letter of Credit Liabilities shall be repaid in their entirety, on the daily average aggregate outstanding principal amount of such Bank’s Loans and Letter of Credit Liabilities.

(b) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent (i) for the account of the Banks ratably a letter of credit fee accruing daily on the aggregate amount then available for drawing under all outstanding Letters of Credit at a rate per annum equal to the then applicable Euro-Dollar Margin and (ii) for the account of each Issuing Bank a letter of credit fronting fee accruing daily on the aggregate amount then available for drawing under all Letters of Credit issued by such Issuing Bank at a rate per annum of 0.125% (or such other rate as may be mutually agreed from time to time by the Borrower and such Issuing Bank).

(c) Payments. Accrued fees under this Section for the account of any Bank shall be payable quarterly in arrears on each Quarterly Payment Date and (i) upon such Bank’s Commitment Termination Date and Final Maturity Date (and, if later, the date the Loans and Letter of Credit Liabilities of such Bank shall be repaid in their entirety) or (ii) in the case of accrued fees with respect to the Existing Letters of Credit issued by Bank One, NA, upon the expiration, termination or cancellation of the last of such Existing Letters of Credit.

Section 2.08. Optional Termination Or Reduction Of Commitments. The Borrower may, upon at least three Domestic Business Days’ notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans or Letter of Credit Liabilities are outstanding at such time, or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000 the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans and Letter of Credit Liabilities.

Section 2.09. Method of Electing Interest Rates. (a) The Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8 and the last sentence of this subsection (a)), as follows:

(i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and

17

(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.13 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans.

Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such notice applies, and the remaining portion to which it does not apply, are each $10,000,000 or any larger multiple of $1,000,000.

(b) Each Notice of Interest Rate Election shall specify:

(i) the Group of Loans (or portion thereof) to which such notice applies;

(ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection 2.09 (a) above;

(iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans being converted are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and

(iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of the term “Interest Period”.

(c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to subsection 2.09(a) above, the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be

18

revocable by the Borrower. If no Notice of Interest Rate Election is timely received prior to the end of an Interest Period for any Group of Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans as of the last day of such Interest Period.

(d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section shall not constitute a “Borrowing” subject to the provisions of Section 3.02.

Section 2.10. Mandatory Termination of Commitments. The Commitment of each Bank shall terminate on such Bank’s Commitment Termination Date, and any Revolving Credit Loans of such Bank then outstanding (together with accrued interest thereon) shall be due and payable on such date.

Section 2.11. Optional Prepayments. (a) The Borrower may (i) upon notice to the Administrative Agent not later than 11:00 A.M. (New York City time) on any Domestic Business Day prepay on such Domestic Business Day any Group of Base Rate Loans and (ii) upon at least three Euro-Dollar Business Days’ notice to the Administrative Agent not later than 11:00 A.M. (New York City time) prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment and together with any additional amounts payable pursuant to Section 2.13. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing.

(b) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower.

Section 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 1:00 P.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01 and without reduction by reason of any set-off, counterclaim or deduction of any kind. The Administrative Agent will promptly distribute to each Bank in like funds its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or Letter of Credit Liabilities or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which

19

is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.

Section 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is converted to a Base Rate Loan or continued as a Euro-Dollar Loan for a new Interest Period (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or if the Borrower fails to borrow, prepay, convert or continue any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.03(a), 2.09(c) or 2.11(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank shall have delivered to the Borrower a certificate setting forth in reasonable detail the calculation of the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.14. Computation of Interest and Fees. Interest based on the Base Rate and facility fees hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and Letter of Credit fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

20

Section 2.15. Letters Of Credit. (a) On the date hereof, without further action by any party hereto, each Existing LC Issuer shall be deemed to have granted to each Bank, and each Bank shall be deemed to have acquired from each Existing LC Issuer, a participation in each Existing Letter of Credit issued by such Existing LC Issuer, equal to such Bank’s proportionate share of the related Letter of Credit Liabilities. Such participations shall be on all the same terms and conditions as participations granted under this Section 2.15 in all the other Letters of Credit issued or to be issued hereunder.

(b) Subject to the terms and conditions hereof, each Continuing LC Issuer agrees to issue Letters of Credit hereunder from time to time before its Commitment Termination Date upon the request of the Borrower; provided that, immediately after each Letter of Credit is issued, the aggregate amount of the Letter of Credit Liabilities plus the aggregate outstanding amount of all Loans shall not exceed the aggregate amount of the Commitments. Upon the date of issuance by the Continuing LC Issuer of a Letter of Credit, the Continuing LC Issuer shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from the Continuing LC Issuer, a participation in such Letter of Credit and the related Letter of Credit Liabilities in the proportion its Commitment bears to the aggregate Commitments; provided that if the scheduled Commitment Termination Date of a Bank falls prior to the expiry date of a Letter of Credit then outstanding and the Commitments of the other Banks are extended on such date in accordance with Section 2.01(c), such Bank’s participation in such Letter of Credit shall terminate on its Commitment Termination Date, and the participations of the other Banks therein shall be redetermined pro rata in proportion to their Commitments after giving effect to the termination of the Commitment of such former Bank; and provided, further that, in the event that the Commitments of the other Banks are not extended in accordance with Section 2.01(c), then such Bank’s participation in all Letters of Credit shall remain at the level existing prior to the proposed extension, regardless of whether the expiry of any such Letters of Credit extends beyond such Bank’s Commitment Termination Date.

(c) The Borrower shall give the Continuing LC Issuer notice at least three Domestic Business Days prior to the requested issuance of a Letter of Credit, or, in the case of the Continuing LC Issuer’s Existing Letters of Credit (or Letters of Credit substantially in the form of the Continuing LC Issuer’s Existing Letters of Credit) or Letters of Credit substantially in the form of Exhibit G, at least one Business Day prior to the requested issuance of such Letter of Credit, specifying the date such Letter of Credit is to be issued and describing the terms of such Letter of Credit (such notice, including any such notice given in connection with the extension of a Letter of Credit, a “Notice of Issuance”), substantially in the form of Exhibit F, appropriately completed. Upon receipt of a Notice of Issuance, the Continuing LC Issuer shall promptly notify the

21

Administrative Agent, and the Administrative Agent shall promptly notify each Bank of the contents thereof and of the amount of such Bank’s participation in such Letter of Credit. The issuance by the Continuing LC Issuer of each Letter of Credit shall, in addition to the conditions precedent set forth in Article 3, be subject to the conditions precedent that such Letter of Credit shall be denominated in U.S. dollars and shall be in such form and contain such terms as shall be reasonably satisfactory to the Continuing LC Issuer. Unless otherwise notified by the Administrative Agent, the Continuing LC Issuer may, but shall not be required to, conclusively presume that all conditions precedent set forth in Article 3 have been satisfied. The Borrower shall also pay to each Issuing Bank for its own account issuance, drawing, amendment and extension charges in the amounts and at the times as agreed between the Borrower and such Issuing Bank. Except for non-substantive amendments to any Letter of Credit for the purpose of correcting errors or ambiguities or to allow for administrative convenience (which amendments each Issuing Bank may make in its discretion with the consent of the Borrower), the amendment, extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit. If any Letter of Credit contains a provision pursuant to which it is deemed to be automatically renewed unless notice of termination is given by the Issuing Bank of such Letter of Credit, the Issuing Bank shall timely give notice of termination if (i) as of close of business on the seventeenth day prior to the last day upon which the Issuing Bank’s notice of termination may be given to the beneficiaries of such Letter of Credit, the Issuing Bank has received a notice of termination from the Borrower or a notice from the Administrative Agent that the conditions to issuance of such Letter of Credit have not been satisfied, (ii) the renewed Letter of Credit would have a term not permitted by subsection (d) below or (iii) such Letter of Credit is an Existing Letter of Credit issued by Bank One, NA.

(d) No Letter of Credit shall have a term extending or extendible beyond the first anniversary of the Commitment Termination Date of the applicable Issuing Bank.

(e) Upon receipt from the beneficiary of any applicable Letter of Credit of any notice of a drawing under such Letter of Credit, the Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall promptly notify the Borrower and each other Bank as to the amount to be paid as a result of such demand or drawing and the payment date. The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit without presentment, demand, protest or other formalities of any kind. All such amounts paid by the Issuing Bank and remaining unpaid by the Borrower shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Base Rate for such day plus, if such amount remains unpaid for more than two Domestic Business Days, 1%. In addition, each Bank will pay to the Administrative Agent, for the account of the applicable Issuing Bank,

22

immediately upon such Issuing Bank’s demand at any time during the period commencing after such drawing until reimbursement therefor in full by the Borrower, an amount equal to such Bank’s ratable share of such drawing (in proportion to its participation therein), together with interest on such amount for each day from the date of the Issuing Bank’s demand for such payment (or, if such demand is made after 12:00 Noon (New York City time) on such date, from the next succeeding Domestic Business Day) to the date of payment by such Bank of such amount at a rate of interest per annum equal to the Federal Funds Rate and, if such amount remains unpaid for more than five Domestic Business Days after the Issuing Bank’s demand for such payment, at a rate of interest per annum equal to the Base Rate plus 1%. The Issuing Bank will pay to each Bank ratably all amounts received from the Borrower for application in payment of its reimbursement obligations in respect of any Letter of Credit, but only to the extent such Bank has made payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto.

(f) The obligations of the Borrower and each Bank under subsection 2.15(e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances:

(i) the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting);

(ii) the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), the Banks (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(iii) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

(iv) payment under a Letter of Credit to the beneficiary of such Letter of Credit against presentation to the Issuing Bank of a draft or certificate that does not comply with the terms of the Letter of Credit; provided that the determination by the Issuing Bank to make such payment shall not have been the result of its willful misconduct or gross negligence; or

23

(v) any other act or omission to act or delay of any kind by any Bank (including the Issuing Bank), the Administrative Agent or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (v), constitute a legal or equitable discharge of the Borrower’s or the Bank’s obligations hereunder.

(g) The Borrower hereby indemnifies and holds harmless each Bank (including the Issuing Bank) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Bank or the Administrative Agent may incur (including, without limitation, any claims, damages, losses, liabilities, costs or expenses which the Issuing Bank may incur by reason of or in connection with (i) the failure of any other Bank to fulfill or comply with its obligations to such Issuing Bank hereunder (but nothing herein contained shall affect any rights the Borrower may have against such defaulting Bank) or (ii) any litigation arising with respect to this Agreement (whether or not the Issuing Bank shall prevail in such litigation)), and none of the Banks (including the Issuing Bank) nor the Administrative Agent nor any of their officers or directors or employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including without limitation any of the circumstances enumerated in subsection 2.15(f) above, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit and (iii) any consequences arising from causes beyond the control of the Issuing Bank, including, without limitation, any government acts or any other circumstances whatsoever, in making or failing to make payment under such Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses, and the Borrower shall have a claim for direct (but not consequential) damage suffered by it, to the extent found by a court of competent jurisdiction to have been caused by (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuing Bank’s failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of the Letter of Credit. Nothing in this subsection 2.15(g) is intended to limit the obligations of the Borrower under any other provision of this Agreement. To the extent the Borrower does not indemnify the Issuing Bank as required by this subsection, the Banks agree to do so ratably in accordance with their Commitments.

(h) The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit issued by it and the documents associated therewith, and the Issuing Bank shall have all of the benefits and immunities (i) provided to the Administrative Agent in Article 7 (other than Sections 7.08 and 7.09) with respect

24

to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article 7 included the Issuing Bank with respect to such acts or omissions and (ii) as additionally provided herein with respect to the Issuing Bank.

Section 2.16. Regulation D Compensation. In the event that a Bank is required to maintain reserves of the type contemplated by the definition of “Euro-Dollar Reserve Percentage”, such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall notify the Borrower at least three Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans of the amount then due it under this Section. Each such notification shall be accompanied by such information as the Borrower may reasonably request.

“Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of “Eurocurrency liabilities” (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents).

25

ARTICLE 3

CONDITIONS

Section 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05):

(a) receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telecopy, telex or other written confirmation from such party of execution of a counterpart hereof by such party);

(b) receipt by the Administrative Agent of (i) an opinion of an associate general counsel of the Borrower, substantially in the form of Exhibit B-1 hereto and (ii) an opinion of Robinson, Bradshaw & Hinson, P.A., special counsel for the Borrower, substantially in the form of Exhibit B-2 hereto, and, in each case, covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(c) receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(d) receipt by the Administrative Agent of a certificate signed by a Vice President, the Treasurer, an Assistant Treasurer or the Controller of the Borrower, dated the Effective Date, to the effect set forth in clauses (c) and (d) of Section 3.02;

(e) receipt by the Administrative Agent of all documents it may have reasonably requested prior to the date hereof relating to the existence of the Borrower, the limited liability company authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent;

(f) receipt by the Administrative Agent of evidence satisfactory to it of the payment of all principal of and interest on any loans outstanding under, and all accrued commitment fees under, the Existing Credit Agreements and the cancellation or the expiration of any letter of credit issued thereunder; and

(g) receipt by the Administrative Agent for the account of the Banks of participation fees as heretofore mutually agreed by the Borrower and the Administrative Agent;

provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than June 30, 2004. The Administrative Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Borrower and the Banks party to the Existing Credit Agreements, comprising the “Required Banks” as defined therein, hereby agree that (i) the commitments of the lenders under the Existing Credit Agreements

26

shall terminate in their entirety immediately and automatically upon the effectiveness of this Agreement, without further action by any party to the Existing Credit Agreements, (ii) all accrued fees under the Existing Credit Agreements shall be due and payable at such time and (iii) subject to the funding loss indemnities in the Existing Credit Agreements, the Borrower may prepay any and all loans outstanding thereunder on the date of effectiveness of this Agreement.

Section 3.02. Borrowings and Issuance of Letters of Credit. The obligation of any Bank to make a Loan on the occasion of any Borrowing and the obligation of the Issuing Bank to issue (or renew or extend the term of) any Letter of Credit is subject to the satisfaction of the following conditions:

(a) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or receipt by the Issuing Bank of a Notice of Issuance as required by Section 2.15(c), as the case may be;

(b) the fact that, immediately after such Borrowing or issuance of such Letter of Credit, the sum of the aggregate outstanding principal amount of the Loans and the aggregate amount of Letter of Credit Liabilities will not exceed the aggregate amount of the Commitments;

(c) the fact that, immediately after such Borrowing or issuance of such Letter of Credit, no Default shall have occurred and be continuing; and

(d) the fact that the representations and warranties of the Borrower contained in this Agreement (except the representations and warranties set forth in Sections 4.04(c) and 4.06) shall be true on and as of the date of such Borrowing or issuance of such Letter of Credit.

Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

Section 4.01. Organization and Power. The Borrower is duly organized, validly existing and in good standing under the laws of Delaware and has all requisite powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and is duly qualified to do business in each jurisdiction where such qualification is required,

27

except where the failure so to qualify would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.02. Company and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of formation or limited liability company agreement of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Material Subsidiaries.

Section 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, if and when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

Section 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2003 and the related consolidated statements of income, cash flows, capitalization and retained earnings for the fiscal year then ended, reported on by Deloitte & Touche, copies of which have been delivered to each of the Banks by using the Borrower’s IntraLinks site, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.

(b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 31, 2004 and the related unaudited consolidated statements of income and cash flows for the three months then ended, copies of which have been delivered to each of the Banks by using the Borrower’s IntraLinks site, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such three-month period (subject to normal year-end adjustments and the absence of footnotes).

28

(c) Since December 31, 2003, there has been no material adverse change in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.05. Regulation U. The Borrower and its Material Subsidiaries are not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System) and no proceeds of any Borrowing or issuance of Letters of Credit by the Borrower will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Not more than 25% of the value of the assets of the Borrower and its Material Subsidiaries is represented by margin stock.

Section 4.06. Litigation. Except as disclosed in the reports referred to in Section 4.04, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which would be likely to be decided adversely to Borrower or such Subsidiary and, as a result, have a material adverse effect upon the business, consolidated financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or any Note.

Section 4.07. Compliance with Laws. The Borrower and each Material Subsidiary is in compliance in all material respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including, without limitation, ERISA and Environmental Laws) except where (i) non-compliance would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of compliance therewith is contested in good faith by appropriate proceedings.

Section 4.08. Taxes. The Borrower and its Material Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Material Subsidiary except (i) where nonpayment would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) where the same are contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and its Material Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate.

29

Section 4.09. Public Utility Holding Company Act. The Borrower is not a holding company subject to the registration requirements of the Public Utility Holding Company Act of 1935, as amended.

ARTICLE 5

COVENANTS

The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable hereunder remains unpaid or any Letter of Credit Liabilities remain outstanding:

Section 5.01. Information. The Borrower will deliver to each of the Banks:

(a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, cash flows, capitalization and retained earnings for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner consistent with the requirements of the Securities and Exchange Commission by Deloitte & Touche or other independent public accountants of nationally recognized standing;

(b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower’s fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower’s previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by an Approved Officer of the Borrower;

(c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of an Approved Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Section 5.12 and 5.13 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

30

(d) within five days after any officer of the Borrower with responsibility relating thereto obtains knowledge of any Default, if such Default is then continuing, a certificate of an Approved Officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

(e) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission;

(f) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Material Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose material liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Material Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Material Plan or makes any amendment to any Material Plan which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and

(g) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request.

Information required to be delivered pursuant to these Sections 5.01(a), 5.01(b) and 5.01(e) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Securities and Exchange Commission website on the Internet at sec.gov/edaux/searches.htm, on the Borrower’s IntraLinks site at intralinks.com or at another website identified in such notice and accessible by the Banks

31

without charge; provided that (i) such notice may be included in a certificate delivered pursuant to Section 5.01(c) and such notice or certificate shall also be deemed to have been delivered upon being posted to the Borrower’s IntraLinks site and (ii) the Borrower shall deliver paper copies of the information referred to in Sections 5.01(a), 5.01(b) and 5.01(e) to any Bank which requests such delivery.

Section 5.02. Payment of Taxes. The Borrower will pay and discharge, and will cause each Material Subsidiary to pay and discharge, at or before maturity, all their tax liabilities, except where (i) nonpayment would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Material Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same.

Section 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Material Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted.

(b) The Borrower will, and will cause each of its Material Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary’s own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against by companies of established repute engaged in the same or a similar business; provided that self-insurance by the Borrower or any such Material Subsidiary shall not be deemed a violation of this covenant to the extent that companies engaged in similar businesses self-insure; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried.

Section 5.04. Maintenance of Existence. The Borrower will preserve, renew and keep in full force and effect, and will cause each Material Subsidiary to preserve, renew and keep in full force and effect their respective corporate or other legal existence and their respective rights, privileges and franchises material to the normal conduct of their respective businesses; provided that nothing in this Section 5.04 shall prohibit the termination of any right, privilege or franchise of the Borrower or any Material Subsidiary or of the corporate or other legal existence of any Material Subsidiary or the change in form of organization of the Borrower or any Material Subsidiary if the Borrower in good faith determines that such termination or change is in the best interest of the Borrower, is not materially disadvantageous to the Banks and, in the case of a change in the form of organization of the Borrower, the Administrative Agent has consented thereto.

32

Section 5.05. Compliance with Laws. The Borrower will comply, and cause each Material Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, ERISA and Environmental Laws) except where (i) noncompliance would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of compliance therewith is contested in good faith by appropriate proceedings.

Section 5.06. Books and Records. The Borrower will keep, and will cause each Material Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all financial transactions in relation to its business and activities in accordance with its customary practices; and will permit, and will cause each Material Subsidiary to permit, representatives of any Bank at such Bank’s expense (accompanied by a representative of the Borrower, if the Borrower so desires) to visit any of their respective properties, to examine any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all upon such reasonable notice, at such reasonable times and as often as may reasonably be desired.

Section 5.07. Maintenance of Ownership of Principal Subsidiaries. The Borrower will maintain ownership of all common equity interests of each Principal Subsidiary, directly or indirectly through Subsidiaries, free and clear of all Liens; provided that any Principal Subsidiary may merge or consolidate with or into the Borrower or another wholly-owned Subsidiary.

Section 5.08. Negative Pledge. The Borrower will not create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except:

(a) Liens granted by the Borrower existing on the date of this Agreement securing Indebtedness outstanding on the date of this Agreement in an aggregate principal amount not exceeding $100,000,000;

(b) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower and not created in contemplation of such event;

(c) any Lien existing on any asset prior to the acquisition thereof by the Borrower and not created in contemplation of such acquisition;

(d) any Lien on any asset securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset;

33

provided that such Lien attaches to such asset concurrently with or within 180 days after the acquisition thereof;

(e) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this Section; provided that such Indebtedness is not increased and is not secured by any additional assets;

(f) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles;

(g) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law, created in the ordinary course of business and for amounts not past due for more than 60 days or which are being contested in good faith by appropriate proceedings which are sufficient to prevent imminent foreclosure of such Liens, are promptly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles;

(h) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts;

(i) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property;

(j) Liens with respect to judgments and attachments which do not result in an Event of Default;

(k) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other obligations arising in the ordinary course of business;

34

(l) other Liens including Liens imposed by Environmental Laws arising in the ordinary course of its business which (i) do not secure Indebtedness, (ii) do not secure any obligation in an amount exceeding $100,000,000 at any time at which Investment Grade Status does not exist as to the Borrower and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business;

(m) Liens required pursuant to the terms of this Agreement and the Related Agreement; and

(n) Liens not otherwise permitted by the foregoing clauses of this Section securing obligations in an aggregate principal or face amount at any date not to exceed $500,000,000.

Section 5.09. Consolidations, Mergers and Sales of Assets. The Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, Substantial Assets to any Person (other than a Subsidiary); provided that the Borrower may merge with another Person if the Borrower is the entity surviving such merger and, after giving effect thereto, no Default shall have occurred and be continuing.

Section 5.10. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for its general company purposes, including liquidity support for outstanding commercial paper and acquisitions. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any “margin stock” within the meaning of Regulation U.

Section 5.11. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction with, any Affiliate unless all such transactions between the Borrower and its Subsidiaries on the one hand and any Affiliate on the other, taken in the aggregate and not individually, shall be on an arms-length basis on terms no less favorable to the Borrower or such Subsidiary than could have been obtained from a third party who was not an Affiliate; provided that the foregoing provisions of this Section shall not prohibit the Borrower and each Subsidiary from (i) declaring or making any lawful distribution so long as, after giving effect thereto, no Default shall have occurred and be continuing, (ii) issuing and maintaining letters of credit, guaranties and sureties as contingent obligations on behalf of Affiliates, (iii) (A) the payment of funds on behalf of Duke Energy Corporation in respect of services, operations and expenditures shared with Duke Energy Corporation and for which a corresponding account payable is created on the books of Duke Energy Corporation for the benefit of the Borrower and (B) loans from the

35

Borrower to Duke Energy Corporation, provided that the aggregate amount of all such payments and loans referred to in clauses (iii)(A) and (B) of this Section does not exceed $500,000,000 at any time outstanding (calculated at such time after giving effect to any repayments to the Borrower by, or on behalf of, Duke Energy Corporation), or (iv) in addition to those activities permitted by the preceding clause (iii), the payment of funds and making of capital contributions, loans and other transfers of money to Affiliates or to other Persons on behalf of such Affiliates, including payments made under letters of credit, guarantees and sureties issued and maintained on behalf of Affiliates, provided that the aggregate amount for all such payments and transfers referred to in this clause (iv) does not exceed $200,000,000 at any time outstanding (calculated at such time after giving effect to any repayments to the Borrower by, or on behalf of, such Affiliates for any such payment of funds and making of capital contributions, loans and other transfers of money).

Section 5.12. Indebtedness/Capitalization Ratio. The ratio of Consolidated Indebtedness to Consolidated Capitalization will at no time exceed 65%.

Section 5.13. Interest Coverage Ratio. The Consolidated Interest Coverage Ratio will not at the end of any fiscal quarter be less than 2.0 to 1.

ARTICLE 6

DEFAULTS

Section 6.01. Events of Default. If one or more of the following events (“Events of Default”) shall have occurred and be continuing:

(a) the Borrower shall fail to pay when due any principal of any Loan or Reimbursement Obligation or shall fail to pay, within five days of the due date thereof, any interest, fees or any other amount payable hereunder;

(b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.04, 5.08, 5.09, 5.12, 5.13 or the second sentence of 5.10, inclusive;

(c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank;

(d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other

36

document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made);

(e) the Borrower or any Material Subsidiary shall fail to make any payment in respect of Material Debt (other than the Loans) when due or within any applicable grace period;

(f) any event or condition shall occur and shall continue beyond the applicable grace or cure period, if any, provided with respect thereto so as to result in the acceleration of the maturity of Material Debt;

(g) the Borrower or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to, or shall fail generally to, pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(h) an involuntary case or other proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 90 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect;

(i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $50,000,000 (collectively, a “Material Plan”) shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against any member of the ERISA Group to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 90 days thereafter; or a condition shall exist by reason of

37

which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated;

(j) a judgment or other court order for the payment of money in excess of $50,000,000 shall be rendered against the Borrower or any Material Subsidiary and such judgment or order shall continue without being vacated, discharged, satisfied or stayed or bonded pending appeal for a period of 45 days;

(k) the Borrower shall cease to be a Subsidiary or Affiliate of Duke Energy Corporation; or

(l) an “Event of Default” as defined in the Related Agreement shall have occurred and be continuing;

then, and in every such event, the Administrative Agent shall (i) if requested by Banks having more than 66-2/3% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate and (ii) if requested by Banks holding more than 66-2/3% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans and all Reimbursement Obligations (together with accrued interest thereon) to be, and the Loans and all Reimbursement Obligations shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Loans and all Reimbursement Obligations (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 6.02. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.

Section 6.03. Cash Cover. The Borrower agrees, in addition to the provisions of Section 6.01 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Administrative Agent upon the instruction of the Banks having at least 66 2/3% in the aggregate amount of the Commitments (or, if the Commitments shall have been terminated, holding at least 66 2/3% of the Letter of Credit Liabilities), deposit with the Administrative Agent an amount in immediately available funds (which funds shall be held as collateral pursuant to arrangements mutually satisfactory to the Administrative Agent and the Borrower) equal to the aggregate amount available for drawing under all Letters of Credit then outstanding at such time; provided

38

that, upon the occurrence of any Event of Default specified in Section 6.01(g) or 6.01(h) with respect to the Borrower, the Borrower shall pay such amount forthwith without any notice or demand or any other act by the Administrative Agent or the Banks.

ARTICLE 7

THE ADMINISTRATIVE AGENT

Section 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto.

Section 7.02. Administrative Agent and Affiliates. JPMorgan Chase Bank shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and JPMorgan Chase Bank and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Administrative Agent hereunder.

Section 7.03. Action by Administrative Agent. The obligations of the Administrative Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6.

Section 7.04. Consultation with Experts. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 7.05. Liability of Administrative Agent. Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable to any Bank for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or

39

agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it in good faith to be genuine or to be signed by the proper party or parties. Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties.

Section 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Administrative Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees thereunder.

Section 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement.

Section 7.08. Successor Administrative Agent. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower, with the consent of the Required Banks (such consent not to be unreasonably withheld or delayed), shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor

40

Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder; provided that if such successor Administrative Agent is appointed without the consent of the Borrower, such successor Administrative Agent may be replaced by the Borrower with the consent of the Required Banks. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent.

Section 7.09. Administrative Agent’s Fee. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Administrative Agent.

Section 7.10. Other Agents. None of the Syndication Agent or the Documentation Agents, in their capacity as such, shall have any duties or obligations of any kind under this Agreement.

ARTICLE 8

CHANGE IN CIRCUMSTANCES

Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Euro-Dollar Borrowing:

(a) the Administrative Agent is advised by the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Euro-Dollar Reference Banks in the relevant market for such Interest Period, or

(b) Banks having 66-2/3% or more of the aggregate amount of the affected Loans advise the Administrative Agent that the London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period,

the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the

41

last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least one Domestic Business Day before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing.

Section 8.02. Illegality. If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund any of its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not be otherwise disadvantageous to such Bank in the good faith exercise of its discretion. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day.

Section 8.03. Increased Cost and Reduced Return. (a) If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (the terms “Bank” and “Issuing Bank” shall include, for purposes of this Section 8.03, the holding company of any Issuing Bank) (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) issued on or after such date of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of,

42

deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition (other than in respect of Taxes or Other Taxes) affecting its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans or its obligations hereunder in respect of Letters of Credit and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan or of issuing or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction; provided that no such amount shall be payable with respect to any period commencing more than 90 days prior to the date such Bank first notifies the Borrower of its intention to demand compensation therefor under this Section 8.03(a).

(b) If any Bank shall have determined that, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency given or made after the date of this Agreement, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction; provided that no such amount shall be payable with respect to any period commencing less than 30 days after the date such Bank first notifies the Borrower of its intention to demand compensation under this Section 8.03(b).

(c) If on or after the date of this Agreement, the Financial Accounting Standards Board adopts any change in Statement of Financial Accounting Standards No. 140 and an Issuing Bank determines in good faith that such change requires it to reserve additional capital against its Letter of Credit Liabilities, such Issuing Bank may require the Borrower to pay, contemporaneously with each payment pursuant to Section 2.07(b), additional interest on the amount of such additional capital at a rate determined by such Issuing Bank up to but not

43

exceeding the applicable Euro-Dollar Margin; provided that no such amounts shall be payable with respect to any period commencing less than 30 days after the date such Issuing Bank first notifies the Borrower of its intention to demand compensation under this Section 8.03(c). Any Issuing Bank requiring the Borrower to make additional payments under this Section 8.03(c) shall provide such information as the Borrower may reasonably request.

(d) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods.

Section 8.04. Taxes. (a) For purposes of this Section 8.04, the following terms have the following meanings:

“Taxes” means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Administrative Agent, taxes imposed on its income, net worth or gross receipts and franchise or similar taxes imposed on it by a jurisdiction under the laws of which such Bank or the Administrative Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments except to the extent that such Bank is subject to United States withholding tax by reason of a U.S. Tax Law Change.

“Other Taxes” means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note.

“U.S. Tax Law Change” means with respect to any Bank or Participant the occurrence (x) in the case of each Bank listed on the signature pages hereof, after the date of its execution and delivery of this Agreement and (y) in the case of any other Bank, after the date such Bank shall have become a Bank hereunder, and (z) in the case of each Participant, after the date such Participant became a Participant hereunder, of the adoption of any applicable U.S. federal law, U.S.

44

federal rule or U.S. federal regulation relating to taxation, or any change therein, or the entry into force, modification or revocation of any income tax convention or treaty to which the United States is a party.

(b) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof.

(c) The Borrower agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Administrative Agent (as the case may be) makes demand therefor.

(d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter as required by law (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower two completed and duly executed copies of Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, or other documentation reasonably requested by the Borrower, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States.

(e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to

45

indemnification under Section 8.04(b) or 8.04(c) with respect to any Taxes or Other Taxes which would not have been payable had such form been so provided; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes (it being understood, however, that the Borrower shall have no liability to such Bank in respect of such Taxes).

(f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will take such action (including changing the jurisdiction of its Applicable Lending Office) as in the good faith judgment of such Bank (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.

(g) If any Bank or the Administrative Agent receives a refund (including a refund in the form of a credit against taxes that are otherwise payable by the Bank or the Administrative Agent) of any Taxes or Other Taxes for which the Borrower has made a payment under Section 8.04(b) or (c) and such refund was received from the taxing authority which originally imposed such Taxes or Other Taxes, such Bank or the Administrative Agent agrees to reimburse the Borrower to the extent of such refund; provided that nothing contained in this paragraph (g) shall require any Bank or the Administrative Agent to seek any such refund or make available its tax returns (or any other information relating to its taxes which it deems to be confidential).

Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make or to continue or convert outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply:

(a) all Loans which would otherwise be made by such Bank as (or continued as or converted to) Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and

46

(b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Loans shall be applied to repay its Base Rate Loans instead.

If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks.

Section 8.06. Substitution of Bank; Termination Option. If (i) the obligation of any Bank to make or to convert or continue outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any Bank has demanded compensation under Section 8.03 or 8.04, (iii) any Bank exercises its right not to extend its Commitment Termination Date pursuant to Section 2.01(c) or (iv) Investment Grade Status ceases to exist as to any Bank, then:

(a) the Borrower shall have the right, with the assistance of the Administrative Agent, to designate a substitute bank or banks (which may be one or more of the Banks) mutually satisfactory to the Borrower, the Administrative Agent and the Issuing Banks (whose consent shall not be unreasonably withheld or delayed) to purchase for cash, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D hereto, the outstanding Loans of such Bank and assume the Commitment and Letter of Credit Liabilities of such Bank, without recourse to or warranty by, or expense to, such Bank, for a purchase price equal to the principal amount of all of such Bank’s outstanding Loans and funded Letter of Credit Liabilities plus any accrued but unpaid interest thereon and the accrued but unpaid fees in respect of such Bank’s Commitment hereunder and all other amounts payable by the Borrower to such Bank hereunder plus such amount, if any, as would be payable pursuant to Section 2.13 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment; and

(b) if at the time Investment Grade Status exists as to the Borrower, the Borrower may elect to terminate this Agreement as to such Bank; provided that (i) the Borrower notifies such Bank through the Administrative Agent of such election at least three Euro-Dollar Business Days before the effective date of such termination, (ii) the Borrower repays or prepays the principal amount of all outstanding Loans made by such Bank plus any accrued but unpaid interest thereon and the accrued but unpaid fees in respect of such Bank’s Commitment hereunder plus all other amounts payable by the Borrower to such Bank hereunder, not later than the effective date of such termination and (iii) if at the effective date of such termination, any Letter of Credit Liabilities are outstanding, the conditions specified in Section 3.02 would be satisfied (after giving effect to

47

such termination) were the related Letters of Credit issued on such date. Upon satisfaction of the foregoing conditions, the Commitment of such Bank shall terminate on the effective date specified in such notice.

ARTICLE 9

MISCELLANEOUS

Section 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Administrative Agent, at its address or telecopy or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telecopy or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telecopy or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telecopy or telex, when such telecopy or telex is transmitted to the telecopy or telex number specified in this Section and the appropriate answerback or confirmation slip, as the case may be, is received or (ii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent or any Issuing Bank under Article 2 or Article 3 shall not be effective until delivered.

Section 9.02. No Waivers. No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent, including reasonable fees and disbursements of special counsel for the Agents, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Administrative Agent or any Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom.

(b) The Borrower agrees to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any

48

kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee’s own gross negligence or willful misconduct as determined by a court of competent jurisdiction.

Section 9.04. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount then due with respect to the Loans and Letter of Credit Liabilities held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount then due with respect to the Loans and Letter of Credit Liabilities held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans and Letter of Credit Liabilities held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments with respect to the Loans and Letter of Credit Liabilities held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under this Agreement.

Section 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of any Agent or any Issuing Bank are affected thereby, by such Person); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or for reimbursement in respect of any Letter of Credit or interest thereon or any fees hereunder or for termination of any Commitment, (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans and Letter of Credit Liabilities, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement or (v) change the provisions of Section 9.04.

Section 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and each Indemnitee, except that the

49

Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks.

(b) Any Bank may, with the consent (unless an Event of Default then exists) of the Borrower (such consent not to be unreasonably withheld or delayed), at any time grant to one or more banks or other institutions (each a “Participant”) participating interests in its Commitment or any or all of its Loans and Letter of Credit Liabilities; provided that any Bank may, without the consent of the Borrower, at any time grant participating interests in its Commitment or any or all of its Loans and Letter of Credit Liabilities to another Bank, an Approved Fund or an Affiliate of such transferor Bank. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Issuing Banks and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest, subject to the performance by such Participant of the obligations of a Bank thereunder. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c) Any Bank may at any time assign to one or more banks or other financial institutions (each an “Assignee”) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000 (unless the Borrower and the Administrative Agent shall otherwise agree)) of all, of its rights and obligations under this Agreement and its Note (if any), and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D hereto executed by such Assignee and such transferor Bank, with (and only with and subject to) the prior written consent of the Issuing Banks, the Administrative Agent (which shall not be unreasonably withheld or delayed) and, so long as no Event of Default has occurred and is continuing, the Borrower (which shall not be unreasonably withheld or delayed); provided that unless such assignment is of the entire right, title and interest of the transferor Bank hereunder, after making any such assignment such transferor Bank shall have a Commitment of at least $10,000,000

50

(unless the Borrower and the Administrative Agent shall otherwise agree). Upon execution and delivery of such instrument of assumption and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required by the Assignee, a Note is issued to the Assignee. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. All assignments (other than assignments to Affiliates) shall be subject to a transaction fee established by, and payable by the transferor Bank to, the Administrative Agent for its own account (which shall not exceed $5,000).

(d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note (if any) to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder or modify any such obligations.

(e) No Assignee, Participant or other transferee of any Bank’s rights (including any Applicable Lending Office other than such Bank’s initial Applicable Lending Office) shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

Section 9.07. Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any “margin stock” (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.

Section 9.08. Confidentiality. Each Agent and each Bank agrees to keep any information delivered or made available by the Borrower pursuant to this Agreement confidential from anyone other than persons employed or retained by such Bank and its affiliates who are engaged in evaluating, approving, structuring or administering the credit facility contemplated hereby; provided that nothing herein shall prevent any Bank from disclosing such information (a) to any other

51

Bank or any Agent, (b) to any other Person if reasonably incidental to the administration of the credit facility contemplated hereby, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by any Agent or any Bank prohibited by this Agreement, (f) in connection with any litigation to which any Agent, any Bank or its subsidiaries or Parent may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Bank’s or any Agent’s legal counsel and independent auditors and (i) subject to provisions substantially similar to those contained in this Section 9.08, to any actual or proposed Participant or Assignee.

Section 9.09. Governing Law; Submission to Jurisdiction. This Agreement and each Note (if any) shall be construed in accordance with and governed by the law of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

Section 9.10. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS, THE ISSUING BANKS AND THE BANKS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12. USA Patriot Act. Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

52

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

DUKE CAPITAL LLC
By:
	Title:	Assistant Treasurer
	Address:	422 South Church Street Charlotte, NC 28202-1904
	Attention:	S.L. Love
	Telecopy number:	704-382-9497

Commitments

$47,647,058.82	JPMORGAN CHASE BANK
	By:
		Name:
		Title:
$47,647,058.82	WACHOVIA BANK, NATIONAL ASSOCIATION
	By:
		Name:
		Title:
$47,647,058.82	CITIBANK, N.A.
	By:
		Name:
		Title:
$47,647,058.82	BANK OF AMERICA, N.A.
	By:
		Name:
		Title:
$35,294,117.65	ABN AMRO BANK N.V.
	By:
		Name:
		Title:
	By:
		Name:
		Title:

$35,294,117.65	BARCLAYS BANK PLC
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$35,294,117.65	UBS LOAN FINANCE LLC
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$35,294,117.65	DEUTSCHE BANK AG NEW YORK BRANCH
	By:
		Name:
		Title:
	By:
		Name:
		Title:

$35,294,117.65	WILLIAM STREET CREDIT CORPORATION
	By:
		Name:
		Title:
$35,294,117.65	LEHMAN BROTHERS BANK, FSB
	By:
		Name:
		Title:
$24,705,882.35	THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH
	By:
		Name:
		Title:
$24,705,882.35	CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch
	By:
		Name:
		Title:
	By:
		Name:
		Title:

$24,705,882.35	DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$24,705,882.35	THE ROYAL BANK OF SCOTLAND plc
	By:
		Name:
		Title:
$24,705,882.35	MORGAN STANLEY BANK
	By:
		Name:
		Title:
$24,705,882.35	SUNTRUST BANK
	By:
		Name:
		Title:

$12,352,941.18	WESTLB AG, NEW YORK BRANCH
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$12,352,941.18	KEYBANK NATIONAL ASSOCIATION
	By:
		Name:
		Title:
$12,352,941.18	THE NORTHERN TRUST COMPANY
	By:
		Name:
		Title:
$12,352,941.18	MIZUHO CORPORATE BANK, LTD.
	By:
		Name:
		Title:

$                       0	BANK ONE, NA
	By:
		Name:
		Title:
Total Commitments
$600,000,000.00
	JPMORGAN CHASE BANK, as Administrative Agent
	By:
		Name:
		Title:
	WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent
	By:
		Name:
		Title:

Pricing Schedule

Each of “Euro-Dollar Margin” and “Facility Fee Rate” means, for any date, the rate set forth below in the applicable row and column corresponding to the column and “Utilization” that exist on such date:

(basis points per annum)

Ratings	at least A- by S&P or A3 by Moody’s	BBB+ by S&P or Baa1 by Moody’s	BBB by S&P or Baa2 by Moody’s	BBB- by S&P or Baa3 by Moody’s	BB+ by S&P or Ba1 by Moody’s	less than BB+ by S&P and less than Ba1 by Moody’s
Facility Fee	10.0	12.5	15.0	20.0	27.5	35.0
Euro-Dollar Margin
Utilization* £ 50%	52.5	62.5	85.0	105.0	122.5	165.0
Utilization*> 50%	65.0	75.0	97.5	117.5	147.5	190.0

The Euro-Dollar Margin for the Term Loan shall equal the sum of (i) the rate that would otherwise be in effect based upon the table above and (ii) fifty (50) basis points.

*The “Utilization” applicable to any date is the percentage equivalent of a fraction the numerator of which is the sum of (i) the aggregate outstanding principal amount of the Loans determined at such time after giving effect, if one or more Loans are being made at such time, to any substantially concurrent application of the proceeds thereof to repay one or more other Loans plus (ii) the aggregate amount of the Letter of Credit Liabilities of all Banks at such time and the denominator of which is the aggregate amount of the Commitments at such date. If for any reason any Loans or Letter of Credit Liabilities remain outstanding following termination of the Commitments, Utilization will be deemed to be 100%.

The credit ratings to be utilized for purposes of this Schedule are those indicated for or assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating indicated for or assigned to any other debt security of the Borrower shall be disregarded. The ratings in effect for any day are those in effect at the close of business on such day. A change in credit rating will result in an immediate change in the applicable pricing. In the case of split ratings from S&P and Moody’s, the rating to be used to determine the applicable pricing is a rating one notch higher than the lower of the two.

SCHEDULE I

DUKE CAPITAL LLC

CREDIT FACILITIES

(Being Replaced by this Agreement and the Related Agreement)

Credit Agreement (3-Year Facility) dated as of August 20, 2001 among Duke Capital LLC, the lenders party thereto and JPMorgan Chase Bank, as administrative agent.

364-Day Credit Agreement dated as of April 17, 2003 among Duke Capital LLC, the lenders party thereto and Bank One, NA, as administrative agent.

Three-Year Credit Agreement dated as of April 19, 2001 among Duke Capital LLC, the lenders party thereto and Bank One, NA, as administrative agent.

SCHEDULE 1.01

EXISTING LETTERS OF CREDIT

Issuer	Standby L/C No.	Face Amount on the Effective Date		Expiry Date
Wachovia Bank	968-118723	$	726,000.00	04/11/04
Wachovia Bank	968-126756	$	270,600.00	12/27/04
Wachovia Bank	968-129365	$	994,116.10	06/12/05
Wachovia Bank	968-131011	$	75,000.00	09/27/04
Wachovia Bank	SM201544	$	33,000,000.00	01/03/05
Wachovia Bank	SM205012W	$	52,000,000.00	08/15/04
JPMorgan Chase Bank	P 206072	$	250,000.00	12/15/04
JPMorgan Chase Bank	P 208696	$	48,500.00	12/23/04
JPMorgan Chase Bank	P 210408	$	3,680,873.69	12/01/04
JPMorgan Chase Bank	P 214336	$	16,500.00	06/05/05
JPMorgan Chase Bank	P 215244	$	61,199.85	01/31/05
JPMorgan Chase Bank	P 216791	$	206,890.00	09/05/04
JPMorgan Chase Bank	P 218974	$	10,000,000.00	11/05/04
JPMorgan Chase Bank	P 218975	$	2,500,000.00	11/05/04
JPMorgan Chase Bank	P 220037	$	783,517.98	12/31/04
JPMorgan Chase Bank	P 220992	$	905,082.90	01/07/05
JPMorgan Chase Bank	P 230546	$	5,000,000,00	10/02/04

EXHIBIT A

NOTE

New York, New York

June 30, 2004

For value received, Duke Capital LLC, a Delaware limited liability company (the “Borrower”), promises to pay to the order of (the “Bank”), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the date specified in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of JPMorgan Chase Bank, 270 Park Avenue, New York, New York.

All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank, and the Bank, if the Bank so elects in connection with any transfer or enforcement of its Note, may endorse on the schedule attached hereto appropriate notations to evidence the foregoing information with respect to the Loans then outstanding; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement.

This note is one of the Notes referred to in the 364-Day Credit Agreement dated as of June 30, 2004 among the Borrower, the banks listed on the signature pages thereof, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent (as the same may be amended from time to time, the “Credit Agreement”). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.

DUKE CAPITAL LLC
By:
	Title:

Note (cont’d)

LOANS AND PAYMENTS OF PRINCIPAL

Date Amount of Loan Type of Loan Amount of Principal Repaid Maturity Date Notation Made By

2

EXHIBIT B-1

OPINION OF ASSOCIATE GENERAL COUNSEL OF THE BORROWER

June 30, 2004

To the Banks and the Administrative Agent

Referred to Below

c/o JPMorgan Chase Bank

as Administrative Agent

270 Park Avenue

New York, New York 10017

Ladies and Gentlemen:

I am an Associate General Counsel of Duke Capital LLC (the “Borrower”) and have acted as its counsel in connection with the 364-Day Credit Agreement (the “Credit Agreement”), dated as of June 30, 2004, among the Borrower, the banks listed on the signature pages thereof, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent. Capitalized terms defined in the Credit Agreement are used herein as therein defined. This opinion letter is being delivered pursuant to Section 3.01(b) of the Credit Agreement.

In such capacity, I or attorneys under my direct supervision have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, company records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, I am of the opinion that:

1. The Borrower is a limited liability company duly formed, validly existing and in good standing under the laws of Delaware.

2. The execution, delivery and performance by the Borrower of the Credit Agreement and any Notes are within the Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of formation or limited liability company agreement of the Borrower or, to my knowledge, of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or, to my knowledge, result in the creation or imposition of any Lien on any asset of the Borrower or any of its Material Subsidiaries.

3. Except as disclosed in the reports referred to in Section 4.04 of the Credit Agreement, to my knowledge (but without independent investigation), there is no action, suit or proceeding pending or threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, which would be likely to be decided adversely to the Borrower or such Subsidiary and, as a result, to have a material adverse effect upon the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Credit Agreement or any Notes.

4. The Borrower is not a holding company subject to the registration requirements of the Public Utility Holding Company Act of 1935, as amended.

The phrase “to my knowledge”, as used in the foregoing opinion, refers to my actual knowledge without any independent investigation as to any such matters.

I am a member of the Bar of the State of North Carolina and do not express any opinion herein concerning any law other than the law of the State of North Carolina, the Limited Liability Company Act of the State of Delaware and the federal law of the United States of America.

This opinion is rendered to you in connection with the above-referenced mater and may not be relied upon by you for any other purpose, or relied upon by, or furnished to, any other Person, firm or corporation without my prior written consent, except for Additional Banks and Assignees. My opinions expressed herein are as of the date hereof, and I undertake no obligation to advise you of any changes of applicable law or any other matters that may come to my attention after the date hereof that may affect my opinions expressed herein.

Very truly yours,

2

EXHIBIT B-2

OPINION OF

ROBINSON, BRADSHAW & HINSON, P.A.,

SPECIAL COUNSEL FOR THE BORROWER

June 30, 2004

To the Banks and the Administrative Agent

Referred to Below

c/o JPMorgan Chase Bank

as Administrative Agent

270 Park Avenue

New York, New York 10017

Ladies and Gentlemen:

We have acted as counsel to Duke Capital LLC, a Delaware limited liability company, in connection with the 364-Day Credit Agreement (the “Credit Agreement”), dated as of June 30, 2004, among Duke Capital LLC, the banks listed on the signature pages thereof, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent. Capitalized terms used herein and not defined shall have the meanings given to them in the Credit Agreement. This opinion letter is being delivered pursuant to Section 3.01(b) of the Credit Agreement.

In connection with this opinion, we also examined originals, or copies identified to our satisfaction, of such other documents and considered such matters of law and fact as we, in our professional judgment, have deemed appropriate to render the opinions contained herein. Where we have considered it appropriate, as to certain facts we have relied, without investigation or analysis of any underlying data contained therein, upon certificates or other comparable documents of public officials and officers or other appropriate representatives of the Borrower.

In rendering the opinions contained herein, we have assumed, among other things, that the Credit Agreement and any Notes to be executed (i) are within the Borrower’s limited liability company powers, (ii) have been duly authorized by all necessary limited liability company action, (iii) require no action by or in respect of, or filing with, any governmental body, agency of official, and (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Borrower’s certificate of formation or limited liability company agreement or any agreement, judgment, injunction, order, decree or

other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. In addition, we have assumed that the Credit Agreement fully states the agreement between the Borrower and the Banks with respect to the matters addressed therein, and that the Credit Agreement constitutes a legal, valid and binding obligation of each Bank, enforceable in accordance with its respective terms.

The opinions set forth herein are limited to matters governed by the laws of the State of North Carolina and the federal laws of the United States, and no opinion is expressed herein as to the laws of any other jurisdiction. For purposes of our opinions, we have disregarded the choice of law provisions in the Credit Agreement and, instead, have assumed with your permission that the Credit Agreement and the Notes are governed exclusively by the internal, substantive laws and judicial interpretations of the State of North Carolina. We express no opinion concerning any matter respecting or affected by any laws other than laws that a lawyer in North Carolina exercising customary professional diligence would reasonably recognize as being directly applicable to the Borrower, the Loans, the Letters of Credit, or any of them.

Based upon and subject to the foregoing and the further limitations and qualifications hereinafter expressed, it is our opinion that the Credit Agreement constitutes the legal, valid and binding obligation of the Borrower and the Notes, if and when issued, will constitute legal, valid and binding obligations of the Borrower, in each case, enforceable against the Borrower in accordance with its terms.

The opinions expressed above are subject to the following qualifications and limitations:

1. Enforcement of the Credit Agreement and the Notes is subject to the effect of applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting the enforcement of creditors’ rights generally.

2. Enforcement of the Credit Agreement and the Notes is subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law) by which a court with proper jurisdiction may deny rights of specific performance, injunction, self-help, possessory remedies or other remedies.

3. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement or any Note that (i) purport to excuse a party for liability for its own acts, (ii) purport to make void any act done in contravention thereof, (iii) purport to authorize a party to act in its sole discretion, (iv) require waivers or amendments to be made only in writing,

2

(v) purport to effect waivers of constitutional, statutory or equitable rights or the effect of applicable laws, (vi) impose liquidated damages, penalties or forfeiture, or (vii) purport to indemnify a party for its own negligence or willful misconduct. Indemnification provisions in the Credit Agreement are subject to and may be rendered unenforceable by applicable law or public policy, including applicable securities law.

4. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement or the Notes purporting to require a party thereto to pay or reimburse attorneys’ fees incurred by another party, or to indemnify another party therefor, which may be limited by applicable statutes and decisions relating to the collection and award of attorneys’ fees, including but not limited to North Carolina General Statutes ' 6-21.2.

5. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement purporting to waive the right of jury trial. Under North Carolina General Statutes ' 22B-10, a provision for the waiver of the right to a jury trial is unconscionable and unenforceable.

6. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement concerning choice of forum or consent to the jurisdiction of courts, venue of actions or means of service of process.

7. It is likely that North Carolina courts will enforce the provisions of the Credit Agreement providing for interest at a higher rate resulting from a Default or Event of Default (a “Default Rate”) which rate is higher than the rate otherwise stipulated in the Credit Agreement. The law, however, disfavors penalties, and it is possible that interest at the Default Rate may be held to be an unenforceable penalty, to the extent such rate exceeds the rate applicable prior to a default under the Credit Agreement. Also, since North Carolina General Statutes ' 24-10.1 expressly provides for late charges, it is possible that North Carolina courts, when faced specifically with the issue, might rule that this statutory late charge preempts any other charge (such as default interest) by a bank for delinquent payments. The only North Carolina case which we have found that addresses this issue is a 1978 Court of Appeals decision, which in our opinion is of limited precedential value, North Carolina National Bank v. Burnette, 38 N.C. App. 120, 247 S.E.2d 648 (1978), rev’d on other grounds, 297 N.C. 524, 256 S.E.2d 388 (1979). While the court in that case did allow interest after default (commencing with the date requested in the complaint) at a rate six percent in excess of pre-default interest, we are unable to determine from the opinion that any question was raised as to this being penal in nature, nor does the court address the possible question of the statutory late charge preempting a default interest surcharge. Therefore, since the North Carolina Supreme Court has not ruled in a properly presented case raising issues of its possible penal

3

nature and those of North Carolina General Statutes ' 24-10.1, we are unwilling to express an unqualified opinion that the Default Rate of interest prescribed in the Credit Agreement is enforceable.

8. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement relating to evidentiary standards or other standards by which the Credit Agreement are to be construed.

This opinion letter is delivered solely for your benefit in connection with the Credit Agreement and, except for any Additional Bank or any Assignee which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, may not be used or relied upon by any other Person or for any other purpose without our prior written consent in each instance. Our opinions expressed herein are as of the date hereof, and we undertake no obligation to advise you of any changes of applicable law or any other matters that may come to our attention after the date hereof that may affect our opinions expressed herein.

Very truly yours,

4

EXHIBIT C

OPINION OF

DAVIS POLK & WARDWELL, SPECIAL COUNSEL

FOR THE AGENTS

June 30, 2004

To the Banks and the Administrative Agent

  Referred to Below

c/o JPMorgan Chase Bank,

as Administrative Agent

270 Park Avenue

New York, New York 10017

Dear Sirs:

We have participated in the preparation of the 364-Day Credit Agreement (the “Credit Agreement”) dated as of June 30, 2004 among Duke Capital LLC, a Delaware limited liability company (the “Borrower”), the banks listed on the signature pages thereof (the “Banks”), JPMorgan Chase Bank, as Administrative Agent (the “Administrative Agent”), and Wachovia Bank, National Association, as Syndication Agent, and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined.

We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, company records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, we are of the opinion that:

1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower’s limited liability company powers and have been duly authorized by all necessary limited liability company action.

2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes, if and when issued, constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms,

except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect.

This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by or furnished to any other person, firm or corporation without our prior written consent, except for Additional Banks and all Participants.

Very truly yours,

2

EXHIBIT D

ASSIGNMENT AND ASSUMPTION AGREEMENT

AGREEMENT dated as of                     , 20     among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”), [DUKE CAPITAL LLC,] BANK ONE, NA [AND OTHER ISSUING BANK(S)], as Issuing Bank(s), and JPMORGAN CHASE BANK, as Administrative Agent (the “Administrative Agent”).

W I T N E S S E T H

WHEREAS, this Assignment and Assumption Agreement (the “Agreement”) relates to the 364-Day Credit Agreement dated as of June 30, 2004 among Duke Capital LLC (the “Borrower”), the Assignor and the other Banks party thereto, as Banks, the Administrative Agent and Wachovia Bank, National Association, as Syndication Agent (the “Credit Agreement”);

WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower and participate in Letters of Credit in an aggregate principal amount at any time outstanding not to exceed $                    ;¹

WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $                     are outstanding at the date hereof;

WHEREAS, Letters of Credit with a total amount available for drawing thereunder of $                     are outstanding at the date hereof; and

WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $                     (the “Assigned Amount”), together with a corresponding portion of its outstanding Loans and Letter of Credit Liabilities, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms;*

¹ The asterisked provisions shall be appropriately revised in the event of an assignment after the Commitment Termination Date.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement.

SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by, and Letter of Credit Liabilities of, the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower,] the Issuing Banks and the Administrative Agent, the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor.

SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.² It is understood that facility and Letter of Credit fees accrued to the date hereof in respect of the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.

SECTION 4. Consent to Assignment. This Agreement is conditioned upon the consent of [the Borrower,] the Issuing Banks and the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by [the Borrower,] the Issuing Banks and the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note, if required by the Assignee, payable to the order of the Assignee to evidence the assignment and assumption provided for herein.

² Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum.

2

SECTION 5. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of any Borrower, or the validity and enforceability of the obligations of any Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower.

SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

SECTION 8. Administrative Questionnaire. Attached is an Administrative Questionnaire duly completed by the Assignee.

3

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.

[ASSIGNOR]
By:
	Title:

[ASSIGNEE]
By:
	Title:

[DUKE CAPITAL LLC]
By:
	Title:

JPMORGAN CHASE BANK, as Administrative Agent
By:
	Title:

BANK ONE, NA, as Issuing Bank
By:
	Title:

[ISSUING BANK]
By:
	Title:

4

EXHIBIT E

EXTENSION AGREEMENT

JPMorgan Chase Bank, as Administrative

Agent under the Credit Agreement

referred to below

270 Park Avenue

New York, New York 10017

Ladies and Gentlemen:

Effective as of [date], the undersigned hereby agrees to extend its Commitment and Commitment Termination Date under the 364-Day Credit Agreement dated as of June 30, 2004 among Duke Capital LLC, (the “Borrower”), the banks parties thereto, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent (the “Credit Agreement”) for one year to [date to which its Commitment Termination Date is to be extended] pursuant to Section 2.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined.

This Extension Agreement shall be construed in accordance with and governed by the law of the State of New York. This Extension Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

[NAME OF BANK]
By:
	Title:

Agreed and Accepted:

DUKE CAPITAL LLC, as Borrower
By:
	Title:

JPMORGAN CHASE BANK, as Administrative Agent
By:
	Title:

2

EXHIBIT F

NOTICE OF ISSUANCE

Date:                     

To:	JPMorgan Chase Bank, as Administrative Agent                             , as Issuing Bank
From:	Duke Capital LLC
Re:	364-Day Credit Agreement dated as of June 30, 2004 (as amended from time to time, the “Credit Agreement”) among Duke Capital LLC (the “Borrower”), the Banks parties thereto and JPMorgan Chase Bank, as Administrative Agent

The Borrower hereby gives notice pursuant to Section 2.15(c) of the Credit Agreement that the Borrower requests the above-named Issuing Bank to issue on or before                              a Letter of Credit containing the terms attached hereto as Schedule I (the “Requested Letter of Credit”).

The Requested Letter of Credit will be subject to [UCP 500] [ISP98].

The Borrower hereby represents and warrants to the Issuing Bank, the Administrative Agent and the Banks that:

(a) immediately after the issuance of the Requested Letter of Credit, the sum of the aggregate outstanding principal amount of the Loans and the aggregate amount of Letter of Credit Liabilities will not exceed the aggregate amount of the Commitments;

(b) immediately after the issuance of the Requested Letter of Credit, no Default shall have occurred and be continuing; and

(c) the representations and warranties contained in the Credit Agreement (except the representations and warranties set forth in Sections 4.04(c) and 4.06 of the Credit Agreement) shall be true on and as of the date of issuance of the Requested Letter of Credit.

The Borrower hereby authorizes the Issuing Bank to issue the Requested Letter of Credit with such variations from the above terms as the Issuing Bank may, in its discretion, determine are necessary and are not materially inconsistent with this Notice of Issuance. The opening of the Requested Letter of Credit and the Borrower’s responsibilities with respect thereto are subject to [UCP 500] [ISP98] as indicated above and the terms and conditions set forth in the Credit Agreement.

Terms used herein and not otherwise defined herein have the meanings assigned to them in the Credit Agreement.

DUKE CAPITAL LLC

By:

Title:

2

SCHEDULE I

Application and Agreement for

Irrevocable Standby Letter of Credit

To:                                          (“Bank”)

Please TYPE information in the fields below. We reserve the right to return illegible applications for clarification.

Date:		The undersigned Applicant hereby requests Bank to issue and transmit by: ¨ Overnight Carrier   ¨ Teletransmission   ¨ Mail   ¨ Other:
L/C No.		Explain:
	(Bank Use Only)	an Irrevocable Standby Letter of Credit (the “Credit”) substantially as set forth below. In issuing the Credit, Bank is expressly authorized to make such changes from the terms herein below set forth as it, in its sole discretion, may deem advisable.

Applicant (Full name & address)	Advising Bank (Designate name & address only, if desired)
Beneficiary (Full name & address)	Currency and amount in figures: ____________________________________________________
	Currency and amount in words: ____________________________________________________
	Expiration Date:
Charges: the Bank’s charges are for our account; all other banking charges are to be paid by beneficiary.

Credit to be available for payment against Beneficiary’s draft(s) at sight drawn on Bank or its correspondent at Bank’s option
accompanied by the following documents:

¨        Statement, purportedly signed by the Beneficiary, reading as follows (please state below exact wording to appear on the statement):

¨        Other Documents

¨        Special Conditions (including, if Applicant has a preference, selection of UCP as herein defined or ISP98 as herein defined).

¨        Issue substantially in form of attached specimen. (Specimen must also be signed by applicant.)

Complete only when the Beneficiary (Foreign Bank, or other Financial Institution) is to issue its undertaking based on this Credit. ¨Request Beneficiary to issue and deliver their (specify type of undertaking)                      in favor of                      for an amount not exceeding the amount specified above, effective immediately relative to (specify contract number or other pertinent reference) to expire on                      . (This date must be at least 15 days prior to expiry date indicated above.) It is understood that if the Credit is issued in favor of any bank or other financial or commercial entity which has issued or is to issue an undertaking on behalf of the Applicant of the Credit in connection with the Credit, the Applicant hereby agrees to remain liable under this Application and Agreement in respect of the Credit (even after its stated expiry date) until Bank is released by such bank or entity.

Each Applicant signing below affirms that it has fully read and agrees to this Application. (Note: If a bank, trust company, or other financial institution signs as Applicant or joint and several co-Applicant for its customer, or if two Applicants jointly and severally apply, both parties sign below.) Documents may be forwarded to the Bank by the beneficiary, or the negotiating bank, in one mail. Bank may forward documents to Applicant’s customhouse broker, or Applicant if specified above, in one mail. Applicant understands and agrees that this Credit will be subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce currently in effect, and in use by Bank (“UCP”) or to the International Standby Practices of the International Chamber of Commerce, Publication 590 or any subsequent version currently in effect and in use by Bank (“ISP98”).

(Print or type name of Applicant)	(Print or type name of Applicant)
(Address)	(Address)
Authorized Signature (Title)	Authorized Signature (Title)
Authorized Signature (Title)	Authorized Signature (Title)
Customer Contact:	Phone:

BANK USE ONLY NOTE: Application will NOT be processed if this section is not complete.
Approved (Authorized Signature)			Date:
Approved (Print name and title)			City:
Customer SIC Code:	Borrower Default Grade:		Telephone:
Charge DDA#:	Fee:	RC #:	CLAS Bank #:	CLAS Obligor #:
Other (please explain):

2

EXHIBIT G

APPROVED FORM OF LETTER OF CREDIT

IRREVOCABLE STANDBY LETTER OF CREDIT NO.

BENEFICIARY:

LADIES AND GENTLEMEN:

WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER                     , IN FAVOR OF [INSERT BENEFICIARY NAME], BY ORDER AND FOR THE ACCOUNT OF DUKE CAPITAL LLC, [ON BEHALF OF [INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY],] AT SIGHT FOR UP TO                      U.S. DOLLARS (                      UNITED STATES DOLLARS) AGAINST THE FOLLOWING DOCUMENTS:

1) A BENEFICIARY’S SIGNED CERTIFICATE STATING “[DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] IS IN DEFAULT UNDER ONE OR MORE AGREEMENTS BETWEEN [DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] AND [INSERT BENEFICIARY’S NAME].”

OR

2) A BENEFICIARY’S SIGNED CERTIFICATE STATING “[INSERT BENEFICIARY’S NAME] HAS REQUESTED ALTERNATE SECURITY FROM [DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] AND [DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] HAS NOT PROVIDED ALTERNATE SECURITY ACCEPTABLE TO [INSERT BENEFICIARY’S NAME] AND THIS LETTER OF CREDIT HAS LESS THAN TWENTY DAYS UNTIL EXPIRY.”

AND

3) A DRAFT STATING THE AMOUNT TO BE DRAWN.

SPECIAL CONDITIONS:

1. PARTIAL DRAWINGS ARE PERMITTED.

2. DOCUMENTS MUST BE PRESENTED AT OUR COUNTER NO LATER THAN                 , WHICH IS THE EXPIRY DATE OF THIS STANDBY LETTER OF CREDIT.

WE HEREBY ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AT OUR OFFICE LOCATED AT                                                       ON OR BEFORE THE EXPIRY DATE OF THIS CREDIT.

EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS, 1993 REVISION, INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500.

COMMUNICATIONS WITH RESPECT TO THIS STANDBY LETTER OF CREDIT SHALL BE IN WRITING AND SHALL BE ADDRESSED TO US AT                                              , SPECIFICALLY REFERRING TO THE NUMBER OF THIS STANDBY LETTER OF CREDIT.

VERY TRULY YOURS

[ISSUING BANK]

2

EX-10.2

EXHIBIT 10-2

$600,000,000

THREE-YEAR

CREDIT AGREEMENT

dated as of

June 30, 2004

among

Duke Capital LLC,

The Banks Listed Herein,

JPMorgan Chase Bank,

as Administrative Agent

and

Wachovia Bank, National Association,

as Syndication Agent

J.P. Morgan Securities Inc. and

Wachovia Capital Markets, LLC

Joint Lead Arrangers and

Joint Bookrunners

ABN Amro Bank, N.V.,

Barclays Bank PLC and

Citicorp USA, Inc.

Documentation Agents

TABLE OF CONTENTS

		PAGE
	ARTICLE 1
	DEFINITIONS
Section 1.01.	Definitions	1
Section 1.02.	Accounting Terms and Determinations	11
Section 1.03.	Types of Borrowings	11
	ARTICLE 2
	THE CREDITS
Section 2.01.	Commitments to Lend	11
Section 2.02.	Notice of Borrowings	12
Section 2.03.	Notice to Banks; Funding of Loans	13
Section 2.04.	Registry; Notes	14
Section 2.05.	Maturity of Loans; Effect of Cash Collateralization of Letters of Credit	14
Section 2.06.	Interest Rates	15
Section 2.07.	Fees	16
Section 2.08.	Optional Termination or Reduction of Commitments	16
Section 2.09.	Method of Electing Interest Rates	17
Section 2.10.	Mandatory Termination of Commitments	18
Section 2.11.	Optional Prepayments	18
Section 2.12.	General Provisions as to Payments	18
Section 2.13.	Funding Losses	19
Section 2.14.	Computation of Interest and Fees	19
Section 2.15.	Letters of Credit	20
Section 2.16.	Regulation D Compensation	24
	ARTICLE 3
	CONDITIONS
Section 3.01.	Effectiveness	24
Section 3.02.	Borrowings and Issuance of Letters of Credit	26
	ARTICLE 4
	REPRESENTATIONS AND WARRANTIES
Section 4.01.	Organization and Power	26
Section 4.02.	Company and Governmental Authorization; No Contravention	26
Section 4.03.	Binding Effect	27
Section 4.04.	Financial Information	27
Section 4.05.	Regulation U	27

Section 4.06.	Litigation	28
Section 4.07.	Compliance with Laws	28
Section 4.08.	Taxes	28
Section 4.09.	Public Utility Holding Company Act	28
	ARTICLE 5
	COVENANTS
Section 5.01.	Information	29
Section 5.02.	Payment of Taxes	30
Section 5.03.	Maintenance of Property; Insurance	31
Section 5.04.	Maintenance of Existence	31
Section 5.05.	Compliance with Laws	31
Section 5.06.	Books and Records	31
Section 5.07.	Maintenance of Ownership of Principal Subsidiaries	32
Section 5.08.	Negative Pledge	32
Section 5.09.	Consolidations, Mergers and Sales of Assets	33
Section 5.10.	Use of Proceeds	34
Section 5.11.	Transactions with Affiliates	34
Section 5.12.	Indebtedness/Capitalization Ratio	34
Section 5.13.	Interest Coverage Ratio	34
	ARTICLE 6
	DEFAULTS
Section 6.01.	Events of Default	35
Section 6.02.	Notice of Default	37
Section 6.03.	Cash Cover	37
	ARTICLE 7
	THE ADMINISTRATIVE AGENT
Section 7.01.	Appointment and Authorization	37
Section 7.02.	Administrative Agent and Affiliates	37
Section 7.03.	Action by Administrative Agent	37
Section 7.04.	Consultation with Experts	38
Section 7.05.	Liability of Administrative Agent	38
Section 7.06.	Indemnification	38
Section 7.07.	Credit Decision	38
Section 7.08.	Successor Administrative Agent	39
Section 7.09.	Administrative Agent’s Fee	39
Section 7.10.	Other Agents	39
	ARTICLE 8
	CHANGE IN CIRCUMSTANCES
Section 8.01.	Basis for Determining Interest Rate Inadequate or Unfair	39

ii

Section 8.02.	Illegality	40
Section 8.03.	Increased Cost and Reduced Return	40
Section 8.04.	Taxes	42
Section 8.05.	Base Rate Loans Substituted for Affected Euro-Dollar Loans	44
Section 8.06.	Substitution of Bank; Termination Option	45
	ARTICLE 9
	MISCELLANEOUS
Section 9.01.	Notices	46
Section 9.02.	No Waivers	46
Section 9.03.	Expenses; Indemnification	46
Section 9.04.	Sharing of Set-offs	47
Section 9.05.	Amendments and Waivers	47
Section 9.06.	Successors and Assigns	47
Section 9.07.	Collateral	49
Section 9.08.	Confidentiality	49
Section 9.09.	Governing Law; Submission to Jurisdiction	50
Section 9.10.	Counterparts; Integration	50
Section 9.11.	WAIVER OF JURY TRIAL	50
Section 9.12.	USA Patriot Act	50

PRICING SCHEDULE

SCHEDULE I -	Duke Capital LLC Credit Facilities (Being Replaced by this Agreement and the Related Agreement)
SCHEDULE 1.01-	Existing Letters of Credit
EXHIBIT A -	Note
EXHIBIT B-1 -	Opinion of Associate General Counsel of the Borrower
EXHIBIT B-2 -	Opinion of Special Counsel for the Borrower
EXHIBIT C -	Opinion of Davis Polk & Wardwell, Special Counsel for the Agents
EXHIBIT D -	Assignment and Assumption Agreement
EXHIBIT E -	Extension Agreement
EXHIBIT F -	Notice of Issuance
EXHIBIT G -	Approved Form of Letter of Credit

iii

THREE-YEAR

CREDIT AGREEMENT

THREE-YEAR CREDIT AGREEMENT dated as of June 30, 2004 among DUKE CAPITAL LLC, the BANKS listed on the signature pages hereof, JPMORGAN CHASE BANK, as Administrative Agent, and WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent.

The parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions. The following terms, as used herein, have the following meanings:

“Additional Bank” means any financial institution that becomes a Bank for purposes hereof in connection with the replacement of a Bank pursuant to Section 8.06.

“Administrative Agent” means JPMorgan Chase Bank in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity.

“Administrative Questionnaire” means, with respect to each Bank, the administrative questionnaire in the form submitted to such Bank by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank.

“Affiliate” means, as to any Person (the “specified Person”) (i) any Person that directly, or indirectly through one or more intermediaries, controls the specified Person (a “Controlling Person”) or (ii) any Person (other than the specified Person or a Subsidiary of the specified Person) which is controlled by or is under common control with a Controlling Person. As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless otherwise specified, “Affiliate” means an Affiliate of the Borrower.

“Agent” means any of the Administrative Agent, the Syndication Agent or the Documentation Agents.

“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.

“Approved Fund” means any Fund that is administered or managed by (i) a Bank, (ii) an Affiliate of a Bank or (iii) an entity or an Affiliate of an entity that administers or manages a Bank.

“Approved Officer” means the president, a vice president, the treasurer, an assistant treasurer or the controller of the Borrower or such other representative of the Borrower as may be designated by any one of the foregoing with the consent of the Administrative Agent.

“Assignee” has the meaning set forth in Section 9.06(c).

“Bank” means each bank or other financial institution listed on the signature pages hereof, each Additional Bank, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. Each reference herein to a “Bank” shall, unless the context otherwise requires, include each Issuing Bank in such capacity.

“Base Rate” means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day.

“Base Rate Loan” means (i) a Loan which bears interest at the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue.

“Borrower” means Duke Capital LLC, a Delaware limited liability company, and its successors.

“Borrowing” has the meaning set forth in Section 1.03.

“Commitment” means (i) with respect to each Bank listed on the signature pages hereof (other than Bank One, NA, which is acting only as an Issuing Bank and shall have no Commitment hereunder), the amount set forth opposite the name of such Bank on the signature pages hereof, and (ii) with respect to each Additional Bank or Assignee which becomes a bank pursuant to Sections 8.06 and 9.06(c), the amount of the Commitment thereby assumed by it, in each case as such amount may from time to time be reduced pursuant to Section 2.08, 2.10, 8.06 or 9.06(c) or increased pursuant to Section 8.06 or 9.06(c).

“Commitment Termination Date” means, for each Bank, June 30, 2007, as such date may be extended from time to time with respect to such Bank pursuant to Section 2.01(c) or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

2

“Consolidated Capitalization” means the sum of (i) Consolidated Indebtedness, (ii) consolidated members’ equity as would appear on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles, (iii) the aggregate liquidation preference of preferred member or other similar preferred or priority equity interests (other than preferred member or other similar preferred or priority equity interests subject to mandatory redemption or repurchase) of the Borrower and its Consolidated Subsidiaries upon involuntary liquidation, (iv) the aggregate outstanding amount of all Equity Preferred Securities and (v) minority interests as would appear on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles.

“Consolidated EBITDA” means, for any period, with respect to the Borrower and its Consolidated Subsidiaries, an amount equal to Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) taxes based on or measured by income, (ii) Interest Expense, (iii) depreciation and amortization expense, (iv) non-cash losses resulting from asset or goodwill impairment and (v) non-cash losses resulting from asset sales.

“Consolidated Indebtedness” means, at any date, all Indebtedness of Borrower and its Consolidated Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles.

“Consolidated Interest Coverage Ratio” means the ratio of (i) Consolidated EBITDA for each period of four consecutive fiscal quarters, commencing with the four quarters ending March 31, 2004, to (ii) Interest Expense for such period.

“Consolidated Net Income” means, for any period, the net income of the Borrower and its Consolidated Subsidiaries for such period determined in accordance with generally accepted accounting principles; provided, however, Consolidated Net Income shall not include (i) extraordinary gains or extraordinary losses, (ii) the cumulative effect of a change in accounting principles and (iii) any unrealized net margin recognized in operating income, all as reported in the Borrower’s consolidated statement(s) of income for the relevant period(s) prepared in accordance with generally accepted accounting principles.

“Consolidated Subsidiary” means, for any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date; unless otherwise specified “Consolidated Subsidiary” means a Consolidated Subsidiary of the Borrower.

“Continuing LC Issuer” means each Issuing Bank, other than Bank One, NA.

3

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“Documentation Agent” means each of ABN Amro Bank, N.V., Barclays Bank PLC and Citicorp USA, Inc., in its capacity as a documentation agent in connection with the credit facility provided under this Agreement.

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York City or, with respect to any Letter of Credit issued or to be issued in the State of North Carolina, in the State of North Carolina are authorized by law to close.

“Domestic Lending Office” means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent.

“Effective Date” means the date this Agreement becomes effective in accordance with Section 3.01.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

“Equity Preferred Securities” means any securities, however denominated, (i) issued by the Borrower or any Consolidated Subsidiary of the Borrower, (ii) that are not subject to mandatory redemption or the underlying securities, if any, of which are not subject to mandatory redemption, (iii) that are perpetual or mature no less than 20 years from the date of issuance, (iv) the indebtedness issued in connection with which, including any guaranty, is subordinated in right of payment to the unsecured and unsubordinated indebtedness of the issuer of such indebtedness or guaranty and (v) the terms of which permit the deferral of interest or distributions thereon to date occurring after the first anniversary of the later of (A) the Commitment Termination Date and (B) the “Commitment Termination Date” under the Related Agreement.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

4

“ERISA Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

“Euro-Dollar Business Day” means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London.

“Euro-Dollar Lending Office” means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

“Euro-Dollar Loan” means (i) a Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue.

“Euro-Dollar Margin” means the applicable rate per annum determined in accordance with the Pricing Schedule.

“Euro-Dollar Rate” means a rate of interest determined pursuant to Section 2.06(b) on the basis of a London Interbank Offered Rate.

“Euro-Dollar Reference Banks” means the principal London offices of JPMorgan Chase Bank and Wachovia Bank, National Association.

“Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.16.

“Event of Default” has the meaning set forth in Section 6.01.

“Existing Credit Agreements” means the credit facilities identified in Schedule I hereto, as amended and in effect on the Effective Date.

“Existing LC Issuers” means Bank One, NA and Wachovia Bank, National Association, provided that Bank One, NA shall not be deemed an Existing LC Issuer upon the expiration, termination or cancellation of all the Existing Letters of Credit issued by Bank One, NA.

“Existing Letters of Credit” means the letters of credit issued by the Existing LC Issuers before the date hereof and listed on Schedule 1.01 attached hereto.

“Facility Fee Rate” has the meaning set forth in the Pricing Schedule.

5

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to JPMorgan Chase Bank (or its successor as Administrative Agent) on such day on such transactions as determined by the Administrative Agent.

“Final Maturity Date” means, for each Bank, the first anniversary of its Commitment Termination Date or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“Group of Loans” means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been if it had not been so converted or made.

“Indebtedness” of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all indebtedness of such Person for the deferred purchase price of property or services purchased (excluding current accounts payable incurred in the ordinary course of business), (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired, (iv) all indebtedness under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases in respect of which such Person is liable as lessee, (v) the face amount of all outstanding letters of credit issued for the account of such Person (other than letters of credit relating to indebtedness included in Indebtedness of such Person pursuant to another clause of this definition) and, without duplication, the unreimbursed amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on property or assets of such Person, whether or not assumed (but in any event not exceeding the fair market value of the property or asset), (vii) all direct guarantees of Indebtedness referred to above of another Person, (viii) all amounts payable in connection with mandatory redemptions or repurchases of preferred stock or member interests or other preferred or priority equity interests and (ix) any obligations of such Person

6

(in the nature of principal or interest) in respect of acceptances or similar obligations issued or created for the account of such Person.

“Interest Expense” means interest expense as would appear on a consolidated statement of income of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles.

“Interest Period” means, with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six, or, if deposits of a corresponding maturity are generally available in the London interbank market, nine or twelve, months thereafter, as the Borrower may elect in such notice; provided that:

(a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and

(b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month;

provided further that: (x) no Interest Period applicable to any Loan of any Bank which begins before such Bank’s Commitment Termination Date may end after such Bank’s Commitment Termination Date; and (y) no Interest Period applicable to any Loan of any Bank may end after such Bank’s Final Maturity Date.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor statute.

“Investment Grade Status” exists as to any Person at any date if all senior long-term unsecured debt securities of such Person outstanding at such date which had been rated by S&P or Moody’s are rated BBB- or higher by S&P or Baa3 or higher by Moody’s, as the case may be.

“Issuing Bank” means (i) each Existing LC Issuer and (ii) any other Bank that may agree to issue letters of credit hereunder, in each case as issuer of a Letter of Credit hereunder.

“Letter of Credit” means a letter of credit issued or to be issued hereunder by the Issuing Bank in accordance with Section 2.15 and each Existing Letter of Credit.

7

“Letter of Credit Liabilities” means, for any Bank and at any time, such Bank’s ratable participation in the sum of (x) the amounts then owing by the Borrower in respect of amounts drawn under Letters of Credit and (y) the aggregate amount then available for drawing under all Letters of Credit.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan” means a Loan made by a Bank pursuant to Section 2.01(a) or 2.01(b); provided that, if any loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“London Interbank Offered Rate” has the meaning set forth in Section 2.06(b).

“Material Debt” means Indebtedness of the Borrower or any of its Material Subsidiaries in an aggregate principal amount exceeding $150,000,000.

“Material Plan” has the meaning set forth in Section 6.01(i).

“Material Subsidiary” means at any time any Subsidiary of the Borrower that is a “significant subsidiary” (as such term is defined on the Effective Date in Regulation S-X of the Securities and Exchange Commission (17 CFR 210.1-02(w)), but treating all references therein to the “registrant” as references to the Borrower); provided, however, in no event shall Duke Energy Field Services, LLC be deemed a Material Subsidiary.

“Moody’s” means Moody’s Investors Service, Inc.

“Notes” means promissory notes of the Borrower, in the form required by Section 2.04, evidencing the obligation of the Borrower to repay the Loans, and “Note” means any one of such promissory notes issued hereunder.

“Notice of Borrowing” has the meaning set forth in Section 2.02.

“Notice of Interest Rate Election” has the meaning set forth in Section 2.09(b).

“Notice of Issuance” has the meaning set forth in Section 2.15(c).

8

“Parent” means, with respect to any Bank, any Person controlling such Bank.

“Participant” has the meaning set forth in Section 9.06(b).

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Plan” means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and is either (i) maintained by a member of the ERISA Group for employees of a member of the ERISA Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.

“Pricing Schedule” means the Pricing Schedule attached hereto.

“Prime Rate” means the rate of interest publicly announced by JPMorgan Chase Bank in New York City from time to time as its Prime Rate. Each change in the Prime Rate shall be effective from and including the day such change is publicly announced.

“Principal Subsidiary” means each of Texas Eastern Transmission Limited Partnership, Algonquin Gas Transmission Company, PanEnergy Corp, Westcoast Energy Inc. and their respective successors.

“Quarterly Payment Date” means the first Domestic Business Day of each January, April, July and October.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Reimbursement Obligations” means, at any time, the aggregate of all obligations of the Borrower then outstanding under Section 2.15 to reimburse the Issuing Banks for amounts paid by the Issuing Banks in respect of any one or more drawings under Letters of Credit.

“Related Agreement” means the 364-Day Credit Agreement dated as of the date hereof among the Borrower, the banks and other financial institutions and Agents from time to time parties thereto, as amended and in effect from time to time.

9

“Required Banks” means at any time Banks (i) having at least 51% of the sum of the aggregate amount of the Commitments or (ii) if all the Commitments shall have been terminated, holding at least 51% of the sum of the aggregate unpaid principal amount of the Loans and the aggregate Letter of Credit Liabilities.

“Revolving Credit Loan” means a loan made or to be made by a Bank pursuant to Section 2.01(a); provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Revolving Credit Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Revolving Credit Period” means, with respect to any Bank, the period from and including the Effective Date to but not including its Commitment Termination Date.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc.

“Subsidiary” means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, “Subsidiary” means a Subsidiary of the Borrower.

“Substantial Assets” means assets sold or otherwise disposed of in a single transaction or a series of related transactions representing 25% or more of the consolidated assets of the Borrower and its Consolidated Subsidiaries, taken as a whole.

“Syndication Agent” means Wachovia Bank, National Association, in its capacity as syndication agent for the Banks hereunder, and its successors in such capacity.

“Term Loan” means a loan made or to be made by a Bank pursuant to Section 2.01(b); provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Term Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“United States” means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

“Unfunded Vested Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such

10

Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.

“Utilization” has the meaning set forth in the Pricing Schedule.

Section 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower’s independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks.

Section 1.03. Types of Borrowings. The term “Borrowing” denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement by reference to the pricing of Loans comprising such Borrowing (e.g., a “Euro-Dollar Borrowing” is a Borrowing comprised of Euro-Dollar Loans).

ARTICLE 2

THE CREDITS

Section 2.01. Commitments to Lend. (a) Revolving Credit Loans. During its Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this subsection from time to time in amounts such that the aggregate principal amount of Revolving Credit Loans by such Bank, together with its Letter of Credit Liabilities, at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this subsection shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments in effect on the date of Borrowing; provided that, if the Interest Period selected by the Borrower for a Borrowing would otherwise end after the Commitment Termination Dates of some but not all Banks, the Borrower may in its Notice of Borrowing elect not to borrow from those Banks whose Commitment Termination Dates fall prior to the end of such Interest Period. Within the foregoing limits, the Borrower may borrow under this subsection (a), or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Periods under this subsection (a).

11

(b) Term Loans. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a loan to the Borrower on its Commitment Termination Date in an amount such that the principal amount of the Term Loan by such Bank, together with its Letter of Credit Liabilities, shall not exceed its Commitment; provided that no Bank shall be obligated to make a loan pursuant to this subsection if any Commitment is extended on such date pursuant to Section 2.01(c). Each Borrowing under this Section 2.01(b) shall be made from the several Banks having the same Commitment Termination Date ratably in proportion to their respective Commitments.

(c) Extension of Commitments. The Borrower may, upon not less than 45 days but no earlier than 60 days notice prior to the then current Commitment Termination Dates to the Administrative Agent (which shall notify each Bank of receipt of such request), propose to extend the Commitment Termination Dates for an additional one-year period measured from the Commitment Termination Dates then in effect. Each Bank shall endeavor to respond to such request, whether affirmatively or negatively (such determination in the sole discretion of such Bank), by notice to the Borrower and the Administrative Agent not more than 45 days nor less than 28 days prior to such Bank’s Commitment Termination Date. Subject to the execution by the Borrower, the Administrative Agent and such Banks of a duly completed Extension Agreement in substantially the form of Exhibit E, the Commitment Termination Date applicable to the Commitment of each Bank so affirmatively notifying the Borrower and the Administrative Agent shall be extended for the period specified above; provided that no Commitment Termination Date of any Bank shall be extended unless Banks having Commitments in an aggregate amount equal to at least the greater of (i) 66 2/3% in aggregate amount of the Commitments in effect at the time any such extension is requested and (ii) the sum of the aggregate principal amount of the Loans outstanding at such time plus the aggregate amount of the Letter of Credit Liabilities at such time, after giving effect to any repayment of Loans and/or termination of Letters of Credit on such date, shall have elected so to extend their Commitments. Any Bank which does not give such notice to the Borrower and the Administrative Agent shall be deemed to have elected not to extend as requested, and the Commitment of each non-extending Bank shall terminate on its Commitment Termination Date determined without giving effect to such requested extension. The Borrower may, in accordance with Section 8.06, designate another bank or other financial institution (which may be, but need not be, an extending Bank) to replace a non-extending Bank.

Section 2.02. Notice of Borrowings. The Borrower shall give the Administrative Agent notice (a “Notice of Borrowing”) not later than 11:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:

(a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing;

12

(b) the aggregate amount of such Borrowing;

(c) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate; and

(d) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Section 2.03. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b) Not later than 1:00 P.M. (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent’s aforesaid address.

(c) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank’s share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.03 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and, if such Bank shall not have made such payment within two Domestic Business Days of demand therefor, the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank’s Loan included in such Borrowing for purposes of this Agreement.

(d) The failure of any Bank to make the Loan to be made by it as part of any Borrowing shall not relieve any other Bank of its obligation, if any, hereunder

13

to make a Loan on the date of such Borrowing, but no Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank.

Section 2.04. Registry; Notes. (a) The Administrative Agent shall maintain a register (the “Register”) on which it will record the Commitment of each Bank, each Loan made by such Bank and each repayment of any Loan made by such Bank. Any such recordation by the Administrative Agent on the Register shall be conclusive, absent manifest error. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower’s obligations hereunder.

(b) The Borrower hereby agrees that, promptly upon the request of any Bank at any time, the Borrower shall deliver to such Bank a duly executed Note, in substantially the form of Exhibit A hereto, payable to the order of such Bank and representing the obligation of the Borrower to pay the unpaid principal amount of the Loans made to the Borrower by such Bank, with interest as provided herein on the unpaid principal amount from time to time outstanding.

(c) Each Bank shall record the date, amount and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and each Bank receiving a Note pursuant to this Section, if such Bank so elects in connection with any transfer or enforcement of its Note, may endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of such Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required.

Section 2.05. Maturity of Loans; Effect of Cash Collateralization of Letters of Credit. (a) Each Revolving Credit Loan made by any Bank shall mature, and the principal amount thereof shall be due and payable together with accrued interest thereon, on the Commitment Termination Date of such Bank.

(b) The Term Loan of each Bank shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Final Maturity Date.

(c) If any provision of any debt instrument or other agreement or instrument binding upon the Borrower, including without limitation this Agreement, would be contravened by any deposit required to cash collateralize any letter of credit obligations under any other debt instrument or other agreement or instrument, the Borrower shall either (x) obtain a waiver of such provision, (y) prepay the debt incurred under such debt instrument and terminate such debt instrument or (z) make other arrangements satisfactory to the Required Banks; it being understood and agreed that the risk of any such contravention shall be borne

14

solely by the Borrower and not by the Banks and shall in no event constitute a defense available to the Borrower for nonperformance of its obligations hereunder.

Section 2.06. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Payment Date, at maturity and on the date of termination of the Commitments in their entirety. Any overdue principal of or overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.

(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.

The “London Interbank Offered Rate” applicable to any Interest Period means the rate appearing on Page 3750 of the Telerate Service Company (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of the Telerate Service, as may be nominated by the British Bankers’ Association for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) as of 11:00 A.M. (London time) two Euro-Dollar Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not so available at such time for any reason, then the “London Interbank Offered Rate” for such Interest Period shall be the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. If any Euro-Dollar Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation furnished by the remaining Euro-Dollar Reference Bank or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply.

(c) Any overdue principal of or overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the

15

date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 1% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan at the date such payment was due and (ii) the Base Rate for such day.

(d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks by telecopy, telex or cable of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error unless the Borrower raises an objection thereto within five Domestic Business Days after receipt of such notice.

Section 2.07. Fees. (a) Facility Fee. The Borrower shall pay to the Administrative Agent for the account of each Bank a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding such Bank’s Commitment Termination Date, on the daily average aggregate amount of such Bank’s Commitment (whether used or unused) and (ii) from and including such Bank’s Commitment Termination Date to but excluding the date such Bank’s Loans and Letter of Credit Liabilities shall be repaid in their entirety, on the daily average aggregate outstanding principal amount of such Bank’s Loans and Letter of Credit Liabilities.

(b) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent (i) for the account of the Banks ratably a letter of credit fee accruing daily on the aggregate amount then available for drawing under all outstanding Letters of Credit at a rate per annum equal to the then applicable Euro-Dollar Margin and (ii) for the account of each Issuing Bank a letter of credit fronting fee accruing daily on the aggregate amount then available for drawing under all Letters of Credit issued by such Issuing Bank at a rate per annum of 0.125% (or such other rate as may be mutually agreed from time to time by the Borrower and such Issuing Bank).

(c) Payments. Accrued fees under this Section for the account of any Bank shall be payable quarterly in arrears on each Quarterly Payment Date and (i) upon such Bank’s Commitment Termination Date and Final Maturity Date (and, if later, the date the Loans and Letter of Credit Liabilities of such Bank shall be repaid in their entirety) or (ii) in the case of accrued fees with respect to the Existing Letters of Credit issued by Bank One, NA, upon the expiration, termination or cancellation of the last of such Existing Letters of Credit.

Section 2.08. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days’ notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans or Letter of Credit Liabilities are outstanding at such time, or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of

16

$1,000,000 the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans and Letter of Credit Liabilities.

Section 2.09. Method of Electing Interest Rates. (a) The Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8 and the last sentence of this subsection (a)), as follows:

(i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and

(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.13 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans.

Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such notice applies, and the remaining portion to which it does not apply, are each $10,000,000 or any larger multiple of $1,000,000.

(b) Each Notice of Interest Rate Election shall specify:

(i) the Group of Loans (or portion thereof) to which such notice applies;

(ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection 2.09(a) above;

(iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans being converted are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and

17

(iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of the term “Interest Period”.

(c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to subsection 2.09(a) above, the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If no Notice of Interest Rate Election is timely received prior to the end of an Interest Period for any Group of Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans as of the last day of such Interest Period.

(d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section shall not constitute a “Borrowing” subject to the provisions of Section 3.02.

Section 2.10. Mandatory Termination of Commitments. The Commitment of each Bank shall terminate on such Bank’s Commitment Termination Date, and any Revolving Credit Loans of such Bank then outstanding (together with accrued interest thereon) shall be due and payable on such date.

Section 2.11. Optional Prepayments. (a) The Borrower may (i) upon notice to the Administrative Agent not later than 11:00 A.M. (New York City time) on any Domestic Business Day prepay on such Domestic Business Day any Group of Base Rate Loans and (ii) upon at least three Euro-Dollar Business Days’ notice to the Administrative Agent not later than 11:00 A.M. (New York City time) prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment and together with any additional amounts payable pursuant to Section 2.13. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing.

(b) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower.

Section 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 1:00 P.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01 and without

18

reduction by reason of any set-off, counterclaim or deduction of any kind. The Administrative Agent will promptly distribute to each Bank in like funds its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or Letter of Credit Liabilities or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.

Section 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is converted to a Base Rate Loan or continued as a Euro-Dollar Loan for a new Interest Period (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or if the Borrower fails to borrow, prepay, convert or continue any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.03(a), 2.09(c) or 2.11(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank shall have delivered to the Borrower a certificate setting forth in reasonable detail the calculation of the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.14. Computation of Interest and Fees. Interest based on the Base Rate and facility fees hereunder shall be computed on the basis of a year of

19

365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and Letter of Credit fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.15. Letters of Credit. (a) On the date hereof, without further action by any party hereto, each Existing LC Issuer shall be deemed to have granted to each Bank, and each Bank shall be deemed to have acquired from each Existing LC Issuer, a participation in each Existing Letter of Credit issued by such Existing LC Issuer, equal to such Bank’s proportionate share of the related Letter of Credit Liabilities. Such participations shall be on all the same terms and conditions as participations granted under this Section 2.15 in all the other Letters of Credit issued or to be issued hereunder.

(b) Subject to the terms and conditions hereof, each Continuing LC Issuer agrees to issue Letters of Credit hereunder from time to time before its Commitment Termination Date upon the request of the Borrower; provided that, immediately after each Letter of Credit is issued, the aggregate amount of the Letter of Credit Liabilities plus the aggregate outstanding amount of all Loans shall not exceed the aggregate amount of the Commitments. Upon the date of issuance by the Continuing LC Issuer of a Letter of Credit, the Continuing LC Issuer shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from the Continuing LC Issuer, a participation in such Letter of Credit and the related Letter of Credit Liabilities in the proportion its Commitment bears to the aggregate Commitments; provided that if the scheduled Commitment Termination Date of a Bank falls prior to the expiry date of a Letter of Credit then outstanding and the Commitments of the other Banks are extended on such date in accordance with Section 2.01(c), such Bank’s participation in such Letter of Credit shall terminate on its Commitment Termination Date, and the participations of the other Banks therein shall be redetermined pro rata in proportion to their Commitments after giving effect to the termination of the Commitment of such former Bank; and provided, further that, in the event that the Commitments of the other Banks are not extended in accordance with Section 2.01(c), then such Bank’s participation in all Letters of Credit shall remain at the level existing prior to the proposed extension, regardless of whether the expiry of any such Letters of Credit extends beyond such Bank’s Commitment Termination Date.

(c) The Borrower shall give the Continuing LC Issuer notice at least three Domestic Business Days prior to the requested issuance of a Letter of Credit, or, in the case of the Continuing LC Issuer’s Existing Letters of Credit (or Letters of Credit substantially in the form of the Continuing LC Issuer’s Existing Letters of Credit) or Letters of Credit substantially in the form of Exhibit G, at least one Business Day prior to the requested issuance of such Letter of Credit, specifying the date such Letter of Credit is to be issued and describing the terms

20

of such Letter of Credit (such notice, including any such notice given in connection with the extension of a Letter of Credit, a “Notice of Issuance”), substantially in the form of Exhibit F, appropriately completed. Upon receipt of a Notice of Issuance, the Continuing LC Issuer shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Bank of the contents thereof and of the amount of such Bank’s participation in such Letter of Credit. The issuance by the Continuing LC Issuer of each Letter of Credit shall, in addition to the conditions precedent set forth in Article 3, be subject to the conditions precedent that such Letter of Credit shall be denominated in U.S. dollars and shall be in such form and contain such terms as shall be reasonably satisfactory to the Continuing LC Issuer. Unless otherwise notified by the Administrative Agent, the Continuing LC Issuer may, but shall not be required to, conclusively presume that all conditions precedent set forth in Article 3 have been satisfied. The Borrower shall also pay to each Issuing Bank for its own account issuance, drawing, amendment and extension charges in the amounts and at the times as agreed between the Borrower and such Issuing Bank. Except for non-substantive amendments to any Letter of Credit for the purpose of correcting errors or ambiguities or to allow for administrative convenience (which amendments each Issuing Bank may make in its discretion with the consent of the Borrower), the amendment, extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit. If any Letter of Credit contains a provision pursuant to which it is deemed to be automatically renewed unless notice of termination is given by the Issuing Bank of such Letter of Credit, the Issuing Bank shall timely give notice of termination if (i) as of close of business on the seventeenth day prior to the last day upon which the Issuing Bank’s notice of termination may be given to the beneficiaries of such Letter of Credit, the Issuing Bank has received a notice of termination from the Borrower or a notice from the Administrative Agent that the conditions to issuance of such Letter of Credit have not been satisfied, (ii) the renewed Letter of Credit would have a term not permitted by subsection (d) below or (iii) such Letter of Credit is an Existing Letter of Credit issued by Bank One, NA.

(d) No Letter of Credit shall have a term extending or extendible beyond the first anniversary of the Commitment Termination Date of the applicable Issuing Bank.

(e) Upon receipt from the beneficiary of any applicable Letter of Credit of any notice of a drawing under such Letter of Credit, the Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall promptly notify the Borrower and each other Bank as to the amount to be paid as a result of such demand or drawing and the payment date. The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit without presentment, demand, protest or other formalities of any kind. All such amounts paid by the Issuing Bank and remaining unpaid by the Borrower shall bear interest, payable on demand, for each day until paid at a rate per annum

21

equal to the Base Rate for such day plus, if such amount remains unpaid for more than two Domestic Business Days, 1%. In addition, each Bank will pay to the Administrative Agent, for the account of the applicable Issuing Bank, immediately upon such Issuing Bank’s demand at any time during the period commencing after such drawing until reimbursement therefor in full by the Borrower, an amount equal to such Bank’s ratable share of such drawing (in proportion to its participation therein), together with interest on such amount for each day from the date of the Issuing Bank’s demand for such payment (or, if such demand is made after 12:00 Noon (New York City time) on such date, from the next succeeding Domestic Business Day) to the date of payment by such Bank of such amount at a rate of interest per annum equal to the Federal Funds Rate and, if such amount remains unpaid for more than five Domestic Business Days after the Issuing Bank’s demand for such payment, at a rate of interest per annum equal to the Base Rate plus 1%. The Issuing Bank will pay to each Bank ratably all amounts received from the Borrower for application in payment of its reimbursement obligations in respect of any Letter of Credit, but only to the extent such Bank has made payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto.

(f) The obligations of the Borrower and each Bank under subsection 2.15(e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances:

(i) the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting);

(ii) the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), the Banks (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(iii) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

(iv) payment under a Letter of Credit to the beneficiary of such Letter of Credit against presentation to the Issuing Bank of a draft or certificate that does not comply with the terms of the Letter of Credit; provided that the determination by the Issuing Bank to make such payment shall not have been the result of its willful misconduct or gross negligence; or

22

(v) any other act or omission to act or delay of any kind by any Bank (including the Issuing Bank), the Administrative Agent or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (v), constitute a legal or equitable discharge of the Borrower’s or the Bank’s obligations hereunder.

(g) The Borrower hereby indemnifies and holds harmless each Bank (including the Issuing Bank) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Bank or the Administrative Agent may incur (including, without limitation, any claims, damages, losses, liabilities, costs or expenses which the Issuing Bank may incur by reason of or in connection with (i) the failure of any other Bank to fulfill or comply with its obligations to such Issuing Bank hereunder (but nothing herein contained shall affect any rights the Borrower may have against such defaulting Bank) or (ii) any litigation arising with respect to this Agreement (whether or not the Issuing Bank shall prevail in such litigation)), and none of the Banks (including the Issuing Bank) nor the Administrative Agent nor any of their officers or directors or employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including without limitation any of the circumstances enumerated in subsection 2.15(f) above, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit and (iii) any consequences arising from causes beyond the control of the Issuing Bank, including, without limitation, any government acts or any other circumstances whatsoever, in making or failing to make payment under such Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses, and the Borrower shall have a claim for direct (but not consequential) damage suffered by it, to the extent found by a court of competent jurisdiction to have been caused by (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuing Bank’s failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of the Letter of Credit. Nothing in this subsection 2.15(g) is intended to limit the obligations of the Borrower under any other provision of this Agreement. To the extent the Borrower does not indemnify the Issuing Bank as required by this subsection, the Banks agree to do so ratably in accordance with their Commitments.

(h) The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit issued by it and the documents associated therewith, and the Issuing Bank shall have all of the benefits and immunities (i) provided to the Administrative Agent in Article 7 (other than Sections 7.08 and 7.09) with respect to any acts taken or omissions suffered by the Issuing Bank in connection with

23

Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article 7 included the Issuing Bank with respect to such acts or omissions and (ii) as additionally provided herein with respect to the Issuing Bank.

Section 2.16. Regulation D Compensation. In the event that a Bank is required to maintain reserves of the type contemplated by the definition of “Euro-Dollar Reserve Percentage”, such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall notify the Borrower at least three Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans of the amount then due it under this Section. Each such notification shall be accompanied by such information as the Borrower may reasonably request.

“Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of “Eurocurrency liabilities” (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents).

ARTICLE 3

CONDITIONS

Section 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05):

(a) receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in

24

form satisfactory to it of telegraphic, telecopy, telex or other written confirmation from such party of execution of a counterpart hereof by such party);

(b) receipt by the Administrative Agent of (i) an opinion of an associate general counsel of the Borrower, substantially in the form of Exhibit B-1 hereto and (ii) an opinion of Robinson, Bradshaw & Hinson, P.A., special counsel for the Borrower, substantially in the form of Exhibit B-2 hereto, and, in each case, covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(c) receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(d) receipt by the Administrative Agent of a certificate signed by a Vice President, the Treasurer, an Assistant Treasurer or the Controller of the Borrower, dated the Effective Date, to the effect set forth in clauses (c) and (d) of Section 3.02;

(e) receipt by the Administrative Agent of all documents it may have reasonably requested prior to the date hereof relating to the existence of the Borrower, the limited liability company authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent;

(f) receipt by the Administrative Agent of evidence satisfactory to it of the payment of all principal of and interest on any loans outstanding under, and all accrued commitment fees under, the Existing Credit Agreements and the cancellation or the expiration of any letter of credit issued thereunder; and

(g) receipt by the Administrative Agent for the account of the Banks of participation fees as heretofore mutually agreed by the Borrower and the Administrative Agent;

provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than June 30, 2004. The Administrative Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Borrower and the Banks party to the Existing Credit Agreements, comprising the “Required Banks” as defined therein, hereby agree that (i) the commitments of the lenders under the Existing Credit Agreements shall terminate in their entirety immediately and automatically upon the effectiveness of this Agreement, without further action by any party to the Existing Credit Agreements, (ii) all accrued fees under the Existing Credit Agreements shall be due and payable at such time and (iii) subject to the funding loss indemnities in the Existing Credit Agreements, the Borrower may prepay any

25

and all loans outstanding thereunder on the date of effectiveness of this Agreement.

Section 3.02. Borrowings and Issuance of Letters of Credit. The obligation of any Bank to make a Loan on the occasion of any Borrowing and the obligation of the Issuing Bank to issue (or renew or extend the term of) any Letter of Credit is subject to the satisfaction of the following conditions:

(a) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or receipt by the Issuing Bank of a Notice of Issuance as required by Section 2.15(c), as the case may be;

(b) the fact that, immediately after such Borrowing or issuance of such Letter of Credit, the sum of the aggregate outstanding principal amount of the Loans and the aggregate amount of Letter of Credit Liabilities will not exceed the aggregate amount of the Commitments;

(c) the fact that, immediately after such Borrowing or issuance of such Letter of Credit, no Default shall have occurred and be continuing; and

(d) the fact that the representations and warranties of the Borrower contained in this Agreement (except the representations and warranties set forth in Sections 4.04(c) and 4.06) shall be true on and as of the date of such Borrowing or issuance of such Letter of Credit.

Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

Section 4.01. Organization and Power. The Borrower is duly organized, validly existing and in good standing under the laws of Delaware and has all requisite powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and is duly qualified to do business in each jurisdiction where such qualification is required, except where the failure so to qualify would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.02. Company and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower’s limited liability company

26

powers, have been duly authorized by all necessary limited liability company action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of formation or limited liability company agreement of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Material Subsidiaries.

Section 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, if and when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

Section 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2003 and the related consolidated statements of income, cash flows, capitalization and retained earnings for the fiscal year then ended, reported on by Deloitte & Touche, copies of which have been delivered to each of the Banks by using the Borrower’s IntraLinks site, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.

(b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 31, 2004 and the related unaudited consolidated statements of income and cash flows for the three months then ended, copies of which have been delivered to each of the Banks by using the Borrower’s IntraLinks site, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such three-month period (subject to normal year-end adjustments and the absence of footnotes).

(c) Since December 31, 2003, there has been no material adverse change in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.05. Regulation U. The Borrower and its Material Subsidiaries are not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System) and no proceeds of any Borrowing or issuance of Letters of Credit by the Borrower will be used to

27

purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Not more than 25% of the value of the assets of the Borrower and its Material Subsidiaries is represented by margin stock.

Section 4.06. Litigation. Except as disclosed in the reports referred to in Section 4.04, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which would be likely to be decided adversely to Borrower or such Subsidiary and, as a result, have a material adverse effect upon the business, consolidated financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or any Note.

Section 4.07. Compliance with Laws. The Borrower and each Material Subsidiary is in compliance in all material respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including, without limitation, ERISA and Environmental Laws) except where (i) non-compliance would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of compliance therewith is contested in good faith by appropriate proceedings.

Section 4.08. Taxes. The Borrower and its Material Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Material Subsidiary except (i) where nonpayment would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) where the same are contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and its Material Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate.

Section 4.09. Public Utility Holding Company Act. The Borrower is not a holding company subject to the registration requirements of the Public Utility Holding Company Act of 1935, as amended.

28

ARTICLE 5

COVENANTS

The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable hereunder remains unpaid or any Letter of Credit Liabilities remain outstanding:

Section 5.01. Information. The Borrower will deliver to each of the Banks:

(a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, cash flows, capitalization and retained earnings for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner consistent with the requirements of the Securities and Exchange Commission by Deloitte & Touche or other independent public accountants of nationally recognized standing;

(b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower’s fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower’s previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by an Approved Officer of the Borrower;

(c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of an Approved Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Section 5.12 and 5.13 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

(d) within five days after any officer of the Borrower with responsibility relating thereto obtains knowledge of any Default, if such Default is then continuing, a certificate of an Approved Officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

(e) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission;

(f) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan

29

administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Material Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose material liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Material Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Material Plan or makes any amendment to any Material Plan which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and

(g) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request.

Information required to be delivered pursuant to these Sections 5.01(a), 5.01(b) and 5.01(e) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Securities and Exchange Commission website on the Internet at sec.gov/edaux/searches.htm, on the Borrower’s IntraLinks site at intralinks.com or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to Section 5.01(c) and such notice or certificate shall also be deemed to have been delivered upon being posted to the Borrower’s IntraLinks site and (ii) the Borrower shall deliver paper copies of the information referred to in Sections 5.01(a), 5.01(b) and 5.01(e) to any Bank which requests such delivery.

Section 5.02. Payment of Taxes. The Borrower will pay and discharge, and will cause each Material Subsidiary to pay and discharge, at or before maturity, all their tax liabilities, except where (i) nonpayment would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Material Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same.

30

Section 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Material Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted.

(b) The Borrower will, and will cause each of its Material Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary’s own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against by companies of established repute engaged in the same or a similar business; provided that self-insurance by the Borrower or any such Material Subsidiary shall not be deemed a violation of this covenant to the extent that companies engaged in similar businesses self-insure; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried.

Section 5.04. Maintenance of Existence. The Borrower will preserve, renew and keep in full force and effect, and will cause each Material Subsidiary to preserve, renew and keep in full force and effect their respective corporate or other legal existence and their respective rights, privileges and franchises material to the normal conduct of their respective businesses; provided that nothing in this Section 5.04 shall prohibit the termination of any right, privilege or franchise of the Borrower or any Material Subsidiary or of the corporate or other legal existence of any Material Subsidiary or the change in form of organization of the Borrower or any Material Subsidiary if the Borrower in good faith determines that such termination or change is in the best interest of the Borrower, is not materially disadvantageous to the Banks and, in the case of a change in the form of organization of the Borrower, the Administrative Agent has consented thereto.

Section 5.05. Compliance with Laws. The Borrower will comply, and cause each Material Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, ERISA and Environmental Laws) except where (i) noncompliance would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of compliance therewith is contested in good faith by appropriate proceedings.

Section 5.06. Books and Records. The Borrower will keep, and will cause each Material Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all financial transactions in relation to its business and activities in accordance with its customary practices; and will permit, and will cause each Material Subsidiary to permit, representatives of any Bank at such Bank’s expense (accompanied by a representative of the Borrower, if the Borrower so desires) to visit any of their respective properties, to examine any of their respective books and records and to discuss their respective

31

affairs, finances and accounts with their respective officers, employees and independent public accountants, all upon such reasonable notice, at such reasonable times and as often as may reasonably be desired.

Section 5.07. Maintenance of Ownership of Principal Subsidiaries. The Borrower will maintain ownership of all common equity interests of each Principal Subsidiary, directly or indirectly through Subsidiaries, free and clear of all Liens; provided that any Principal Subsidiary may merge or consolidate with or into the Borrower or another wholly-owned Subsidiary.

Section 5.08. Negative Pledge. The Borrower will not create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except:

(a) Liens granted by the Borrower existing on the date of this Agreement securing Indebtedness outstanding on the date of this Agreement in an aggregate principal amount not exceeding $100,000,000;

(b) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower and not created in contemplation of such event;

(c) any Lien existing on any asset prior to the acquisition thereof by the Borrower and not created in contemplation of such acquisition;

(d) any Lien on any asset securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset; provided that such Lien attaches to such asset concurrently with or within 180 days after the acquisition thereof;

(e) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this Section; provided that such Indebtedness is not increased and is not secured by any additional assets;

(f) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles;

(g) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law, created in the ordinary course of business and for amounts not past due for more than 60 days or which are being contested in good faith by appropriate proceedings which are sufficient to prevent imminent foreclosure of such Liens, are promptly instituted and diligently conducted and with respect to which adequate reserves or other

32

appropriate provisions are being maintained in accordance with generally accepted accounting principles;

(h) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts;

(i) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property;

(j) Liens with respect to judgments and attachments which do not result in an Event of Default;

(k) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other obligations arising in the ordinary course of business;

(l) other Liens including Liens imposed by Environmental Laws arising in the ordinary course of its business which (i) do not secure Indebtedness, (ii) do not secure any obligation in an amount exceeding $100,000,000 at any time at which Investment Grade Status does not exist as to the Borrower and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business;

(m) Liens required pursuant to the terms of this Agreement and the Related Agreement; and

(n) Liens not otherwise permitted by the foregoing clauses of this Section securing obligations in an aggregate principal or face amount at any date not to exceed $500,000,000.

Section 5.09. Consolidations, Mergers and Sales of Assets. The Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, Substantial Assets to any Person (other than a Subsidiary); provided that the Borrower may merge with another Person if the Borrower is the entity surviving such merger and, after giving effect thereto, no Default shall have occurred and be continuing.

33

Section 5.10. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for its general company purposes, including liquidity support for outstanding commercial paper and acquisitions. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any “margin stock” within the meaning of Regulation U.

Section 5.11. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction with, any Affiliate unless all such transactions between the Borrower and its Subsidiaries on the one hand and any Affiliate on the other, taken in the aggregate and not individually, shall be on an arms-length basis on terms no less favorable to the Borrower or such Subsidiary than could have been obtained from a third party who was not an Affiliate; provided that the foregoing provisions of this Section shall not prohibit the Borrower and each Subsidiary from (i) declaring or making any lawful distribution so long as, after giving effect thereto, no Default shall have occurred and be continuing, (ii) issuing and maintaining letters of credit, guaranties and sureties as contingent obligations on behalf of Affiliates, (iii) (A) the payment of funds on behalf of Duke Energy Corporation in respect of services, operations and expenditures shared with Duke Energy Corporation and for which a corresponding account payable is created on the books of Duke Energy Corporation for the benefit of the Borrower and (B) loans from the Borrower to Duke Energy Corporation, provided that the aggregate amount of all such payments and loans referred to in clauses (iii) (A) and (B) of this Section does not exceed $500,000,000 at any time outstanding (calculated at such time after giving effect to any repayments to the Borrower by, or on behalf of, Duke Energy Corporation), or (iv) in addition to those activities permitted by the preceding clause (iii), the payment of funds and making of capital contributions, loans and other transfers of money to Affiliates or to other Persons on behalf of such Affiliates, including payments made under letters of credit, guarantees and sureties issued and maintained on behalf of Affiliates, provided that the aggregate amount for all such payments and transfers referred to in this clause (iv) does not exceed $200,000,000 at any time outstanding (calculated at such time after giving effect to any repayments to the Borrower by, or on behalf of, such Affiliates for any such payment of funds and making of capital contributions, loans and other transfers of money).

Section 5.12. Indebtedness/Capitalization Ratio. The ratio of Consolidated Indebtedness to Consolidated Capitalization will at no time exceed 65%.

Section 5.13. Interest Coverage Ratio. The Consolidated Interest Coverage Ratio will not at the end of any fiscal quarter be less than 2.0 to 1.

34

ARTICLE 6

DEFAULTS

Section 6.01. Events of Default. If one or more of the following events (“Events of Default”) shall have occurred and be continuing:

(a) the Borrower shall fail to pay when due any principal of any Loan or Reimbursement Obligation or shall fail to pay, within five days of the due date thereof, any interest, fees or any other amount payable hereunder;

(b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.04, 5.08, 5.09, 5.12, 5.13 or the second sentence of 5.10, inclusive;

(c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank;

(d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made);

(e) the Borrower or any Material Subsidiary shall fail to make any payment in respect of Material Debt (other than the Loans) when due or within any applicable grace period;

(f) any event or condition shall occur and shall continue beyond the applicable grace or cure period, if any, provided with respect thereto so as to result in the acceleration of the maturity of Material Debt;

(g) the Borrower or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to, or shall fail generally to, pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(h) an involuntary case or other proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or

35

other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 90 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect;

(i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $50,000,000 (collectively, a “Material Plan”) shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against any member of the ERISA Group to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 90 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated;

(j) a judgment or other court order for the payment of money in excess of $50,000,000 shall be rendered against the Borrower or any Material Subsidiary and such judgment or order shall continue without being vacated, discharged, satisfied or stayed or bonded pending appeal for a period of 45 days;

(k) the Borrower shall cease to be a Subsidiary or Affiliate of Duke Energy Corporation; or

(l) an “Event of Default” as defined in the Related Agreement shall have occurred and be continuing;

then, and in every such event, the Administrative Agent shall (i) if requested by Banks having more than 66-2/3% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate and (ii) if requested by Banks holding more than 66-2/3% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans and all Reimbursement Obligations (together with accrued interest thereon) to be, and the Loans and all Reimbursement Obligations shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Loans and all Reimbursement Obligations (together with accrued interest thereon) shall become immediately due and payable without

36

presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 6.02. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.

Section 6.03. Cash Cover. The Borrower agrees, in addition to the provisions of Section 6.01 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Administrative Agent upon the instruction of the Banks having at least 66 2/3% in the aggregate amount of the Commitments (or, if the Commitments shall have been terminated, holding at least 66 2/3% of the Letter of Credit Liabilities), deposit with the Administrative Agent an amount in immediately available funds (which funds shall be held as collateral pursuant to arrangements mutually satisfactory to the Administrative Agent and the Borrower) equal to the aggregate amount available for drawing under all Letters of Credit then outstanding at such time; provided that, upon the occurrence of any Event of Default specified in Section 6.01(g) or 6.01(h) with respect to the Borrower, the Borrower shall pay such amount forthwith without any notice or demand or any other act by the Administrative Agent or the Banks.

ARTICLE 7

THE ADMINISTRATIVE AGENT

Section 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto.

Section 7.02. Administrative Agent and Affiliates. JPMorgan Chase Bank shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and JPMorgan Chase Bank and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Administrative Agent hereunder.

Section 7.03. Action by Administrative Agent. The obligations of the Administrative Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6.

37

Section 7.04. Consultation with Experts. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 7.05. Liability of Administrative Agent. Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable to any Bank for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it in good faith to be genuine or to be signed by the proper party or parties. Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties.

Section 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Administrative Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees thereunder.

Section 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem

38

appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement.

Section 7.08. Successor Administrative Agent. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower, with the consent of the Required Banks (such consent not to be unreasonably withheld or delayed), shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder; provided that if such successor Administrative Agent is appointed without the consent of the Borrower, such successor Administrative Agent may be replaced by the Borrower with the consent of the Required Banks. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent.

Section 7.09. Administrative Agent’s Fee. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Administrative Agent.

Section 7.10. Other Agents. None of the Syndication Agent or the Documentation Agents, in their capacity as such, shall have any duties or obligations of any kind under this Agreement.

ARTICLE 8

CHANGE IN CIRCUMSTANCES

Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Euro-Dollar Borrowing:

(a) the Administrative Agent is advised by the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Euro-Dollar Reference Banks in the relevant market for such Interest Period, or

39

(b) Banks having 66-2/3% or more of the aggregate amount of the affected Loans advise the Administrative Agent that the London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period,

the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least one Domestic Business Day before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing.

Section 8.02. Illegality. If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund any of its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not be otherwise disadvantageous to such Bank in the good faith exercise of its discretion. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day.

Section 8.03. Increased Cost and Reduced Return. (a) If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central

40

bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (the terms “Bank” and “Issuing Bank” shall include, for purposes of this Section 8.03, the holding company of any Issuing Bank) (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) issued on or after such date of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition (other than in respect of Taxes or Other Taxes) affecting its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans or its obligations hereunder in respect of Letters of Credit and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan or of issuing or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction; provided that no such amount shall be payable with respect to any period commencing more than 90 days prior to the date such Bank first notifies the Borrower of its intention to demand compensation therefor under this Section 8.03(a).

(b) If any Bank shall have determined that, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency given or made after the date of this Agreement, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction; provided that no such amount shall be payable with respect to any

41

period commencing less than 30 days after the date such Bank first notifies the Borrower of its intention to demand compensation under this Section 8.03(b).

(c) If on or after the date of this Agreement, the Financial Accounting Standards Board adopts any change in Statement of Financial Accounting Standards No. 140 and an Issuing Bank determines in good faith that such change requires it to reserve additional capital against its Letter of Credit Liabilities, such Issuing Bank may require the Borrower to pay, contemporaneously with each payment pursuant to Section 2.07(b), additional interest on the amount of such additional capital at a rate determined by such Issuing Bank up to but not exceeding the applicable Euro-Dollar Margin; provided that no such amounts shall be payable with respect to any period commencing less than 30 days after the date such Issuing Bank first notifies the Borrower of its intention to demand compensation under this Section 8.03(c). Any Issuing Bank requiring the Borrower to make additional payments under this Section 8.03(c) shall provide such information as the Borrower may reasonably request.

(d) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods.

Section 8.04. Taxes. (a) For purposes of this Section 8.04, the following terms have the following meanings:

“Taxes” means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Administrative Agent, taxes imposed on its income, net worth or gross receipts and franchise or similar taxes imposed on it by a jurisdiction under the laws of which such Bank or the Administrative Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments except to the extent that such Bank is subject to United States withholding tax by reason of a U.S. Tax Law Change.

“Other Taxes” means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from

42

the execution or delivery of, or otherwise with respect to, this Agreement or any Note.

“U.S. Tax Law Change” means with respect to any Bank or Participant the occurrence (x) in the case of each Bank listed on the signature pages hereof, after the date of its execution and delivery of this Agreement and (y) in the case of any other Bank, after the date such Bank shall have become a Bank hereunder, and (z) in the case of each Participant, after the date such Participant became a Participant hereunder, of the adoption of any applicable U.S. federal law, U.S. federal rule or U.S. federal regulation relating to taxation, or any change therein, or the entry into force, modification or revocation of any income tax convention or treaty to which the United States is a party.

(b) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof.

(c) The Borrower agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Administrative Agent (as the case may be) makes demand therefor.

(d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter as required by law (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower two completed and duly executed copies of Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, or other documentation reasonably requested by the Borrower, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces

43

the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States.

(e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to indemnification under Section 8.04(b) or 8.04(c) with respect to any Taxes or Other Taxes which would not have been payable had such form been so provided; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes (it being understood, however, that the Borrower shall have no liability to such Bank in respect of such Taxes).

(f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will take such action (including changing the jurisdiction of its Applicable Lending Office) as in the good faith judgment of such Bank (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.

(g) If any Bank or the Administrative Agent receives a refund (including a refund in the form of a credit against taxes that are otherwise payable by the Bank or the Administrative Agent) of any Taxes or Other Taxes for which the Borrower has made a payment under Section 8.04(b) or (c) and such refund was received from the taxing authority which originally imposed such Taxes or Other Taxes, such Bank or the Administrative Agent agrees to reimburse the Borrower to the extent of such refund; provided that nothing contained in this paragraph (g) shall require any Bank or the Administrative Agent to seek any such refund or make available its tax returns (or any other information relating to its taxes which it deems to be confidential).

Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make or to continue or convert outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply:

(a) all Loans which would otherwise be made by such Bank as (or continued as or converted to) Euro-Dollar Loans, as the case may be, shall instead

44

be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and

(b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Loans shall be applied to repay its Base Rate Loans instead.

If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks.

Section 8.06. Substitution of Bank; Termination Option. If (i) the obligation of any Bank to make or to convert or continue outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any Bank has demanded compensation under Section 8.03 or 8.04, (iii) any Bank exercises its right not to extend its Commitment Termination Date pursuant to Section 2.01(c) or (iv) Investment Grade Status ceases to exist as to any Bank, then:

(a) the Borrower shall have the right, with the assistance of the Administrative Agent, to designate a substitute bank or banks (which may be one or more of the Banks) mutually satisfactory to the Borrower, the Administrative Agent and the Issuing Banks (whose consent shall not be unreasonably withheld or delayed) to purchase for cash, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D hereto, the outstanding Loans of such Bank and assume the Commitment and Letter of Credit Liabilities of such Bank, without recourse to or warranty by, or expense to, such Bank, for a purchase price equal to the principal amount of all of such Bank’s outstanding Loans and funded Letter of Credit Liabilities plus any accrued but unpaid interest thereon and the accrued but unpaid fees in respect of such Bank’s Commitment hereunder and all other amounts payable by the Borrower to such Bank hereunder plus such amount, if any, as would be payable pursuant to Section 2.13 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment; and

(b) if at the time Investment Grade Status exists as to the Borrower, the Borrower may elect to terminate this Agreement as to such Bank; provided that (i) the Borrower notifies such Bank through the Administrative Agent of such election at least three Euro-Dollar Business Days before the effective date of such termination, (ii) the Borrower repays or prepays the principal amount of all outstanding Loans made by such Bank plus any accrued but unpaid interest thereon and the accrued but unpaid fees in respect of such Bank’s Commitment hereunder plus all other amounts payable by the Borrower to such Bank hereunder, not later than the effective date of such termination and (iii) if at the effective date of such termination, any Letter of Credit Liabilities are outstanding,

45

the conditions specified in Section 3.02 would be satisfied (after giving effect to such termination) were the related Letters of Credit issued on such date. Upon satisfaction of the foregoing conditions, the Commitment of such Bank shall terminate on the effective date specified in such notice.

ARTICLE 9

MISCELLANEOUS

Section 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Administrative Agent, at its address or telecopy or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telecopy or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telecopy or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telecopy or telex, when such telecopy or telex is transmitted to the telecopy or telex number specified in this Section and the appropriate answerback or confirmation slip, as the case may be, is received or (ii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent or any Issuing Bank under Article 2 or Article 3 shall not be effective until delivered.

Section 9.02. No Waivers. No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent, including reasonable fees and disbursements of special counsel for the Agents, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Administrative Agent or any Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom.

(b) The Borrower agrees to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of

46

counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee’s own gross negligence or willful misconduct as determined by a court of competent jurisdiction.

Section 9.04. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount then due with respect to the Loans and Letter of Credit Liabilities held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount then due with respect to the Loans and Letter of Credit Liabilities held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans and Letter of Credit Liabilities held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments with respect to the Loans and Letter of Credit Liabilities held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under this Agreement.

Section 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of any Agent or any Issuing Bank are affected thereby, by such Person); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or for reimbursement in respect of any Letter of Credit or interest thereon or any fees hereunder or for termination of any Commitment, (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans and Letter of Credit Liabilities, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement or (v) change the provisions of Section 9.04.

Section 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and each Indemnitee, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks.

47

(b) Any Bank may, with the consent (unless an Event of Default then exists) of the Borrower (such consent not to be unreasonably withheld or delayed), at any time grant to one or more banks or other institutions (each a “Participant”) participating interests in its Commitment or any or all of its Loans and Letter of Credit Liabilities; provided that any Bank may, without the consent of the Borrower, at any time grant participating interests in its Commitment or any or all of its Loans and Letter of Credit Liabilities to another Bank, an Approved Fund or an Affiliate of such transferor Bank. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Issuing Banks and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest, subject to the performance by such Participant of the obligations of a Bank thereunder. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c) Any Bank may at any time assign to one or more banks or other financial institutions (each an “Assignee”) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000 (unless the Borrower and the Administrative Agent shall otherwise agree)) of all, of its rights and obligations under this Agreement and its Note (if any), and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D hereto executed by such Assignee and such transferor Bank, with (and only with and subject to) the prior written consent of the Issuing Banks, the Administrative Agent (which shall not be unreasonably withheld or delayed) and, so long as no Event of Default has occurred and is continuing, the Borrower (which shall not be unreasonably withheld or delayed); provided that unless such assignment is of the entire right, title and interest of the transferor Bank hereunder, after making any such assignment such transferor Bank shall have a Commitment of at least $10,000,000 (unless the Borrower and the Administrative Agent shall otherwise agree). Upon execution and delivery of such instrument of assumption and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank

48

party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required by the Assignee, a Note is issued to the Assignee. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. All assignments (other than assignments to Affiliates) shall be subject to a transaction fee established by, and payable by the transferor Bank to, the Administrative Agent for its own account (which shall not exceed $5,000).

(d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note (if any) to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder or modify any such obligations.

(e) No Assignee, Participant or other transferee of any Bank’s rights (including any Applicable Lending Office other than such Bank’s initial Applicable Lending Office) shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

Section 9.07. Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any “margin stock” (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.

Section 9.08. Confidentiality. Each Agent and each Bank agrees to keep any information delivered or made available by the Borrower pursuant to this Agreement confidential from anyone other than persons employed or retained by such Bank and its affiliates who are engaged in evaluating, approving, structuring or administering the credit facility contemplated hereby; provided that nothing herein shall prevent any Bank from disclosing such information (a) to any other Bank or any Agent, (b) to any other Person if reasonably incidental to the administration of the credit facility contemplated hereby, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by any Agent or any Bank prohibited by this Agreement, (f) in connection with any litigation to which any Agent, any Bank or

49

its subsidiaries or Parent may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Bank’s or any Agent’s legal counsel and independent auditors and (i) subject to provisions substantially similar to those contained in this Section 9.08, to any actual or proposed Participant or Assignee.

Section 9.09. Governing Law; Submission to Jurisdiction. This Agreement and each Note (if any) shall be construed in accordance with and governed by the law of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

Section 9.10. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS, THE ISSUING BANKS AND THE BANKS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12. USA Patriot Act. Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

50

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

DUKE CAPITAL LLC
By:
	Title:	Assistant Treasurer
	Address:	422 South Church Street Charlotte, NC 28202-1904
	Attention:	S.L. Love
	Telecopy number:	704-382-9497

Commitments

$47,647,058.82	JPMORGAN CHASE BANK
	By:
		Name:
		Title:
$47,647,058.82	WACHOVIA BANK, NATIONAL ASSOCIATION
	By:
		Name:
		Title:
$47,647,058.82	CITIBANK, N.A.
	By:
		Name:
		Title:
$47,647,058.82	BANK OF AMERICA, N.A.
	By:
		Name:
		Title:

$35,294,117.65	ABN AMRO BANK N.V.
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$35,294,117.65	BARCLAYS BANK PLC
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$35,294,117.65	UBS LOAN FINANCE LLC
	By:
		Name:
		Title:
	By:
		Name:
		Title:

$35,294,117.65	DEUTSCHE BANK AG NEW YORK BRANCH
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$35,294,117.65	WILLIAM STREET CREDIT CORPORATION
	By:
		Name:
		Title:
$35,294,117.65	LEHMAN BROTHERS BANK, FSB
	By:
		Name:
		Title:
$24,705,882.35	THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH
	By:
		Name:
		Title:

$24,705,882.35	CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$24,705,882.35	DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$24,705,882.35	THE ROYAL BANK OF SCOTLAND plc
	By:
		Name:
		Title:

$24,705,882.35	MORGAN STANLEY BANK
	By:
		Name:
		Title:
$24,705,882.35	SUNTRUST BANK
	By:
		Name:
		Title:
$12,352,941.18	WESTLB AG, NEW YORK BRANCH
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$12,352,941.18	KEYBANK NATIONAL ASSOCIATION
	By:
		Name:
		Title:

$12,352,941.18	THE NORTHERN TRUST COMPANY
	By:
		Name:
		Title:
$12,352,941.18	MIZUHO CORPORATE BANK, LTD.
	By:
		Name:
		Title:
$                     0	BANK ONE, NA
	By:
		Name:
		Title:
Total Commitments
$600,000,000.00
	JPMORGAN CHASE BANK, as Administrative Agent
	By:
		Name:
		Title:
	WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent
	By:
		Name:
		Title:

Pricing Schedule

Each of “Euro-Dollar Margin” and “Facility Fee Rate” means, for any date, the rate set forth below in the applicable row and column corresponding to the column and “Utilization” that exist on such date:

(basis points per annum)

Ratings	at least A- by S&P or A3 by Moody’s	BBB+ by S&P or Baa1 by Moody’s	BBB by S&P or Baa2 by Moody’s	BBB- by S&P or Baa3 by Moody’s	BB+ by S&P or Ba1 by Moody’s	less than BB+ by S&P and less than Ba1 by Moody’s
Facility Fee	12.5	15.0	17.5	22.5	30.0	37.5
Euro-Dollar Margin
Utilization* £ 50%	50.0	60.0	82.5	102.5	120.0	162.5
Utilization*>50%	62.5	72.5	95.0	115.0	145.0	187.5

The Euro-Dollar Margin for the Term Loan shall equal the sum of (i) the rate that would otherwise be in effect based upon the table above and (ii) fifty (50) basis points.

*The “Utilization” applicable to any date is the percentage equivalent of a fraction the numerator of which is the sum of (i) the aggregate outstanding principal amount of the Loans determined at such time after giving effect, if one or more Loans are being made at such time, to any substantially concurrent application of the proceeds thereof to repay one or more other Loans plus (ii) the aggregate amount of the Letter of Credit Liabilities of all Banks at such time and the denominator of which is the aggregate amount of the Commitments at such date. If for any reason any Loans or Letter of Credit Liabilities remain outstanding following termination of the Commitments, Utilization will be deemed to be 100%.

The credit ratings to be utilized for purposes of this Schedule are those indicated for or assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating indicated for or assigned to any other debt security of the Borrower shall be disregarded. The ratings in effect for any day are those in effect at the close of business on such day. A change in credit rating will result in an immediate change in the applicable pricing. In the case of split ratings from S&P and Moody’s, the rating to be used to determine the applicable pricing is a rating one notch higher than the lower of the two.

SCHEDULE I

DUKE CAPITAL LLC

CREDIT FACILITIES

(Being Replaced by this Agreement and the Related Agreement)

Credit Agreement (3-Year Facility) dated as of August 20, 2001 among Duke Capital LLC, the lenders party thereto and JPMorgan Chase Bank, as administrative agent.

364-Day Credit Agreement dated as of April 17, 2003 among Duke Capital LLC, the lenders party thereto and Bank One, NA, as administrative agent.

Three-Year Credit Agreement dated as of April 19, 2001 among Duke Capital LLC, the lenders party thereto and Bank One, NA, as administrative agent.

SCHEDULE 1.01

EXISTING LETTERS OF CREDIT

Issuer	Standby L/C No.	Face Amount on the Effective Date		Expiry Date
Wachovia Bank	SM417781C	$	14,161,011.00	07/31/04
Wachovia Bank	SM202009W	$	150,000.00	06/30/04
Wachovia Bank	SM202061W	$	30,000.00	10/09/04
Wachovia Bank	SM202658W	$	18,000,000.00	04/30/05
Wachovia Bank	LC 968-099170	$	500,000.00	03/31/05
Wachovia Bank	LC 968-099214	$	900,000.00	03/31/05
Wachovia Bank	SM204906W	$	2,922,628.93	09/30/04
Wachovia Bank	SM204839W	$	1,658,789.39	09/30/04
Wachovia Bank	SM204493W	$	2,622,000.00	08/31/04
Wachovia Bank	SM205038W	$	26,000,000.00	09/30/04
Wachovia Bank	SM203942W	$	510,815.00	11/30/04
Wachovia Bank	SM204621W	$	137,500.00	08/31/04
Wachovia Bank	SM205525W	$	17,000,000.00	11/30/04
Wachovia Bank	SM205888W	$	50,000,000.00	01/30/05
Wachovia Bank	SM206035W	$	8,315,268.00	12/04/04
Wachovia Bank	SM205154W	$	2,058,408.00	12/31/04
Wachovia Bank	SM206350	$	112,500.00	01/02/05
Wachovia Bank	LC 968-121173	$	139,420.00	05/05/05
Wachovia Bank	SM206610W	$	6,261,712.99	01/18/05
Wachovia Bank	SM206468	$	3,633,539.94	12/31/04

Issuer	Standby L/C No.	Face Amount on the Effective Date		Expiry Date
Wachovia Bank	SM206469	$	19,747.49	12/31/04
Wachovia Bank	SM201197W	$	5,000,000.00	12/31/04
Wachovia Bank	SM207431W	$	10,000.00	04/19/05
Wachovia Bank	SM207518W	$	180,000.00	04/01/05
Wachovia Bank	SM207713	$	250,000.00	06/30/05
Wachovia Bank	SM207776	$	6,636,000.00	04/19/05
Bank One, NA	SLT326461	$	1,000,000.00	04/15/05
Bank One, NA	SLT326482	$	1,500,000.00	04/19/05
Bank One, NA	SLT330101	$	1,250,000.00	03/15/05
Bank One, NA	STL329973	$	262,100,000.00	09/30/04
Bank One, NA	SLT410311	$	10,660,000.00	06/01/05
Bank One, NA	SLT410312	$	8,375,402.50	06/01/05
Bank One, NA	SLT410361	$	6,000,000.00	06/10/05
Bank One, NA	SLT325160	$	1,500,000.00	09/30/04
Bank One, NA	SLT329779	$	15,175,564.15	11/01/04
Bank One, NA	SLT410033	$	9,373,180.00	02/24/05
Bank One, NA	SLT410026	$	633,500.00	03/01/05
Bank One, NA	SLT410084	$	1,685,021.00	09/05/04
Bank One, NA	SLT410085	$	4,538,554.00	09/05/04
Bank One, NA	SLT410125	$	16,000,000.00	03/25/05
Bank One, NA	SLT410158	$	255,000.00	04/19/05
Bank One, NA	SLT751483	$	50,000,000.00	09/30/04
Bank One, NA	SLT751654	$	3,000,000.00	05/05/04

Issuer	Standby L/C No.	Face Amount on the Effective Date		Ex piry Date
Bank One, NA	SLT751695	$	10,000,000.00	09/30/04
Bank One, NA	SLT752163	$	219,550.00	06/30/04
Bank One, NA	SLT752166	$	1,760,000.00	02/01/05
Bank One, NA	SLT752173	$	4,762,500.00	02/01/05
Bank One, NA	SLT752176	$	4,650,000.00	02/28/05
Bank One, NA	SLT752182	$	300,000.00	02/28/05

EXHIBIT A

NOTE

New York, New York

June 30, 2004

For value received, Duke Capital LLC, a Delaware limited liability company (the “Borrower”), promises to pay to the order of (the “Bank”), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the date specified in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of JPMorgan Chase Bank, 270 Park Avenue, New York, New York.

All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank, and the Bank, if the Bank so elects in connection with any transfer or enforcement of its Note, may endorse on the schedule attached hereto appropriate notations to evidence the foregoing information with respect to the Loans then outstanding; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement.

This note is one of the Notes referred to in the Three-Year Credit Agreement dated as of June 30, 2004 among the Borrower, the banks listed on the signature pages thereof, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent (as the same may be amended from time to time, the “Credit Agreement”). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.

DUKE CAPITAL LLC
By:
	Title:

Note (cont’d)

LOANS AND PAYMENTS OF PRINCIPAL

Date Amount of Loan Type of Loan Amount of Principal Repaid Maturity Date Notation Made By

2

EXHIBIT B-1

OPINION OF ASSOCIATE GENERAL COUNSEL OF THE BORROWER

June 30, 2004

To the Banks and the Administrative Agent

Referred to Below

c/o JPMorgan Chase Bank

as Administrative Agent

270 Park Avenue

New York, New York 10017

Ladies and Gentlemen:

I am an Associate General Counsel of Duke Capital LLC (the “Borrower”) and have acted as its counsel in connection with the Three-Year Credit Agreement (the “Credit Agreement”), dated as of June 30, 2004, among the Borrower, the banks listed on the signature pages thereof, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent. Capitalized terms defined in the Credit Agreement are used herein as therein defined. This opinion letter is being delivered pursuant to Section 3.01(b) of the Credit Agreement.

In such capacity, I or attorneys under my direct supervision have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, company records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, I am of the opinion that:

1. The Borrower is a limited liability company duly formed, validly existing and in good standing under the laws of Delaware.

2. The execution, delivery and performance by the Borrower of the Credit Agreement and any Notes are within the Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of formation or limited liability company agreement of the Borrower or, to my knowledge, of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or, to my knowledge, result in the creation

or imposition of any Lien on any asset of the Borrower or any of its Material Subsidiaries.

3. Except as disclosed in the reports referred to in Section 4.04 of the Credit Agreement, to my knowledge (but without independent investigation), there is no action, suit or proceeding pending or threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, which would be likely to be decided adversely to the Borrower or such Subsidiary and, as a result, to have a material adverse effect upon the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Credit Agreement or any Notes.

4. The Borrower is not a holding company subject to the registration requirements of the Public Utility Holding Company Act of 1935, as amended.

The phrase “to my knowledge”, as used in the foregoing opinion, refers to my actual knowledge without any independent investigation as to any such matters.

I am a member of the Bar of the State of North Carolina and do not express any opinion herein concerning any law other than the law of the State of North Carolina, the Limited Liability Company Act of the State of Delaware and the federal law of the United States of America.

This opinion is rendered to you in connection with the above-referenced mater and may not be relied upon by you for any other purpose, or relied upon by, or furnished to, any other Person, firm or corporation without my prior written consent, except for Additional Banks and Assignees. My opinions expressed herein are as of the date hereof, and I undertake no obligation to advise you of any changes of applicable law or any other matters that may come to my attention after the date hereof that may affect my opinions expressed herein.

Very truly yours,

2

EXHIBIT B-2

OPINION OF

ROBINSON, BRADSHAW & HINSON, P.A.,

SPECIAL COUNSEL FOR THE BORROWER

June 30, 2004

To the Banks and the Administrative Agent

Referred to Below

c/o JPMorgan Chase Bank

as Administrative Agent

270 Park Avenue

New York, New York 10017

Ladies and Gentlemen:

We have acted as counsel to Duke Capital LLC, a Delaware limited liability company, in connection with the Three-Year Credit Agreement (the “Credit Agreement”), dated as of June 30, 2004, among Duke Capital LLC, the banks listed on the signature pages thereof, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent. Capitalized terms used herein and not defined shall have the meanings given to them in the Credit Agreement. This opinion letter is being delivered pursuant to Section 3.01(b) of the Credit Agreement.

In connection with this opinion, we also examined originals, or copies identified to our satisfaction, of such other documents and considered such matters of law and fact as we, in our professional judgment, have deemed appropriate to render the opinions contained herein. Where we have considered it appropriate, as to certain facts we have relied, without investigation or analysis of any underlying data contained therein, upon certificates or other comparable documents of public officials and officers or other appropriate representatives of the Borrower.

In rendering the opinions contained herein, we have assumed, among other things, that the Credit Agreement and any Notes to be executed (i) are within the Borrower’s limited liability company powers, (ii) have been duly authorized by all necessary limited liability company action, (iii) require no action by or in respect of, or filing with, any governmental body, agency of official, and (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Borrower’s certificate of formation or limited liability company agreement or any agreement, judgment, injunction, order, decree or

other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. In addition, we have assumed that the Credit Agreement fully states the agreement between the Borrower and the Banks with respect to the matters addressed therein, and that the Credit Agreement constitutes a legal, valid and binding obligation of each Bank, enforceable in accordance with its respective terms.

The opinions set forth herein are limited to matters governed by the laws of the State of North Carolina and the federal laws of the United States, and no opinion is expressed herein as to the laws of any other jurisdiction. For purposes of our opinions, we have disregarded the choice of law provisions in the Credit Agreement and, instead, have assumed with your permission that the Credit Agreement and the Notes are governed exclusively by the internal, substantive laws and judicial interpretations of the State of North Carolina. We express no opinion concerning any matter respecting or affected by any laws other than laws that a lawyer in North Carolina exercising customary professional diligence would reasonably recognize as being directly applicable to the Borrower, the Loans, the Letters of Credit, or any of them.

Based upon and subject to the foregoing and the further limitations and qualifications hereinafter expressed, it is our opinion that the Credit Agreement constitutes the legal, valid and binding obligation of the Borrower and the Notes, if and when issued, will constitute legal, valid and binding obligations of the Borrower, in each case, enforceable against the Borrower in accordance with its terms.

The opinions expressed above are subject to the following qualifications and limitations:

1. Enforcement of the Credit Agreement and the Notes is subject to the effect of applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting the enforcement of creditors’ rights generally.

2. Enforcement of the Credit Agreement and the Notes is subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law) by which a court with proper jurisdiction may deny rights of specific performance, injunction, self-help, possessory remedies or other remedies.

3. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement or any Note that (i) purport to excuse a party for liability for its own acts, (ii) purport to make void any act done in contravention thereof, (iii) purport to authorize a party to act in its sole discretion, (iv) require waivers or amendments to be made only in writing, (v) purport to effect waivers of constitutional, statutory or equitable rights or the effect of applicable laws, (vi) impose liquidated damages, penalties or forfeiture,

2

or (vii) purport to indemnify a party for its own negligence or willful misconduct. Indemnification provisions in the Credit Agreement are subject to and may be rendered unenforceable by applicable law or public policy, including applicable securities law.

4. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement or the Notes purporting to require a party thereto to pay or reimburse attorneys’ fees incurred by another party, or to indemnify another party therefor, which may be limited by applicable statutes and decisions relating to the collection and award of attorneys’ fees, including but not limited to North Carolina General Statutes ' 6-21.2.

5. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement purporting to waive the right of jury trial. Under North Carolina General Statutes ' 22B-10, a provision for the waiver of the right to a jury trial is unconscionable and unenforceable.

6. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement concerning choice of forum or consent to the jurisdiction of courts, venue of actions or means of service of process.

7. It is likely that North Carolina courts will enforce the provisions of the Credit Agreement providing for interest at a higher rate resulting from a Default or Event of Default (a “Default Rate”) which rate is higher than the rate otherwise stipulated in the Credit Agreement. The law, however, disfavors penalties, and it is possible that interest at the Default Rate may be held to be an unenforceable penalty, to the extent such rate exceeds the rate applicable prior to a default under the Credit Agreement. Also, since North Carolina General Statutes ' 24-10.1 expressly provides for late charges, it is possible that North Carolina courts, when faced specifically with the issue, might rule that this statutory late charge preempts any other charge (such as default interest) by a bank for delinquent payments. The only North Carolina case which we have found that addresses this issue is a 1978 Court of Appeals decision, which in our opinion is of limited precedential value, North Carolina National Bank v. Burnette, 38 N.C. App. 120, 247 S.E.2d 648 (1978), rev’d on other grounds, 297 N.C. 524, 256 S.E.2d 388 (1979). While the court in that case did allow interest after default (commencing with the date requested in the complaint) at a rate six percent in excess of pre-default interest, we are unable to determine from the opinion that any question was raised as to this being penal in nature, nor does the court address the possible question of the statutory late charge preempting a default interest surcharge. Therefore, since the North Carolina Supreme Court has not ruled in a properly presented case raising issues of its possible penal nature and those of North Carolina General Statutes ' 24-10.1, we are unwilling to express an unqualified opinion that the Default Rate of interest prescribed in the Credit Agreement is enforceable.

3

8. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement relating to evidentiary standards or other standards by which the Credit Agreement are to be construed.

This opinion letter is delivered solely for your benefit in connection with the Credit Agreement and, except for any Additional Bank or any Assignee which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, may not be used or relied upon by any other Person or for any other purpose without our prior written consent in each instance. Our opinions expressed herein are as of the date hereof, and we undertake no obligation to advise you of any changes of applicable law or any other matters that may come to our attention after the date hereof that may affect our opinions expressed herein.

Very truly yours,

4

EXHIBIT C

OPINION OF

DAVIS POLK & WARDWELL, SPECIAL COUNSEL

FOR THE AGENTS

June 30, 2004

To the Banks and the Administrative Agent

  Referred to Below

c/o JPMorgan Chase Bank,

as Administrative Agent

270 Park Avenue

New York, New York 10017

Dear Sirs:

We have participated in the preparation of the Three-Year Credit Agreement (the “Credit Agreement”) dated as of June 30, 2004 among Duke Capital LLC, a Delaware limited liability company (the “Borrower”), the banks listed on the signature pages thereof (the “Banks”), JPMorgan Chase Bank, as Administrative Agent (the “Administrative Agent”), and Wachovia Bank, National Association, as Syndication Agent, and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined.

We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, company records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, we are of the opinion that:

1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower’s limited liability company powers and have been duly authorized by all necessary limited liability company action.

2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes, if and when issued, constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect.

This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by or furnished to any other person, firm or corporation without our prior written consent, except for Additional Banks and all Participants.

Very truly yours,

2

EXHIBIT D

ASSIGNMENT AND ASSUMPTION AGREEMENT

AGREEMENT dated as of             , 20     among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”), [DUKE CAPITAL LLC,] BANK ONE, NA [AND OTHER ISSUING BANK(S)], as Issuing Bank(s), and JPMORGAN CHASE BANK, as Administrative Agent (the “Administrative Agent”).

W I T N E S S E T H

WHEREAS, this Assignment and Assumption Agreement (the “Agreement”) relates to the Three-Year Credit Agreement dated as of June 30, 2004 among Duke Capital LLC (the “Borrower”), the Assignor and the other Banks party thereto, as Banks, the Administrative Agent and Wachovia Bank, National Association, as Syndication Agent (the “Credit Agreement”);

WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower and participate in Letters of Credit in an aggregate principal amount at any time outstanding not to exceed $            ;*

WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $             are outstanding at the date hereof;

WHEREAS, Letters of Credit with a total amount available for drawing thereunder of $             are outstanding at the date hereof; and

WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $             (the “Assigned Amount”), together with a corresponding portion of its outstanding Loans and Letter of Credit Liabilities, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms;*

* The asterisked provisions shall be appropriately revised in the event of an assignment after the Commitment Termination Date.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement.

SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by, and Letter of Credit Liabilities of, the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower,] the Issuing Banks and the Administrative Agent, the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor.

SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.^* It is understood that facility and Letter of Credit fees accrued to the date hereof in respect of the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.

SECTION 4. Consent to Assignment. This Agreement is conditioned upon the consent of [the Borrower,] the Issuing Banks and the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by [the Borrower,] the Issuing Banks and the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note, if required by the Assignee, payable to the order of the Assignee to evidence the assignment and assumption provided for herein.

* Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum.

2

SECTION 5. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of any Borrower, or the validity and enforceability of the obligations of any Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower.

SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

SECTION 8. Administrative Questionnaire. Attached is an Administrative Questionnaire duly completed by the Assignee.

3

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.

[ASSIGNOR]
By:
	Title:

[ASSIGNEE]
By:
	Title:

[DUKE CAPITAL LLC
By:
	Title:]

JPMORGAN CHASE BANK, as Administrative Agent
By:
	Title:

BANK ONE, NA, as Issuing Bank
By:
	Title:

[ISSUING BANK]
By:
	Title:

4

EXHIBIT E

EXTENSION AGREEMENT

JPMorgan Chase Bank, as Administrative

Agent under the Credit Agreement

referred to below

270 Park Avenue

New York, New York 10017

Ladies and Gentlemen:

Effective as of [date], the undersigned hereby agrees to extend its Commitment and Commitment Termination Date under the Three-Year Credit Agreement dated as of June 30, 2004 among Duke Capital LLC, (the “Borrower”), the banks parties thereto, JPMorgan Chase Bank, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent (the “Credit Agreement”) for one year to [date to which its Commitment Termination Date is to be extended] pursuant to Section 2.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined.

This Extension Agreement shall be construed in accordance with and governed by the law of the State of New York. This Extension Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

[NAME OF BANK]
By:
	Title:

Agreed and Accepted: DUKE CAPITAL LLC, as Borrower
By
	Title:

JPMORGAN CHASE BANK, as Administrative Agent
By
	Title:

2

EXHIBIT F

NOTICE OF ISSUANCE

Date:                     

To:	JPMorgan Chase Bank, as Administrative Agent                     , as Issuing Bank
From:	Duke Capital LLC
Re:	Three-Year Credit Agreement dated as of June 30, 2004 (as amended from time to time, the “Credit Agreement”) among Duke Capital LLC (the “Borrower”), the Banks parties thereto and JPMorgan Chase Bank, as Administrative Agent

The Borrower hereby gives notice pursuant to Section 2.15(c) of the Credit Agreement that the Borrower requests the above-named Issuing Bank to issue on or before                      a Letter of Credit containing the terms attached hereto as Schedule I (the “Requested Letter of Credit”).

The Requested Letter of Credit will be subject to [UCP 500] [ISP98].

The Borrower hereby represents and warrants to the Issuing Bank, the Administrative Agent and the Banks that:

(a) immediately after the issuance of the Requested Letter of Credit, the sum of the aggregate outstanding principal amount of the Loans and the aggregate amount of Letter of Credit Liabilities will not exceed the aggregate amount of the Commitments;

(b) immediately after the issuance of the Requested Letter of Credit, no Default shall have occurred and be continuing; and

(c) the representations and warranties contained in the Credit Agreement (except the representations and warranties set forth in Sections 4.04(c) and 4.06 of the Credit Agreement) shall be true on and as of the date of issuance of the Requested Letter of Credit.

The Borrower hereby authorizes the Issuing Bank to issue the Requested Letter of Credit with such variations from the above terms as the Issuing Bank may, in its discretion, determine are necessary and are not materially inconsistent with this Notice of Issuance. The opening of the Requested Letter of Credit and the Borrower’s responsibilities with respect thereto are subject to [UCP 500] [ISP98] as indicated above and the terms and conditions set forth in the Credit Agreement.

Terms used herein and not otherwise defined herein have the meanings assigned to them in the Credit Agreement.

DUKE CAPITAL LLC

By:

Title:

2

SCHEDULE I

Application and Agreement for

Irrevocable Standby Letter of Credit

To:                                          (“Bank”)

Please TYPE information in the fields below. We reserve the right to return illegible applications for clarification.

Date:		The undersigned Applicant hereby requests Bank to issue and transmit by: ¨ Overnight Carrier   ¨ Teletransmission   ¨ Mail   ¨ Other:
L/C No.		Explain:
	(Bank Use Only)	an Irrevocable Standby Letter of Credit (the “Credit”) substantially as set forth below. In issuing the Credit, Bank is expressly authorized to make such changes from the terms herein below set forth as it, in its sole discretion, may deem advisable.

Applicant (Full name & address)	Advising Bank (Designate name & address only, if desired)
Beneficiary (Full name & address)	Currency and amount in figures: ____________________________________________________
	Currency and amount in words: ____________________________________________________
	Expiration Date:
Charges: the Bank’s charges are for our account; all other banking charges are to be paid by beneficiary.

Credit to be available for payment against Beneficiary’s draft(s) at sight drawn on Bank or its correspondent at Bank’s option
accompanied by the following documents:

         Statement, purportedly signed by the Beneficiary, reading as follows (please state below exact wording to appear on the statement):

         Other Documents

         Special Conditions (including, if Applicant has a preference, selection of UCP as herein defined or ISP98 as herein defined).

         Issue substantially in form of attached specimen. (Specimen must also be signed by applicant.)

Complete only when the Beneficiary (Foreign Bank, or other Financial Institution) is to issue its undertaking based on this Credit.          Request Beneficiary to issue and deliver their (specify type of undertaking)                  in favor of                  for an amount not exceeding the amount specified above, effective immediately relative to (specify contract number or other pertinent reference) to expire on                 . (This date must be at least 15 days prior to expiry date indicated above.) It is understood that if the Credit is issued in favor of any bank or other financial or commercial entity which has issued or is to issue an undertaking on behalf of the Applicant of the Credit in connection with the Credit, the Applicant hereby agrees to remain liable under this Application and Agreement in respect of the Credit (even after its stated expiry date) until Bank is released by such bank or entity.

Each Applicant signing below affirms that it has fully read and agrees to this Application. (Note: If a bank, trust company, or other financial institution signs as Applicant or joint and several co-Applicant for its customer, or if two Applicants jointly and severally apply, both parties sign below.) Documents may be forwarded to the Bank by the beneficiary, or the negotiating bank, in one mail. Bank may forward documents to Applicant’s customhouse broker, or Applicant if specified above, in one mail. Applicant understands and agrees that this Credit will be subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce currently in effect, and in use by Bank (“UCP”) or to the International Standby Practices of the International Chamber of Commerce, Publication 590 or any subsequent version currently in effect and in use by Bank (“ISP98”).

(Print or type name of Applicant)	(Print or type name of Applicant)
(Address)	(Address)
Authorized Signature (Title)	Authorized Signature (Title)
Authorized Signature (Title)	Authorized Signature (Title)
Customer Contact:	Phone:

BANK USE ONLY NOTE: Application will NOT be processed if this section is not complete.
Approved (Authorized Signature)			Date:
Approved (Print name and title)			City:
Customer SIC Code:	Borrower Default Grade:		Telephone:
Charge DDA#:	Fee:	RC #:	CLAS Bank #:	CLAS Obligor #:
Other (please explain):

2

EXHIBIT G

APPROVED FORM OF LETTER OF CREDIT

IRREVOCABLE STANDBY LETTER OF CREDIT NO.

BENEFICIARY:

LADIES AND GENTLEMEN:

WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER                     , IN FAVOR OF [INSERT BENEFICIARY NAME], BY ORDER AND FOR THE ACCOUNT OF DUKE CAPITAL LLC, [ON BEHALF OF [INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY],] AT SIGHT FOR UP TO                      U.S. DOLLARS (                      UNITED STATES DOLLARS) AGAINST THE FOLLOWING DOCUMENTS:

1) A BENEFICIARY’S SIGNED CERTIFICATE STATING “[DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] IS IN DEFAULT UNDER ONE OR MORE AGREEMENTS BETWEEN [DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] AND [INSERT BENEFICIARY’S NAME].”

OR

2) A BENEFICIARY’S SIGNED CERTIFICATE STATING “[INSERT BENEFICIARY’S NAME] HAS REQUESTED ALTERNATE SECURITY FROM [DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] AND [DUKE CAPITAL LLC/[INSERT NAME OF DUKE CAPITAL LLC’S AFFILIATE OR SUBSIDIARY]] HAS NOT PROVIDED ALTERNATE SECURITY ACCEPTABLE TO [INSERT BENEFICIARY’S NAME] AND THIS LETTER OF CREDIT HAS LESS THAN TWENTY DAYS UNTIL EXPIRY.”

AND

3) A DRAFT STATING THE AMOUNT TO BE DRAWN.

SPECIAL CONDITIONS:

1. PARTIAL DRAWINGS ARE PERMITTED.

2. DOCUMENTS MUST BE PRESENTED AT OUR COUNTER NO LATER THAN                 , WHICH IS THE EXPIRY DATE OF THIS STANDBY LETTER OF CREDIT.

WE HEREBY ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AT OUR OFFICE LOCATED AT                                               ON OR BEFORE THE EXPIRY DATE OF THIS CREDIT.

EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS, 1993 REVISION, INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500.

COMMUNICATIONS WITH RESPECT TO THIS STANDBY LETTER OF CREDIT SHALL BE IN WRITING AND SHALL BE ADDRESSED TO US AT                                         , SPECIFICALLY REFERRING TO THE NUMBER OF THIS STANDBY LETTER OF CREDIT.

VERY TRULY YOURS

[ISSUING BANK]

2

EX-10.3

EXHIBIT 10-3

$500,000,000

THREE-YEAR

CREDIT AGREEMENT

dated as of

June 30, 2004

among

Duke Energy Corporation,

The Banks Listed Herein,

Citicorp USA, Inc.,

as Administrative Agent

and

Bank of America, N.A.,

as Syndication Agent

Citigroup Global Markets Inc. and

Banc of America Securities LLC

Joint Lead Arrangers and

Joint Bookrunners

Deutsche Bank Securities Inc.,

JPMorgan Chase Bank and

UBS Securities LLC

Documentation Agents

TABLE OF CONTENTS

		PAGE
	ARTICLE 1
	DEFINITIONS
Section 1.01.	Definitions	1
Section 1.02.	Accounting Terms and Determinations	9
Section 1.03.	Types of Borrowings	9
	ARTICLE 2
	THE CREDITS
Section 2.01.	Commitments to Lend	10
Section 2.02.	Notice of Borrowings	11
Section 2.03.	Notice to Banks; Funding of Loans	11
Section 2.04.	Registry; Notes	12
Section 2.05.	Maturity of Loans	13
Section 2.06.	Interest Rates	13
Section 2.07.	Fees	14
Section 2.08.	Optional Termination or Reduction of Commitments	14
Section 2.09.	Method of Electing Interest Rates	15
Section 2.10.	Mandatory Termination of Commitments	16
Section 2.11.	Optional Prepayments	16
Section 2.12.	General Provisions as to Payments	16
Section 2.13.	Funding Losses	17
Section 2.14.	Computation of Interest and Fees	17
Section 2.15.	Regulation D Compensation	18
	ARTICLE 3
	CONDITIONS
Section 3.01.	Effectiveness	18
Section 3.02.	Borrowings	20
	ARTICLE 4
	REPRESENTATIONS AND WARRANTIES
Section 4.01.	Organization and Power	20
Section 4.02.	Corporate and Governmental Authorization; No Contravention	20
Section 4.03.	Binding Effect	21
Section 4.04.	Financial Information	21
Section 4.05.	Regulation U	21
Section 4.06.	Litigation	22
Section 4.07.	Compliance with Laws	22

i

Section 4.08.	Taxes	22
Section 4.09.	Public Utility Holding Company Act	22
	ARTICLE 5
	COVENANTS
Section 5.01.	Information	22
Section 5.02.	Payment of Taxes	24
Section 5.03.	Maintenance of Property; Insurance	24
Section 5.04.	Maintenance of Existence	25
Section 5.05.	Compliance with Laws	25
Section 5.06.	Books and Records	25
Section 5.07.	Negative Pledge	26
Section 5.08.	Consolidations, Mergers and Sales of Assets	27
Section 5.09.	Use of Proceeds	27
Section 5.10.	Indebtedness/Capitalization Ratio	27
	ARTICLE 6
	DEFAULTS
Section 6.01.	Events of Default	28
Section 6.02.	Notice of Default	30
	ARTICLE 7
	THE ADMINISTRATIVE AGENT
Section 7.01.	Appointment and Authorization	30
Section 7.02.	Administrative Agent and Affiliates	30
Section 7.03.	Action by Administrative Agent	30
Section 7.04.	Consultation with Experts	30
Section 7.05.	Liability of Administrative Agent	30
Section 7.06.	Indemnification	31
Section 7.07.	Credit Decision	31
Section 7.08.	Successor Administrative Agent	31
Section 7.09.	Administrative Agent’s Fee	32
Section 7.10.	Other Agents	32
	ARTICLE 8
	CHANGE IN CIRCUMSTANCES
Section 8.01.	Basis for Determining Interest Rate Inadequate or Unfair	32
Section 8.02.	Illegality	33
Section 8.03.	Increased Cost and Reduced Return	33
Section 8.04.	Taxes	34
Section 8.05.	Base Rate Loans Substituted for Affected Euro-Dollar Loans	37
Section 8.06.	Substitution of Bank; Termination Option	37

ii

	ARTICLE 9
	MISCELLANEOUS
Section 9.01.	Notices	38
Section 9.02.	No Waivers	38
Section 9.03.	Expenses; Indemnification	38
Section 9.04.	Sharing of Set-offs	39
Section 9.05.	Amendments and Waivers	39
Section 9.06.	Successors and Assigns	40
Section 9.07.	Collateral	41
Section 9.08.	Confidentiality	41
Section 9.09.	Governing Law; Submission to Jurisdiction	42
Section 9.10.	Counterparts; Integration	42
Section 9.11.	WAIVER OF JURY TRIAL	42
Section 9.12.	USA Patriot Act	42

PRICING SCHEDULE

SCHEDULE I -	Duke Energy Corporation Credit Facility (Being Replaced by this Agreement)
EXHIBIT A -	Note
EXHIBIT B-1 -	Opinion of Associate General Counsel of the Borrower
EXHIBIT B-2 -	Opinion of Special Counsel for the Borrower
EXHIBIT C -	Opinion of Davis Polk & Wardwell, Special Counsel for the Agents
EXHIBIT D -	Assignment and Assumption Agreement
EXHIBIT E -	Extension Agreement

iii

THREE-YEAR

CREDIT AGREEMENT

THREE-YEAR CREDIT AGREEMENT dated as of June 30, 2004 among DUKE ENERGY CORPORATION, the BANKS listed on the signature pages hereof, CITICORP USA, INC., as Administrative Agent, and BANK OF AMERICA, N.A., as Syndication Agent.

The parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions. The following terms, as used herein, have the following meanings:

“Additional Bank” means any financial institution that becomes a Bank for purposes hereof in connection with the replacement of a Bank pursuant to Section 8.06.

“Administrative Agent” means Citicorp USA, Inc. in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity.

“Administrative Questionnaire” means, with respect to each Bank, the administrative questionnaire in the form submitted to such Bank by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank.

“Affiliate” means, as to any Person (the “specified Person”) (i) any Person that directly, or indirectly through one or more intermediaries, controls the specified Person (a “Controlling Person”) or (ii) any Person (other than the specified Person or a Subsidiary of the specified Person) which is controlled by or is under common control with a Controlling Person. As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless otherwise specified, “Affiliate” means an Affiliate of the Borrower.

“Agent” means any of the Administrative Agent, the Syndication Agent or the Documentation Agents.

“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.

“Approved Fund” means any Fund that is administered or managed by (i) a Bank, (ii) an Affiliate of a Bank or (iii) an entity or an Affiliate of an entity that administers or manages a Bank.

“Approved Officer” means the president, the treasurer, an assistant treasurer or the controller of the Borrower or such other representative of the Borrower as may be designated by any one of the foregoing with the consent of the Administrative Agent.

“Assignee” has the meaning set forth in Section 9.06(c).

“Bank” means each bank or other financial institution listed on the signature pages hereof, each Additional Bank, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors.

“Base Rate” means, for any day, a rate per annum equal to the higher of (i) the Citibank Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day.

“Base Rate Loan” means (i) a Loan which bears interest at the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue.

“Borrower” means Duke Energy Corporation, a North Carolina corporation, and its successors.

“Borrowing” has the meaning set forth in Section 1.03.

“Citibank Rate” means the rate of interest per annum publicly announced from time to time by Citibank, N.A. as its base rate in effect at its principal office in New York City. Each change in the Citibank Rate shall be effective on the date such change is publicly announced.

“Commitment” means (i) with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the signature pages hereof, and (ii) with respect to each Additional Bank or Assignee which becomes a bank pursuant to Sections 8.06 and 9.06(c), the amount of the Commitment thereby assumed by it, in each case as such amount may from time to time be reduced pursuant to Section 2.08, 2.10, 8.06 or 9.06(c) or increased pursuant to Section 8.06 or 9.06(c).

“Commitment Termination Date” means, for each Bank, June 30, 2007, as such date may be extended from time to time with respect to such Bank pursuant to Section 2.01(c) or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

2

“Consolidated Capitalization” means the sum of (i) Consolidated Indebtedness, (ii) consolidated common stockholders’ equity as would appear on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles, (iii) the aggregate liquidation preference of preferred stocks (other than preferred stocks subject to mandatory redemption or repurchase) of the Borrower and its Consolidated Subsidiaries upon involuntary liquidation, (iv) the aggregate outstanding amount of all Equity Preferred Securities and (v) minority interests as would appear on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with generally accepted accounting principles.

“Consolidated Indebtedness” means, at any date, all Indebtedness of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles.

“Consolidated Subsidiary” means, for any Person, at any date any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date; unless otherwise specified “Consolidated Subsidiary” means a Consolidated Subsidiary of the Borrower.

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“Documentation Agent” means each of Deutsche Bank Securities Inc., JPMorgan Chase Bank and UBS Securities LLC, in its capacity as a documentation agent in connection with the credit facility provided under this Agreement.

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.

“Domestic Lending Office” means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent.

“Effective Date” means the date this Agreement becomes effective in accordance with Section 3.01.

“Endowment” means the Duke Endowment, a charitable common law trust established by James B. Duke by Indenture dated December 11, 1924.

3

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

“Equity Preferred Securities” means any securities, however denominated, (i) issued by the Borrower or any Consolidated Subsidiary of the Borrower, (ii) that are not subject to mandatory redemption or the underlying securities, if any, of which are not subject to mandatory redemption, (iii) that are perpetual or mature no less than 20 years from the date of issuance, (iv) the indebtedness issued in connection with which, including any guaranty, is subordinated in right of payment to the unsecured and unsubordinated indebtedness of the issuer of such indebtedness or guaranty and (v) the terms of which permit the deferral of interest or distributions thereon to date occurring after the first anniversary of the Commitment Termination Date.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

“Euro-Dollar Business Day” means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London.

“Euro-Dollar Lending Office” means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

“Euro-Dollar Loan” means (i) a Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue.

“Euro-Dollar Margin” means the applicable rate per annum determined in accordance with the Pricing Schedule.

4

“Euro-Dollar Rate” means a rate of interest determined pursuant to Section 2.06(b) on the basis of a London Interbank Offered Rate.

“Euro-Dollar Reference Banks” means the principal London offices of Citibank, N.A. and Bank of America, N.A.

“Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.15.

“Event of Default” has the meaning set forth in Section 6.01.

“Existing Credit Agreement” means the credit facility identified in Schedule I hereto, as amended and in effect on the Effective Date.

“Facility Fee Rate” has the meaning set forth in the Pricing Schedule.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Citibank, N.A. on such day on such transactions as determined by the Administrative Agent.

“Final Maturity Date” means, for each Bank, the first anniversary of its Commitment Termination Date or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“Group of Loans” means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been if it had not been so converted or made.

“Indebtedness” of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all indebtedness of such Person for the deferred purchase price of property or services purchased

5

(excluding current accounts payable incurred in the ordinary course of business), (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired, (iv) all indebtedness under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases in respect of which such Person is liable as lessee, (v) the face amount of all outstanding letters of credit issued for the account of such Person (other than letters of credit relating to indebtedness included in Indebtedness of such Person pursuant to another clause of this definition) and, without duplication, the unreimbursed amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on property or assets of such Person, whether or not assumed (but in any event not exceeding the fair market value of the property or asset), (vii) all direct guarantees of Indebtedness referred to above of another Person, (viii) all amounts payable in connection with mandatory redemptions or repurchases of preferred stock and (ix) any obligations of such Person (in the nature of principal or interest) in respect of acceptances or similar obligations issued or created for the account of such Person.

“Interest Period” means, with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six, or, if deposits of a corresponding maturity are generally available in the London interbank market, nine or twelve, months thereafter, as the Borrower may elect in such notice; provided that:

(a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and

(b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month;

provided further that: (x) no Interest Period applicable to any Loan of any Bank which begins before such Bank’s Commitment Termination Date may end after such Bank’s Commitment Termination Date; and (y) no Interest Period applicable to any Loan of any Bank may end after such Bank’s Final Maturity Date.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor statute.

“Investment Grade Status” exists as to any Person at any date if all senior long-term unsecured debt securities of such Person outstanding at such date

6

which had been rated by S&P or Moody’s are rated BBB- or higher by S&P or Baa3 or higher by Moody’s, as the case may be.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan” means a loan made by a Bank pursuant to Section 2.01(a) or 2.01(b); provided that, if any loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“London Interbank Offered Rate” has the meaning set forth in Section 2.06(b).

“Material Debt” means Indebtedness of the Borrower or any of its Material Subsidiaries in an aggregate principal amount exceeding $150,000,000.

“Material Plan” has the meaning set forth in Section 6.01(i).

“Material Subsidiary” means at any time any Subsidiary of the Borrower that is a “significant subsidiary” (as such term is defined on the Effective Date in Regulation S-X of the Securities and Exchange Commission (17 CFR 210.1-02(w)), but treating all references therein to the “registrant” as references to the Borrower); provided, however, in no event shall Duke Energy Field Services, LLC be deemed a Material Subsidiary.

“Moody’s” means Moody’s Investors Service, Inc.

“Mortgage Indenture” means the First and Refunding Mortgage between the Borrower and JPMorgan Chase Bank, as successor trustee, dated as of December 1, 1927, as amended or supplemented from time to time.

“Notes” means promissory notes of the Borrower, in the form required by Section 2.04, evidencing the obligation of the Borrower to repay the Loans, and “Note” means any one of such promissory notes issued hereunder.

“Notice of Borrowing” has the meaning set forth in Section 2.02.

“Notice of Interest Rate Election” has the meaning set forth in Section 2.09(b).

7

“Parent” means, with respect to any Bank, any Person controlling such Bank.

“Participant” has the meaning set forth in Section 9.06(b).

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Plan” means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and is either (i) maintained by a member of the ERISA Group for employees of a member of the ERISA Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.

“Pricing Schedule” means the Pricing Schedule attached hereto.

“Quarterly Payment Date” means the first Domestic Business Day of each January, April, July and October.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Required Banks” means at any time Banks (i) having at least 51% of the sum of the aggregate amount of the Commitments or (ii) if all the Commitments shall have been terminated, holding at least 51% of the aggregate unpaid principal amount of the Loans.

“Revolving Credit Loan” means a loan made or to be made by a Bank pursuant to Section 2.01(a); provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Revolving Credit Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Revolving Credit Period” means, with respect to any Bank, the period from and including the Effective Date to but not including its Commitment Termination Date.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc.

8

“Subsidiary” means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, “Subsidiary” means a Subsidiary of the Borrower.

“Substantial Assets” means assets sold or otherwise disposed of in a single transaction or a series of related transactions representing 25% or more of the consolidated assets of the Borrower and its Consolidated Subsidiaries, taken as a whole.

“Syndication Agent” means Bank of America, N.A., in its capacity as syndication agent for the Banks hereunder, and its successors in such capacity.

“Term Loan” means a loan made or to be made by a Bank pursuant to Section 2.01(b); provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Term Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Trust” means The Doris Duke Trust, a trust established by James B. Duke by Indenture dated December 11, 1924 for the benefit of certain relatives.

“United States” means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

“Unfunded Vested Liabilities” means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.

“Utilization” has the meaning set forth in the Pricing Schedule.

Section 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower’s independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks.

Section 1.03. Types of Borrowings. The term “Borrowing” denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant

9

to Article 2 on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement by reference to the pricing of Loans comprising such Borrowing (e.g., a “Euro-Dollar Borrowing” is a Borrowing comprised of Euro Dollar Loans).

ARTICLE 2

THE CREDITS

Section 2.01. Commitments to Lend. (a) Revolving Credit Loans. During its Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this subsection from time to time in amounts such that the aggregate principal amount of Revolving Credit Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this subsection shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments in effect on the date of Borrowing; provided that, if the Interest Period selected by the Borrower for a Borrowing would otherwise end after the Commitment Termination Dates of some but not all Banks, the Borrower may in its Notice of Borrowing elect not to borrow from those Banks whose Commitment Termination Dates fall prior to the end of such Interest Period. Within the foregoing limits, the Borrower may borrow under this subsection (a), or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Periods under this subsection (a).

(b) Term Loans. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a loan to the Borrower on its Commitment Termination Date in an amount up to but not exceeding the amount of its Commitment; provided that no Bank shall be obligated to make a loan pursuant to this subsection if any Commitment is extended on such date pursuant to Section 2.01(c). Each Borrowing under this Section 2.01(b) shall be made from the several Banks having the same Commitment Termination Date ratably in proportion to their respective Commitments.

(c) Extension of Commitments. The Borrower may, upon not less than 45 days but no earlier than 60 days notice prior to the then current Commitment Termination Dates to the Administrative Agent (which shall notify each Bank of receipt of such request), propose to extend the Commitment Termination Dates for an additional one-year period measured from the Commitment Termination Dates then in effect. Each Bank shall endeavor to respond to such request, whether affirmatively or negatively (such determination in the sole discretion of such Bank), by notice to the Borrower and the Administrative Agent not more than 45 days nor less than 28 days prior to such Bank’s Commitment Termination

10

Date. Subject to the execution by the Borrower, the Administrative Agent and such Banks of a duly completed Extension Agreement in substantially the form of Exhibit E, the Commitment Termination Date applicable to the Commitment of each Bank so affirmatively notifying the Borrower and the Administrative Agent shall be extended for the period specified above; provided that no Commitment Termination Date of any Bank shall be extended unless Banks having Commitments in an aggregate amount equal to at least 66 2/3% in aggregate amount of the Commitments in effect at the time any such extension is requested shall have elected so to extend their Commitments. Any Bank which does not give such notice to the Borrower and the Administrative Agent shall be deemed to have elected not to extend as requested, and the Commitment of each non-extending Bank shall terminate on its Commitment Termination Date determined without giving effect to such requested extension. The Borrower may, in accordance with Section 8.06, designate another bank or other financial institution (which may be, but need not be, an extending Bank) to replace a non-extending Bank.

Section 2.02. Notice of Borrowings. The Borrower shall give the Administrative Agent notice (a “Notice of Borrowing”) not later than 11:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:

(a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing;

(b) the aggregate amount of such Borrowing;

(c) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate; and

(d) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Section 2.03. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b) Not later than 1:00 P.M. (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make

11

the funds so received from the Banks available to the Borrower at the Administrative Agent’s aforesaid address.

(c) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank’s share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.03 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and, if such Bank shall not have made such payment within two Domestic Business Days of demand therefor, the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank’s Loan included in such Borrowing for purposes of this Agreement.

(d) The failure of any Bank to make the Loan to be made by it as part of any Borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make a Loan on the date of such Borrowing, but no Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank.

Section 2.04. Registry; Notes. (a) The Administrative Agent shall maintain a register (the “Register”) on which it will record the Commitment of each Bank, each Loan made by such Bank and each repayment of any Loan made by such Bank. Any such recordation by the Administrative Agent on the Register shall be conclusive, absent manifest error. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower’s obligations hereunder.

(b) The Borrower hereby agrees that, promptly upon the request of any Bank at any time, the Borrower shall deliver to such Bank a duly executed Note, in substantially the form of Exhibit A hereto, payable to the order of such Bank and representing the obligation of the Borrower to pay the unpaid principal amount of the Loans made to the Borrower by such Bank, with interest as provided herein on the unpaid principal amount from time to time outstanding.

(c) Each Bank shall record the date, amount and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and each Bank receiving a Note pursuant to this

12

Section, if such Bank so elects in connection with any transfer or enforcement of its Note, may endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of such Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required.

Section 2.05. Maturity of Loans. (a) Each Revolving Credit Loan made by any Bank shall mature, and the principal amount thereof shall be due and payable together with accrued interest thereon, on the Commitment Termination Date of such Bank.

(b) The Term Loan of each Bank shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Final Maturity Date.

Section 2.06. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Payment Date, at maturity and on the date of termination of the Commitments in their entirety. Any overdue principal of or overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.

(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.

The “London Interbank Offered Rate” applicable to any Interest Period means the rate appearing on Page 3750 of the Telerate Service Company (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of the Telerate Service, as may be nominated by the British Bankers’ Association for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) as of 11:00 A.M. (London time) two Euro-Dollar Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not so available at such time for any reason, then the “London Interbank Offered Rate” for such Interest Period shall be the average (rounded upward, if necessary, to the next higher 1/16 of 1%)

13

of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. If any Euro-Dollar Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation furnished by the remaining Euro-Dollar Reference Bank or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply.

(c) Any overdue principal of or overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 1% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan at the date such payment was due and (ii) the Base Rate for such day.

(d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks by telecopy, telex or cable of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error unless the Borrower raises an objection thereto within five Domestic Business Days after receipt of such notice.

Section 2.07. Fees. (a) Facility Fee. The Borrower shall pay to the Administrative Agent for the account of each Bank a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding such Bank’s Commitment Termination Date, on the daily average aggregate amount of such Bank’s Commitment (whether used or unused) and (ii) from and including such Bank’s Commitment Termination Date to but excluding the date such Bank’s Loans shall be repaid in their entirety, on the daily average aggregate outstanding principal amount of such Bank’s Loans.

(b) Payments. Accrued fees under this Section for the account of any Bank shall be payable quarterly in arrears on each Quarterly Payment Date and upon such Bank’s Commitment Termination Date and Final Maturity Date (and, if later, the date the Loans of such Bank shall be repaid in their entirety).

Section 2.08. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days’ notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time, or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000 the aggregate amount

14

of the Commitments in excess of the aggregate outstanding principal amount of the Loans.

Section 2.09. Method of Electing Interest Rates. (a) The Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8 and the last sentence of this subsection (a)), as follows:

(i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and

(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.13 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans.

Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such notice applies, and the remaining portion to which it does not apply, are each $10,000,000 or any larger multiple of $1,000,000.

(b) Each Notice of Interest Rate Election shall specify:

(i) the Group of Loans (or portion thereof) to which such notice applies;

(ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection 2.09(a) above;

(iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans being converted are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and

15

(iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of the term “Interest Period”.

(c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to subsection 2.09(a) above, the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If no Notice of Interest Rate Election is timely received prior to the end of an Interest Period for any Group of Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans as of the last day of such Interest Period.

(d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section shall not constitute a “Borrowing” subject to the provisions of Section 3.02.

Section 2.10. Mandatory Termination of Commitments. The Commitment of each Bank shall terminate on such Bank’s Commitment Termination Date, and any Revolving Credit Loans of such Bank then outstanding (together with accrued interest thereon) shall be due and payable on such date.

Section 2.11. Optional Prepayments. (a) The Borrower may (i) upon notice to the Administrative Agent not later than 11:00 A.M. (New York City time) on any Domestic Business Day prepay on such Domestic Business Day any Group of Base Rate Loans and (ii) upon at least three Euro-Dollar Business Days’ notice to the Administrative Agent not later than 11:00 A.M. (New York City time) prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment and together with any additional amounts payable pursuant to Section 2.13. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing.

(b) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower.

Section 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 1:00 P.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01 and without

16

reduction by reason of any set-off, counterclaim or deduction of any kind. The Administrative Agent will promptly distribute to each Bank in like funds its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.

Section 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is converted to a Base Rate Loan or continued as a Euro-Dollar Loan for a new Interest Period (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or if the Borrower fails to borrow, prepay, convert or continue any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.03(a), 2.09(c) or 2.11(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank shall have delivered to the Borrower a certificate setting forth in reasonable detail the calculation of the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.14. Computation of Interest and Fees. Interest based on the Base Rate and facility fees hereunder shall be computed on the basis of a year of

17

365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.15. Regulation D Compensation. In the event that a Bank is required to maintain reserves of the type contemplated by the definition of “Euro-Dollar Reserve Percentage”, such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall notify the Borrower at least three Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans of the amount then due it under this Section. Each such notification shall be accompanied by such information as the Borrower may reasonably request.

“Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of “Eurocurrency liabilities” (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents).

ARTICLE 3

CONDITIONS

Section 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05):

(a) receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telecopy, telex or other written confirmation from such party of execution of a counterpart hereof by such party);

18

(b) receipt by the Administrative Agent of (i) an opinion of an associate general counsel of the Borrower, substantially in the form of Exhibit B-1 hereto and (ii) an opinion of Robinson, Bradshaw & Hinson, P.A., special counsel for the Borrower, substantially in the form of Exhibit B-2 hereto, and, in each case, covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(c) receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;

(d) receipt by the Administrative Agent of a certificate signed by a Vice President, the Treasurer, an Assistant Treasurer or the Controller of the Borrower, dated the Effective Date, to the effect set forth in clauses (c) and (d) of Section 3.02;

(e) receipt by the Administrative Agent of all documents it may have reasonably requested prior to the date hereof relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent;

(f) receipt by the Administrative Agent of evidence satisfactory to it of the payment of all principal of and interest on any loans outstanding under, and all accrued commitment fees under, the Existing Credit Agreement and the cancellation or the expiration of any letter of credit issued thereunder; and

(g) receipt by the Administrative Agent for the account of the Banks of participation fees as heretofore mutually agreed by the Borrower and the Administrative Agent;

provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than June 30, 2004. The Administrative Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Borrower and the Banks party to the Existing Credit Agreement, comprising the “Required Banks” as defined therein, hereby agree that (i) the commitments of the lenders under the Existing Credit Agreement shall terminate in their entirety immediately and automatically upon the effectiveness of this Agreement, without further action by any party to the Existing Credit Agreement, (ii) all accrued fees under the Existing Credit Agreement shall be due and payable at such time and (iii) subject to the funding loss indemnities in the Existing Credit Agreement, the Borrower may prepay any and all loans outstanding thereunder on the date of effectiveness of this Agreement.

19

Section 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions:

(a) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02;

(b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments;

(c) the fact that, immediately after such Borrowing, no Default shall have occurred and be continuing; and

(d) the fact that the representations and warranties of the Borrower contained in this Agreement (except the representations and warranties set forth in Sections 4.04(c) and 4.06) shall be true on and as of the date of such Borrowing.

Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

Section 4.01. Organization and Power. The Borrower is duly organized, validly existing and in good standing under the laws of North Carolina and has all requisite powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and is duly qualified to do business in each jurisdiction where such qualification is required, except where the failure so to qualify would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except for the approval of the obtaining of credit pursuant to this Agreement by the North Carolina Utilities Commission and The Public Service Commission of South Carolina which shall have been obtained not later than the Effective Date) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower or of any

20

agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Material Subsidiaries.

Section 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, if and when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

Section 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2003 and the related consolidated statements of income, cash flows, capitalization and retained earnings for the fiscal year then ended, reported on by Deloitte & Touche, copies of which have been delivered to each of the Banks by using the Borrower’s IntraLinks site, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.

(b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 31, 2004 and the related unaudited consolidated statements of income and cash flows for the three months then ended, copies of which have been delivered to each of the Banks by using the Borrower’s IntraLinks site, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such three-month period (subject to normal year-end adjustments and the absence of footnotes).

(c) Since December 31, 2003, there has been no material adverse change in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.05. Regulation U. The Borrower and its Material Subsidiaries are not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System) and no proceeds of any Borrowing by the Borrower will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Not more than 25% of the value of the assets of the Borrower and its Material Subsidiaries is represented by margin stock.

21

Section 4.06. Litigation. Except as disclosed in the reports referred to in Section 4.04, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which would be likely to be decided adversely to Borrower or such Subsidiary and, as a result, have a material adverse effect upon the business, consolidated financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or any Note.

Section 4.07. Compliance with Laws. The Borrower and each Material Subsidiary is in compliance in all material respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including, without limitation, ERISA and Environmental Laws) except where (i) non-compliance would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of compliance therewith is contested in good faith by appropriate proceedings.

Section 4.08. Taxes. The Borrower and its Material Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Material Subsidiary except (i) where nonpayment would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) where the same are contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and its Material Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate.

Section 4.09. Public Utility Holding Company Act. The Borrower is not a holding company subject to the registration requirements of the Public Utility Holding Company Act of 1935, as amended.

ARTICLE 5

COVENANTS

The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable hereunder remains unpaid:

Section 5.01. Information. The Borrower will deliver to each of the Banks:

(a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower

22

and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, cash flows, capitalization and retained earnings for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner consistent with the requirements of the Securities and Exchange Commission by Deloitte & Touche or other independent public accountants of nationally recognized standing;

(b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Borrower’s fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower’s previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by an Approved Officer of the Borrower;

(c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of an Approved Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Section 5.10 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

(d) within five days after any officer of the Borrower with responsibility relating thereto obtains knowledge of any Default, if such Default is then continuing, a certificate of an Approved Officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;

(e) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission;

(f) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Material Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii)

23

receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose material liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Material Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Material Plan or makes any amendment to any Material Plan which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and

(g) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request.

Information required to be delivered pursuant to these Sections 5.01(a), 5.01(b) and 5.01(e) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Banks that such information has been posted on the Securities and Exchange Commission website on the Internet at sec.gov/edaux/searches.htm, on the Borrower’s IntraLinks site at intralinks.com or at another website identified in such notice and accessible by the Banks without charge; provided that (i) such notice may be included in a certificate delivered pursuant to Section 5.01(c) and such notice or certificate shall also be deemed to have been delivered upon being posted to the Borrower’s IntraLinks site and (ii) the Borrower shall deliver paper copies of the information referred to in Sections 5.01(a), 5.01(b) and 5.01(e) to any Bank which requests such delivery.

Section 5.02. Payment of Taxes. The Borrower will pay and discharge, and will cause each Material Subsidiary to pay and discharge, at or before maturity, all their tax liabilities, except where (i) nonpayment would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Material Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same.

Section 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Material Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted.

24

(b) The Borrower will, and will cause each of its Material Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary’s own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against by companies of established repute engaged in the same or a similar business; provided that self-insurance by the Borrower or any such Material Subsidiary shall not be deemed a violation of this covenant to the extent that companies engaged in similar businesses and owning similar properties self-insure; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried.

Section 5.04. Maintenance of Existence. The Borrower will preserve, renew and keep in full force and effect, and will cause each Material Subsidiary to preserve, renew and keep in full force and effect their respective corporate or other legal existence and their respective rights, privileges and franchises material to the normal conduct of their respective businesses; provided that nothing in this Section 5.04 shall prohibit the termination of any right, privilege or franchise of the Borrower or any Material Subsidiary or of the corporate or other legal existence of any Material Subsidiary or the change in form of organization of the Borrower or any Material Subsidiary if the Borrower in good faith determines that such termination or change is in the best interest of the Borrower, is not materially disadvantageous to the Banks and, in the case of a change in the form of organization of the Borrower, the Administrative Agent has consented thereto.

Section 5.05. Compliance with Laws. The Borrower will comply, and cause each Material Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, ERISA and Environmental Laws) except where (i) noncompliance would not have a material adverse effect on the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of compliance therewith is contested in good faith by appropriate proceedings.

Section 5.06. Books and Records. The Borrower will keep, and will cause each Material Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all financial transactions in relation to its business and activities in accordance with its customary practices; and will permit, and will cause each Material Subsidiary to permit, representatives of any Bank at such Bank’s expense (accompanied by a representative of the Borrower, if the Borrower so desires) to visit any of their respective properties, to examine any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all upon such reasonable notice, at such reasonable times and as often as may reasonably be desired.

25

Section 5.07. Negative Pledge. The Borrower will not create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except:

(a) Liens granted by the Borrower existing on the date of this Agreement securing Indebtedness outstanding on the date of this Agreement in an aggregate principal amount not exceeding $100,000,000;

(b) the Lien of the Mortgage Indenture securing Indebtedness outstanding on the date of this Agreement or issued hereafter;

(c) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower and not created in contemplation of such event;

(d) any Lien existing on any asset prior to the acquisition thereof by the Borrower and not created in contemplation of such acquisition;

(e) any Lien on any asset securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset; provided that such Lien attaches to such asset concurrently with or within 180 days after the acquisition thereof;

(f) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this Section; provided that such Indebtedness is not increased and is not secured by any additional assets;

(g) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles;

(h) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law, created in the ordinary course of business and for amounts not past due for more than 60 days or which are being contested in good faith by appropriate proceedings which are sufficient to prevent imminent foreclosure of such Liens, are promptly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles;

(i) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other

26

similar obligations or arising as a result of progress payments under government contracts;

(j) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property;

(k) Liens with respect to judgments and attachments which do not result in an Event of Default;

(l) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other obligations arising in the ordinary course of business;

(m) other Liens including Liens imposed by Environmental Laws arising in the ordinary course of its business which (i) do not secure Indebtedness, (ii) do not secure any obligation in an amount exceeding $100,000,000 at any time at which Investment Grade Status does not exist as to the Borrower and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; and

(n) Liens not otherwise permitted by the foregoing clauses of this Section securing obligations in an aggregate principal or face amount at any date not to exceed $500,000,000.

Section 5.08. Consolidations, Mergers and Sales of Assets. The Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, Substantial Assets to any Person (other than a Subsidiary); provided that the Borrower may merge with another Person if the Borrower is the corporation surviving such merger and, after giving effect thereto, no Default shall have occurred and be continuing.

Section 5.09. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for its general corporate purposes, including liquidity support for outstanding commercial paper and acquisitions. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any “margin stock” within the meaning of Regulation U.

Section 5.10. Indebtedness/Capitalization Ratio. The ratio of Consolidated Indebtedness to Consolidated Capitalization will at no time exceed 65%.

27

ARTICLE 6

DEFAULTS

Section 6.01. Events of Default. If one or more of the following events (“Events of Default”) shall have occurred and be continuing:

(a) the Borrower shall fail to pay when due any principal of any Loan or shall fail to pay, within five days of the due date thereof, any interest, fees or any other amount payable hereunder;

(b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.04, 5.07, 5.08, 5.10 or the second sentence of 5.09, inclusive;

(c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank;

(d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made);

(e) the Borrower or any Material Subsidiary shall fail to make any payment in respect of Material Debt (other than the Loans) when due or within any applicable grace period;

(f) any event or condition shall occur and shall continue beyond the applicable grace or cure period, if any, provided with respect thereto so as to result in the acceleration of the maturity of Material Debt;

(g) the Borrower or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to, or shall fail generally to, pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(h) an involuntary case or other proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or

28

other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 90 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect;

(i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $50,000,000 (collectively, a “Material Plan”) shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against any member of the ERISA Group to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 90 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated;

(j) a judgment or other court order for the payment of money in excess of $50,000,000 shall be rendered against the Borrower or any Material Subsidiary and such judgment or order shall continue without being vacated, discharged, satisfied or stayed or bonded pending appeal for a period of 45 days; or

(k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) other than trustees and participants in employee benefit plans of the Borrower and its Subsidiaries or the Endowment or Trust, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act) of 50% or more of the outstanding shares of common stock of the Borrower; or, during any period of twelve consecutive calendar months, individuals who were directors of the Borrower on the first day of such period (together with any successors nominated or appointed by such directors in the ordinary course) shall cease to constitute a majority of the board of directors of the Borrower;

then, and in every such event, the Administrative Agent shall (i) if requested by Banks having more than 66-2/3% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate and (ii) if requested by Banks holding more than 66-2/3% in aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower;

29

provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 6.02. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.

ARTICLE 7

THE ADMINISTRATIVE AGENT

Section 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto.

Section 7.02. Administrative Agent and Affiliates. Citicorp USA, Inc. shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and Citicorp USA, Inc. and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Administrative Agent hereunder.

Section 7.03. Action by Administrative Agent. The obligations of the Administrative Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6.

Section 7.04. Consultation with Experts. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

Section 7.05. Liability of Administrative Agent. Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable to any Bank for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its affiliates nor any of

30

their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it in good faith to be genuine or to be signed by the proper party or parties. Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties.

Section 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Administrative Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees thereunder.

Section 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement.

Section 7.08. Successor Administrative Agent. The Administrative Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Borrower, with the consent of the Required Banks (such consent not to be unreasonably withheld or delayed), shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof

31

and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder; provided that if such successor Administrative Agent is appointed without the consent of the Borrower, such successor Administrative Agent may be replaced by the Borrower with the consent of the Required Banks. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent.

Section 7.09. Administrative Agent’s Fee. The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Administrative Agent.

Section 7.10. Other Agents. None of the Syndication Agent or the Documentation Agents, in their capacity as such, shall have any duties or obligations of any kind under this Agreement.

ARTICLE 8

CHANGE IN CIRCUMSTANCES

Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Euro-Dollar Borrowing:

(a) the Administrative Agent is advised by the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Euro-Dollar Reference Banks in the relevant market for such Interest Period, or

(b) Banks having 66-2/3% or more of the aggregate amount of the affected Loans advise the Administrative Agent that the London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period,

the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower

32

notifies the Administrative Agent at least one Domestic Business Day before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing.

Section 8.02. Illegality. If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund any of its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not be otherwise disadvantageous to such Bank in the good faith exercise of its discretion. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day.

Section 8.03. Increased Cost and Reduced Return. (a) If on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) issued on or after such date of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition (other than in respect of Taxes or Other Taxes)

33

affecting its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction; provided that no such amount shall be payable with respect to any period commencing more than 90 days prior to the date such Bank first notifies the Borrower of its intention to demand compensation therefor under this Section 8.03(a).

(b) If any Bank shall have determined that, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency given or made after the date of this Agreement, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank’s obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction; provided that no such amount shall be payable with respect to any period commencing less than 30 days after the date such Bank first notifies the Borrower of its intention to demand compensation under this Section 8.03(b).

(c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods.

34

Section 8.04. Taxes. (a) For purposes of this Section 8.04, the following terms have the following meanings:

“Taxes” means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Administrative Agent, taxes imposed on its income, net worth or gross receipts and franchise or similar taxes imposed on it by a jurisdiction under the laws of which such Bank or the Administrative Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments except to the extent that such Bank is subject to United States withholding tax by reason of a U.S. Tax Law Change.

“Other Taxes” means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note.

“U.S. Tax Law Change” means with respect to any Bank or Participant the occurrence (x) in the case of each Bank listed on the signature pages hereof, after the date of its execution and delivery of this Agreement and (y) in the case of any other Bank, after the date such Bank shall have become a Bank hereunder, and (z) in the case of each Participant, after the date such Participant became a Participant hereunder, of the adoption of any applicable U.S. federal law, U.S. federal rule or U.S. federal regulation relating to taxation, or any change therein, or the entry into force, modification or revocation of any income tax convention or treaty to which the United States is a party.

(b) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof.

(c) The Borrower agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Administrative Agent (as the case may be) and any liability (including penalties,

35

interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Administrative Agent (as the case may be) makes demand therefor.

(d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter as required by law (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower two completed and duly executed copies of Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, or other documentation reasonably requested by the Borrower, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States.

(e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to indemnification under Section 8.04(b) or 8.04(c) with respect to any Taxes or Other Taxes which would not have been payable had such form been so provided; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes (it being understood, however, that the Borrower shall have no liability to such Bank in respect of such Taxes).

(f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will take such action (including changing the jurisdiction of its Applicable Lending Office) as in the good faith judgment of such Bank (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.

(g) If any Bank or the Administrative Agent receives a refund (including a refund in the form of a credit against taxes that are otherwise payable by the Bank or the Administrative Agent) of any Taxes or Other Taxes for which the Borrower has made a payment under Section 8.04(b) or (c) and such refund was received from the taxing authority which originally imposed such Taxes or Other Taxes, such Bank or the Administrative Agent agrees to reimburse the Borrower to the extent of such refund; provided that nothing contained in this paragraph (g) shall require any Bank or the Administrative Agent to seek any

36

such refund or make available its tax returns (or any other information relating to its taxes which it deems to be confidential).

Section 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make or to continue or convert outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply:

(a) all Loans which would otherwise be made by such Bank as (or continued as or converted to) Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and

(b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Loans shall be applied to repay its Base Rate Loans instead.

If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks.

Section 8.06. Substitution of Bank; Termination Option. If (i) the obligation of any Bank to make or to convert or continue outstanding Loans as or into Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any Bank has demanded compensation under Section 8.03 or 8.04, (iii) any Bank exercises its right not to extend its Commitment Termination Date pursuant to Section 2.01(c) or (iv) Investment Grade Status ceases to exist as to any Bank, then:

(a) the Borrower shall have the right, with the assistance of the Administrative Agent, to designate a substitute bank or banks (which may be one or more of the Banks) mutually satisfactory to the Borrower and the Administrative Agent (whose consent shall not be unreasonably withheld or delayed) to purchase for cash, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D hereto, the outstanding Loans of such Bank and assume the Commitment of such Bank, without recourse to or warranty by, or expense to, such Bank, for a purchase price equal to the principal amount of all of such Bank’s outstanding Loans plus any accrued but unpaid interest thereon and the accrued but unpaid fees in respect of such Bank’s

37

Commitment hereunder and all other amounts payable by the Borrower to such Bank hereunder plus such amount, if any, as would be payable pursuant to Section 2.13 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment; and

(b) if at the time Investment Grade Status exists as to the Borrower, the Borrower may elect to terminate this Agreement as to such Bank; provided that (i) the Borrower notifies such Bank through the Administrative Agent of such election at least three Euro-Dollar Business Days before the effective date of such termination and (ii) the Borrower repays or prepays the principal amount of all outstanding Loans made by such Bank plus any accrued but unpaid interest thereon and the accrued but unpaid fees in respect of such Bank’s Commitment hereunder plus all other amounts payable by the Borrower to such Bank hereunder, not later than the effective date of such termination. Upon satisfaction of the foregoing conditions, the Commitment of such Bank shall terminate on the effective date specified in such notice.

ARTICLE 9

MISCELLANEOUS

Section 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Administrative Agent, at its address or telecopy or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telecopy or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telecopy or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telecopy or telex, when such telecopy or telex is transmitted to the telecopy or telex number specified in this Section and the appropriate answerback or confirmation slip, as the case may be, is received or (ii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article 2 or Article 3 shall not be effective until delivered.

Section 9.02. No Waivers. No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent, including reasonable fees and disbursements of special counsel for the Agents, in

38

connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Administrative Agent or any Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom.

(b) The Borrower agrees to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee’s own gross negligence or willful misconduct as determined by a court of competent jurisdiction.

Section 9.04. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount then due with respect to the Loans held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount then due with respect to the Loans held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments with respect to the Loans held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under this Agreement.

Section 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of any Agent are affected thereby, by such Person); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any interest thereon or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment, (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action under this

39

Section or any other provision of this Agreement or (v) change the provisions of Section 9.04.

Section 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and each Indemnitee, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks.

(b) Any Bank may, with the consent (unless an Event of Default then exists) of the Borrower (such consent not to be unreasonably withheld or delayed), at any time grant to one or more banks or other institutions (each a “Participant”) participating interests in its Commitment or any or all of its Loans; provided that any Bank may, without the consent of the Borrower, at any time grant participating interests in its Commitment or any or all of its Loans to another Bank, an Approved Fund or an Affiliate of such transferor Bank. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest, subject to the performance by such Participant of the obligations of a Bank thereunder. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c) Any Bank may at any time assign to one or more banks or other financial institutions (each an “Assignee”) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000 (unless the Borrower and the Administrative Agent shall otherwise agree)) of all, of its rights and obligations under this Agreement and its Note (if any), and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D hereto executed by such Assignee and such transferor Bank, with (and only with and subject to) the prior written consent of the Administrative Agent (which shall not be unreasonably withheld or delayed) and, so long as no Event of Default has occurred and is continuing, the Borrower (which shall not be unreasonably withheld or delayed);

40

provided that unless such assignment is of the entire right, title and interest of the transferor Bank hereunder, after making any such assignment such transferor Bank shall have a Commitment of at least $10,000,000 (unless the Borrower and the Administrative Agent shall otherwise agree). Upon execution and delivery of such instrument of assumption and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required by the Assignee, a Note is issued to the Assignee. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. All assignments (other than assignments to Affiliates) shall be subject to a transaction fee established by, and payable by the transferor Bank to, the Administrative Agent for its own account (which shall not exceed $5,000).

(d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note (if any) to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder or modify any such obligations.

(e) No Assignee, Participant or other transferee of any Bank’s rights (including any Applicable Lending Office other than such Bank’s initial Applicable Lending Office) shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

Section 9.07. Collateral. Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any “margin stock” (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.

Section 9.08. Confidentiality. Each Agent and each Bank agrees to keep any information delivered or made available by the Borrower pursuant to this Agreement confidential from anyone other than persons employed or retained by such Bank and its affiliates who are engaged in evaluating, approving, structuring or administering the credit facility contemplated hereby; provided that nothing

41

herein shall prevent any Bank from disclosing such information (a) to any other Bank or any Agent, (b) to any other Person if reasonably incidental to the administration of the credit facility contemplated hereby, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by any Agent or any Bank prohibited by this Agreement, (f) in connection with any litigation to which any Agent, any Bank or its subsidiaries or Parent may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Bank’s or any Agent’s legal counsel and independent auditors and (i) subject to provisions substantially similar to those contained in this Section 9.08, to any actual or proposed Participant or Assignee.

Section 9.09. Governing Law; Submission to Jurisdiction. This Agreement and each Note (if any) shall be construed in accordance with and governed by the law of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

Section 9.10. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE BANKS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12. USA Patriot Act. Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

42

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

DUKE ENERGY CORPORATION
By:
	Title:	Assistant Treasurer
	Address:	422 South Church Street Charlotte, NC 28202-1904
	Attention:	S.L. Love
	Telecopy number:	704-382-9497

43

Commitments

$39,705,882.35	CITIBANK, N.A.
	By:
		Name:
		Title:
$39,705,882.35	BANK OF AMERICA, N.A.
	By:
		Name:
		Title:
$39,705,882.35	JPMORGAN CHASE BANK
	By:
		Name:
		Title:
$39,705,882.35	WACHOVIA BANK, NATIONAL ASSOCIATION
	By:
		Name:
		Title:
$29,411,764.71	ABN AMRO BANK N.V.
	By:
		Name:
		Title:
	By:
		Name:
		Title:

44

$29,411,764.71	BARCLAYS BANK PLC
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$29,411,764.71	UBS LOAN FINANCE LLC
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$29,411,764.71	DEUTSCHE BANK AG NEW YORK BRANCH
	By:
		Name:
		Title:
	By:
		Name:
		Title:

45

$29,411,764.71	WILLIAM STREET COMMITMENT CORPORATION
	By:
		Name:
		Title:
$29,411,764.71	LEHMAN BROTHERS BANK, FSB
	By:
		Name:
		Title:
$20,588,235.29	THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH
	By:
		Name:
		Title:
$20,588,235.29	CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch
	By:
		Name:
		Title:
	By:
		Name:
		Title:

46

$20,588,235.29	DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$20,588,235.29	THE ROYAL BANK OF SCOTLAND plc
	By:
		Name:
		Title:
$20,588,235.29	MORGAN STANLEY BANK
	By:
		Name:
		Title:
$20,588,235.29	SUNTRUST BANK
	By:
		Name:
		Title:

47

$10,294,117.65	WESTLB AG, NEW YORK BRANCH
	By:
		Name:
		Title:
	By:
		Name:
		Title:
$10,294,117.65	KEYBANK NATIONAL ASSOCIATION
	By:
		Name:
		Title:
$10,294,117.65	THE NORTHERN TRUST COMPANY
	By:
		Name:
		Title:
$10,294,117.65	MIZUHO CORPORATE BANK, LTD.
	By:
		Name:
		Title:
Total Commitments
$500,000,000.00

48

CITICORP USA, INC., as Administrative Agent
By:
	Name:
	Title:
BANK OF AMERICA, N.A., as Syndication Agent
By:
	Name:
	Title:

49

Pricing Schedule

Each of “Euro-Dollar Margin” and “Facility Fee Rate” means, for any date, the rate set forth below in the applicable row and column corresponding to the column and “Utilization” that exist on such date:

(basis points per annum)

Ratings	at least A- by S&P or A3 by Moody’s	BBB+ by S&P or Baa1 by Moody’s	BBB by S&P or Baa2 by Moody’s	BBB- by S&P or Baa3 by Moody’s	less than BBB- by S&P and less than Baa3 by Moody’s
Facility Fee	12.5	15.0	17.5	22.5	30.0
Euro-Dollar Margin
Utilization* £ 50%	50.0	60.0	70.0	90.0	120.0
Utilization* > 50%	62.5	72.5	82.5	102.5	145.0

The Euro-Dollar Margin for the Term Loan shall equal the sum of (i) the rate that would otherwise be in effect based upon the table above and (ii) fifty (50) basis points.

* The “Utilization” applicable to any date is the percentage equivalent of a fraction the numerator of which is the aggregate outstanding principal amount of the Loans determined at such time after giving effect, if one or more Loans are being made at such time, to any substantially concurrent application of the proceeds thereof to repay one or more other Loans and the denominator of which is the aggregate amount of the Commitments at such date. If for any reason any Loans remain outstanding following termination of the Commitments, Utilization will be deemed to be 100%.

The credit ratings to be utilized for purposes of this Schedule are those indicated for or assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating indicated for or assigned to any other debt security of the Borrower shall be disregarded. The ratings in effect for any day are those in effect at the close of business on such day. A change in credit rating will result in an immediate change in the applicable pricing. In the case of split ratings from S&P and Moody’s, the rating to be used to determine the applicable pricing is a rating one notch higher than the lower of the two.

SCHEDULE I

DUKE ENERGY CORPORATION

CREDIT FACILITY

(Being Replaced by this Agreement)

Credit Agreement (3-Year Facility) dated as of August 29, 2001 among Duke Energy Corporation, the lenders party thereto and JPMorgan Chase Bank, as administrative agent.

EXHIBIT A

NOTE

New York, New York

June 30, 2004

For value received, Duke Energy Corporation, a North Carolina corporation (the “Borrower”), promises to pay to the order of (the “Bank”), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the date specified in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Citicorp USA, Inc., 388 Greenwich Street, New York, New York 10013.

All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank, and the Bank, if the Bank so elects in connection with any transfer or enforcement of its Note, may endorse on the schedule attached hereto appropriate notations to evidence the foregoing information with respect to the Loans then outstanding; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement.

This note is one of the Notes referred to in the Three-Year Credit Agreement dated as of June 30, 2004 among the Borrower, the banks listed on the signature pages thereof, Citicorp USA, Inc., as Administrative Agent, and Bank of America, N.A., as Syndication Agent (as the same may be amended from time to time, the “Credit Agreement”). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.

DUKE ENERGY CORPORATION
By:
	Title:

Note (cont’d)

LOANS AND PAYMENTS OF PRINCIPAL

Date Amount of Loan Type of Loan Amount of Principal Repaid Maturity Date Notation Made By

2

EXHIBIT B-1

OPINION OF ASSOCIATE GENERAL COUNSEL OF THE BORROWER

June 30, 2004

To the Banks and the Administrative Agent

    Referred to Below

c/o Citicorp USA, Inc.

    as Administrative Agent

388 Greenwich Street

New York, New York 10013

Ladies and Gentlemen:

I am an Associate General Counsel of Duke Energy Corporation (the “Borrower”) and have acted as its counsel in connection with the Three-Year Credit Agreement (the “Credit Agreement”), dated as of June 30, 2004, among the Borrower, the banks listed on the signature pages thereof, Citicorp USA, Inc., as Administrative Agent, and Bank of America, N.A., as Syndication Agent. Capitalized terms defined in the Credit Agreement are used herein as therein defined. This opinion letter is being delivered pursuant to Section 3.01(b) of the Credit Agreement.

In such capacity, I or attorneys under my direct supervision have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, I am of the opinion that:

1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of North Carolina.

2. The execution, delivery and performance by the Borrower of the Credit Agreement and any Notes are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except for the approval of the obtaining of credit pursuant to the Credit Agreement by the North Carolina Utilities Commission and The Public Service Commission of South Carolina, which has been obtained) and do not contravene, or constitute a

default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower or, to my knowledge, of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or, to my knowledge, result in the creation or imposition of any Lien on any asset of the Borrower or any of its Material Subsidiaries.

3. Except as disclosed in the reports referred to in Section 4.04 of the Credit Agreement, to my knowledge (but without independent investigation), there is no action, suit or proceeding pending or threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, which would be likely to be decided adversely to the Borrower or such Subsidiary and, as a result, to have a material adverse effect upon the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Credit Agreement or any Notes.

4. The Borrower is not a holding company subject to the registration requirements of the Public Utility Holding Company Act of 1935, as amended.

The phrase “to my knowledge”, as used in the foregoing opinion, refers to my actual knowledge without any independent investigation as to any such matters.

I am a member of the Bar of the State of North Carolina and do not express any opinion herein concerning any law other than the law of the State of North Carolina and the federal law of the United States of America.

This opinion is rendered to you in connection with the above-referenced mater and may not be relied upon by you for any other purpose, or relied upon by, or furnished to, any other Person, firm or corporation without my prior written consent, except for Additional Banks and Assignees. My opinions expressed herein are as of the date hereof, and I undertake no obligation to advise you of any changes of applicable law or any other matters that may come to my attention after the date hereof that may affect my opinions expressed herein.

Very truly yours,

2

EXHIBIT B-2

OPINION OF

ROBINSON, BRADSHAW & HINSON, P.A.,

SPECIAL COUNSEL FOR THE BORROWER

June 30, 2004

To the Banks and the Administrative Agent

     Referred to Below

c/o Citicorp USA, Inc.

     as Administrative Agent

388 Greenwich Street

New York, New York 10013

Ladies and Gentlemen:

We have acted as counsel to Duke Energy Corporation, a North Carolina corporation (the “Borrower”), in connection with the Three-Year Credit Agreement (the “Credit Agreement”), dated as of June 30, 2004, among Duke Energy Corporation, the banks listed on the signature pages thereof, Citicorp USA, Inc., as Administrative Agent, and Bank of America, N.A., as Syndication Agent. Capitalized terms used herein and not defined shall have the meanings given to them in the Credit Agreement. This opinion letter is being delivered pursuant to Section 3.01(b) of the Credit Agreement.

In connection with this opinion, we also examined originals, or copies identified to our satisfaction, of such other documents and considered such matters of law and fact as we, in our professional judgment, have deemed appropriate to render the opinions contained herein. Where we have considered it appropriate, as to certain facts we have relied, without investigation or analysis of any underlying data contained therein, upon certificates or other comparable documents of public officials and officers or other appropriate representatives of the Borrower.

In rendering the opinions contained herein, we have assumed, among other things, that the Credit Agreement and any Notes to be executed (i) are within the Borrower’s corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency of official, and (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Borrower’s certificate of incorporation or by-laws or any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the

creation or imposition of any Lien on any asset of the Borrower. In addition, we have assumed that the Credit Agreement fully states the agreement between the Borrower and the Banks with respect to the matters addressed therein, and that the Credit Agreement constitutes a legal, valid and binding obligation of each Bank, enforceable in accordance with its respective terms.

The opinions set forth herein are limited to matters governed by the laws of the State of North Carolina and the federal laws of the United States, and no opinion is expressed herein as to the laws of any other jurisdiction. For purposes of our opinions, we have disregarded the choice of law provisions in the Credit Agreement and, instead, have assumed with your permission that the Credit Agreement and the Notes are governed exclusively by the internal, substantive laws and judicial interpretations of the State of North Carolina. We express no opinion concerning any matter respecting or affected by any laws other than laws that a lawyer in North Carolina exercising customary professional diligence would reasonably recognize as being directly applicable to the Borrower, the Loans, or any of them.

Based upon and subject to the foregoing and the further limitations and qualifications hereinafter expressed, it is our opinion that the Credit Agreement constitutes the legal, valid and binding obligation of the Borrower and the Notes, if and when issued, will constitute legal, valid and binding obligations of the Borrower, in each case, enforceable against the Borrower in accordance with its terms.

The opinions expressed above are subject to the following qualifications and limitations:

1. Enforcement of the Credit Agreement and the Notes is subject to the effect of applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting the enforcement of creditors’ rights generally.

2. Enforcement of the Credit Agreement and the Notes is subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law) by which a court with proper jurisdiction may deny rights of specific performance, injunction, self-help, possessory remedies or other remedies.

3. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement or any Note that (i) purport to excuse a party for liability for its own acts, (ii) purport to make void any act done in contravention thereof, (iii) purport to authorize a party to act in its sole discretion, (iv) require waivers or amendments to be made only in writing, (v) purport to effect waivers of constitutional, statutory or equitable rights or the

2

effect of applicable laws, (vi) impose liquidated damages, penalties or forfeiture, or (vii) purport to indemnify a party for its own negligence or willful misconduct. Indemnification provisions in the Credit Agreement are subject to and may be rendered unenforceable by applicable law or public policy, including applicable securities law.

4. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement or the Notes purporting to require a party thereto to pay or reimburse attorneys’ fees incurred by another party, or to indemnify another party therefor, which may be limited by applicable statutes and decisions relating to the collection and award of attorneys’ fees, including but not limited to North Carolina General Statutes § 6-21.2.

5. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement purporting to waive the right of jury trial. Under North Carolina General Statutes § 22B-10, a provision for the waiver of the right to a jury trial is unconscionable and unenforceable.

6. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement concerning choice of forum or consent to the jurisdiction of courts, venue of actions or means of service of process.

7. It is likely that North Carolina courts will enforce the provisions of the Credit Agreement providing for interest at a higher rate resulting from a Default or Event of Default (a ”Default Rate”) which rate is higher than the rate otherwise stipulated in the Credit Agreement. The law, however, disfavors penalties, and it is possible that interest at the Default Rate may be held to be an unenforceable penalty, to the extent such rate exceeds the rate applicable prior to a default under the Credit Agreement. Also, since North Carolina General Statutes § 24-10.1 expressly provides for late charges, it is possible that North Carolina courts, when faced specifically with the issue, might rule that this statutory late charge preempts any other charge (such as default interest) by a bank for delinquent payments. The only North Carolina case which we have found that addresses this issue is a 1978 Court of Appeals decision, which in our opinion is of limited precedential value, North Carolina National Bank v. Burnette, 38 N.C. App. 120, 247 S.E.2d 648 (1978), rev’d on other grounds, 297 N.C. 524, 256 S.E.2d 388 (1979). While the court in that case did allow interest after default (commencing with the date requested in the complaint) at a rate six percent in excess of pre-default interest, we are unable to determine from the opinion that any question was raised as to this being penal in nature, nor does the court address the possible question of the statutory late charge preempting a default interest surcharge. Therefore, since the North Carolina Supreme Court has not ruled in a properly presented case raising issues of its possible penal nature and those of North Carolina General Statutes § 24-10.1, we are unwilling

3

to express an unqualified opinion that the Default Rate of interest prescribed in the Credit Agreement is enforceable.

8. We do not express any opinion as to the enforceability of any provisions contained in the Credit Agreement relating to evidentiary standards or other standards by which the Credit Agreement are to be construed.

This opinion letter is delivered solely for your benefit in connection with the Credit Agreement and, except for any Additional Bank or any Assignee which becomes a Bank pursuant to Section 9.06(c) of the Credit Agreement, may not be used or relied upon by any other Person or for any other purpose without our prior written consent in each instance. Our opinions expressed herein are as of the date hereof, and we undertake no obligation to advise you of any changes of applicable law or any other matters that may come to our attention after the date hereof that may affect our opinions expressed herein.

Very truly yours,

4

EXHIBIT C

OPINION OF

DAVIS POLK & WARDWELL, SPECIAL COUNSEL

FOR THE AGENTS

June 30, 2004

To the Banks and the Administrative Agent

     Referred to Below

c/o Citicorp USA, Inc.,

as Administrative Agent

388 Greenwich Street

New York, New York 10013

Dear Sirs:

We have participated in the preparation of the Three-Year Credit Agreement (the “Credit Agreement”) dated as of June 30, 2004 among Duke Energy Corporation, a North Carolina corporation (the “Borrower”), the banks listed on the signature pages thereof (the “Banks”), Citicorp USA, Inc., as Administrative Agent (the “Administrative Agent”), and Bank of America, N.A., as Syndication Agent, and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined.

We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, we are of the opinion that:

1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower’s corporate powers and have been duly authorized by all necessary corporate action.

2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes, if and when issued, constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms,

except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

In giving the foregoing opinion, (i) we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect and (ii) we have relied, without independent investigation, as to all matters governed by the laws of North Carolina, upon the opinion of the Associate General Counsel of the Borrower, dated June 30, 2004, a copy of which has been delivered to you.

This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by or furnished to any other person, firm or corporation without our prior written consent, except for Additional Banks and all Participants.

Very truly yours,

2

EXHIBIT D

ASSIGNMENT AND ASSUMPTION AGREEMENT

AGREEMENT dated as of             , 20     among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”), [DUKE ENERGY CORPORATION,] and CITICORP USA, INC., as Administrative Agent (the “Administrative Agent”).

W I T N E S S E T H

WHEREAS, this Assignment and Assumption Agreement (the “Agreement”) relates to the Three-Year Credit Agreement dated as of June 30, 2004 among Duke Energy Corporation (the “Borrower”), the Assignor and the other Banks party thereto, as Banks, the Administrative Agent and Bank of America, N.A., as Syndication Agent (the “Credit Agreement”);

WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $            ;¹

WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $             are outstanding at the date hereof; and

WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $             (the “Assigned Amount”), together with a corresponding portion of its outstanding Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms;*

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement.

SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment

¹ The asterisked provisions shall be appropriately revised in the event of an assignment after the Commitment Termination Date.

from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower] and the Administrative Agent, the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor.

SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.² It is understood that facility fees accrued to the date hereof in respect of the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.

SECTION 4. Consent to Assignment. This Agreement is conditioned upon the consent of [the Borrower and] the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by [the Borrower and] the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note, if required by the Assignee, payable to the order of the Assignee to evidence the assignment and assumption provided for herein.

SECTION 5. Non-reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of any Borrower, or the validity and enforceability of the obligations of any Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such

² Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum.

2

documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower.

SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

SECTION 8. Administrative Questionnaire. Attached is an Administrative Questionnaire duly completed by the Assignee.

3

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.

[ASSIGNOR]
By:
	Title:
[ASSIGNEE]
By:
	Title:
[DUKE ENERGY CORPORATION]
By:
	Title:
CITICORP USA, INC., as Administrative Agent
By:
	Title:

4

EXHIBIT E

EXTENSION AGREEMENT

Citicorp USA, Inc., as Administrative

Agent under the Credit Agreement

referred to below

388 Greenwich Street

New York, New York 10013

Ladies and Gentlemen:

Effective as of [date], the undersigned hereby agrees to extend its Commitment and Commitment Termination Date under the Three-Year Credit Agreement dated as of June 30, 2004 among Duke Energy Corporation, (the “Borrower”), the banks parties thereto, Citicorp USA, Inc., as Administrative Agent, and Bank of America, N.A., as Syndication Agent (the “Credit Agreement”) for one year to [date to which its Commitment Termination Date is to be extended] pursuant to Section 2.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined.

This Extension Agreement shall be construed in accordance with and governed by the law of the State of New York. This Extension Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

[NAME OF BANK]
By:
	Title:

Agreed and Accepted:

DUKE ENERGY CORPORATION, as Borrower
By:
	Title:
CITICORP USA, INC., as Administrative Agent
By:
	Title:

2

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul M. Anderson, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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 the registrant’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 the registrant’s internal control over financial reporting.

Date: August 9, 2004	/s/ Paul M. Anderson
	Paul M. Anderson
	Chairman of the Board and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David L. Hauser, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Duke Energy Corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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 the registrant’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 the registrant’s internal control over financial reporting.

Date: August 9, 2004	/s/ David L. Hauser
	David L. Hauser
	Group Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul M. Anderson, Chairman of the Board and Chief Executive Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy.

Date: August 9, 2004	/s/ Paul M. Anderson
	Paul M. Anderson
	Chairman of the Board and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Duke Energy Corporation (“Duke Energy”) on Form 10-Q for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David L. Hauser, Group Vice President and Chief Financial Officer of Duke Energy, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Duke Energy.

Date: August 9, 2004	/s/ David L. Hauser
	David L. Hauser
	Group Vice President and
	Chief Financial Officer