Exhibit 10.4

 

EXECUTION COPY

 

PURCHASE AGREEMENT

 

As of March 18, 2005

 

Merrill Lynch International

Merrill Lynch Financial Centre

2 King Edward Street

London, England EClA 1HQ

 

Dear Sirs:

 

Duke Energy Corporation, North Carolina corporation (the “Company”), subject to
the terms and conditions and in reliance upon the representations and warranties
set forth herein, confirms its agreement with Merrill Lynch International
(“Merrill Lynch”) to purchase from Merrill Lynch thirty million (30,000,000)
shares (the “Initial Shares”) of common stock of the Company, no par value (the
“Common Stock”), at a per share price equal to (i) the closing price (the
“Initial Price”) of the Common Stock on March 18, 2005, as agreed to by the
parties (subject to adjustment as provided herein) or on such other date and at
such other time as the parties may mutually agree (the “Execution Date”). Prior
to the close of business on the third Trading Day (as hereinafter defined)
immediately following the Execution Date (the “Settlement Date”), (A) the
Company will pay for the Initial Shares by delivering an amount equal to the
Aggregate Purchase Price (as hereinafter defined) plus the Aggregate Commissions
(as hereinafter defined) plus the Structure Fee (as hereinafter defined) by wire
transfer of immediately available funds to an account designated by Merrill
Lynch and (B) Merrill Lynch will authorize The Depository Trust Company to
deliver to an account at a participant of The Depository Trust Company the
Initial Shares for the benefit of the Company. The parties understand and agree
that the delivery of the Initial Shares by or on behalf of Merrill Lynch upon
the payment of the Aggregate

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Purchase Price, the Aggregate Commissions and the Structure Fee by the Company
is irrevocable and that as of the Settlement Date the Company shall be the sole
beneficial owner of the Initial Shares for all purposes.

 

The purchases of shares of Common Stock anticipated by this Agreement shall be
pursuant to the requirements of and in conformity with the provisions of Rule
10b5-1 under the Exchange Act (as hereinafter defined), and a plan established
by the Company as permitted by Rule 10b5-1 (the “Plan”) described in Annex D
hereto.

 

Section 1. Purchase Price Adjustment.

 

(a) On the Execution Date and contemporaneously with the execution of this
Agreement, each of the Acceleration Fee, the Aggregate Commissions, the
Aggregate Purchase Price, the Cap Amount, the Daily Share Purchase Amount, the
Execution Date, the Initial Price, the Maturity Date, the Spread and the
Structure Fee (each as previously or hereinafter defined) shall be determined
and set forth on the Purchase Agreement Pricing Supplement attached as Annex A
hereto.

 

(b) For each Trading Day, commencing on the Trading Day immediately following
the Settlement Date, the Calculation Agent (as hereinafter defined) shall
determine the following amounts, as applicable:

 

(i) The Purchase Price Adjustment (as hereinafter defined) owed to Merrill Lynch
by the Company on the Excess Daily Value (as hereinafter defined), if any, for
each prior Trading Day;

 

(ii) The Purchase Price Adjustment owed to the Company by Merrill Lynch on the
Deficit Daily Value (as hereinafter defined), if any, for each prior Trading
Day;

 

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(iii) The Daily Rebate Value (as hereinafter defined) owed to the Company by
Merrill Lynch on a Daily Notional Amount (as hereinafter defined), if any, for
each prior Trading Day; and

 

(iv) The value (which may be positive or negative) by which the sum of the
Purchase Price Adjustment pursuant to clause (ii) above and the Daily Rebate
Value pursuant to clause (iii) above exceeds the Purchase Price Adjustment
pursuant to clause (i) above with respect to each day during the Transaction
Term (a “Daily Accrual Value”).

 

(c) On the Settlement Date the Company shall pay to Merrill Lynch an amount in
shares or in cash (by wire transfer or immediately available funds) equal to the
Structure Fee (as hereinafter defined). On the third Trading Day immediately
following the last day of the Transaction Term (the “Final Settlement Date”),
Merrill Lynch shall pay the Final Settlement Value if the Final Settlement Value
is negative or the Company shall pay the Final Settlement Value if the Final
Settlement Value is positive.

 

(d) In the event that the Final Settlement Value is positive, prior to the close
of business on the Final Settlement Date, the Company shall cause to be
delivered, at the Company’s option, either (i) an amount in cash (by wire
transfer of immediately available funds) equal to the Final Settlement Value or
(ii) the lesser of (I) Final Stock Settlement Shares, the value of which is
equal to the Final Settlement Value divided by the Closing Price on the Maturity
Date or (II) the Cap Amount. In the event that the Company elects to pay such
amount in Final Stock Settlement Shares it shall cause The Depository Trust
Company to deliver to an account or accounts at a participant of The Depository
Trust Company the Final Stock Settlement Shares, in such denominations and in
such names as Merrill Lynch may specify. If a Stock Settlement Deficiency
exists, Merrill Lynch will notify the Company within five (5) Trading Days of
the

 

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determination of such Stock Settlement Deficiency (such date of determination
shall in no event be more than ten (10) Trading Days following delivery of the
Final Stock Settlement Shares). Within one (1) Trading Day of being notified by
Merrill Lynch of the occurrence of a Stock Settlement Deficiency, the Company
shall deliver to Merrill Lynch, at the Company’s sole discretion, either (I) an
amount in cash (by wire transfer of immediately available funds ) equal to the
Stock Settlement Deficiency Amount or (II) shares of Common Stock, the value of
which is equal to the Stock Settlement Deficiency Amount (such number of shares
being based on bids in the market for Common Stock on the date of the
notification by Merrill Lynch to the Company of the Stock Settlement
Deficiency). If the Company elects to deliver shares of Common Stock pursuant to
the preceding sentence, the Company shall be obligated to deliver shares of
Common Stock to Merrill Lynch, upon notification by Merrill Lynch, until such
time as Merrill Lynch has received an amount from the sale of such shares equal
to the Final Settlement Value or until such time as the Company has delivered
the amount of shares which is equal to the Cap Amount; provided that Merrill
Lynch will promptly deliver to the Company any shares that are not sold to
satisfy the Company’s obligation to pay the Final Settlement Value.

 

In the event that the Final Settlement Value is negative, Merrill Lynch shall
cause such amount to be delivered to the Company prior to the close of business
on the Final Settlement Date (it being understood that the volume limitations of
Rule 10b-18 as if it applied may delay delivery of shares as provided in
subclause (b) below, in which case Merrill Lynch will deliver such amount as
promptly as permitted under Rule 10b-18 as if its applied). Merrill Lynch shall
satisfy such obligation by delivery to the Company, at the Company’s option,
either (a) an amount in cash (by wire transfer of immediately available funds)
equal to the Final Settlement Value or (b) a number of shares of Common Stock
equal to the quotient obtained by dividing the Final Settlement Value by the
aggregate purchase price paid by Merrill Lynch to acquire such

 

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shares of Common Stock on the day immediately prior to the Final Settlement
Date. The parties understand and agree that the deliveries made pursuant to the
preceding sentence shall be irrevocable and shall satisfy in full Merrill
Lynch’s obligations under this Section 1.

 

The Final Stock Settlement Shares and any other shares of Common Stock made as
payment by the Company to Merrill Lynch pursuant to this Agreement shall be
delivered by the Company in shares of Common Stock the resale of which may be
unregistered or registered under the Securities Act. In the event the Company
elects to deliver shares pursuant to Section l(d) that are intended to be
registered under the Securities Act, no later than five Trading Days prior to
any delivery, the Company shall have executed and delivered to Merrill Lynch the
Registration Rights Agreement. In the event that shares which are not intended
to be registered under the Securities Act are delivered to Merrill Lynch
pursuant to Section l(d), Merrill Lynch shall determine the value of such shares
by applying a commercially reasonable discount.

 

Section 2. Anti-dilution Adjustments.

 

(a) Subdivisions and Combination of Common Stock. In the event that the
outstanding shares of the Common Stock shall be subdivided or split (including
by means of a stock dividend) into a greater number of shares of Common Stock
where the effective date of such subdivision or the record date for such split
occurs during the Transaction Term, the Initial Shares and the Daily Share
Purchase Amount shall be proportionately increased and the Initial Price shall
be deemed to be proportionately decreased. Conversely, in the event that the
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock through a combination of shares of Common Stock or a
reverse stock split where the effective date of such combination or the record
date for such reverse stock split occurs during the Transaction Term, the
Initial Shares and the Daily Share Purchase Amount shall be proportionately
decreased and the Initial Price shall be proportionately increased. Any

 

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adjustment pursuant to this Section 2(a) shall become effective (i) in the case
of a subdivision or combination of the Common Stock, on the effective date of
such subdivision or combination or (ii) in the case of a stock split or reverse
stock split, at the close of business on the record date for such stock split or
reverse stock split. Notwithstanding anything to the contrary contained herein,
no adjustment shall be made pursuant to this Section 2(a) unless a similar
adjustment is required to be made to the number of shares of Common Stock
delivered or deliverable to the lender or lenders of Common Stock to Merrill
Lynch.

 

(b) Reclassification, Consolidation, Merger or Sale of Assets. In the event that
during the Transaction Term the Company shall enter into any agreement,
arrangement or understanding that provides for any recapitalization or
reclassification of the Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
an event specified in Section 2(a)), any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock), any
sale or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange and pursuant to any of which the Common Stock is
converted into the right to receive other securities, cash or other property
(each of the foregoing, an “Extraordinary Transaction”) then Merrill Lynch and
the Company shall negotiate in good faith to amend this Agreement to give
appropriate effect to the Extraordinary Transaction. In the event that the
parties are unable to reach an agreement on the earlier of (i) twenty (20)
Trading Days prior to the date, if any, that is specified for the consummation
of such transaction under the governing legal agreements for such transaction
and (ii) twenty (20) Trading Days after the first public disclosure of the
contemplated Extraordinary Transaction (the “Early Termination Date”), (I) the
Transaction Term shall be deemed to terminate on the fifth

 

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Trading Day after the Early Termination Date, (II) the provisions of Section
3(b)(i) shall be void and of no further force or effect from and after the Early
Termination Date and (III) the Final Settlement Date shall be the eighth Trading
Day after the Early Termination Date.

 

(c) Extraordinary Stock Borrow. In the event Merrill Lynch determines that it
cannot borrow a sufficient amount of shares of Common Stock equal to the number
of Initial Shares less the sum of all Actual Share Purchase Amounts which have
been executed up to and including the date of such determination at a
commercially reasonable cost of borrow, Merrill Lynch will notify the Company
and the Company will within two Trading Days locate and provide to Merrill Lynch
a lender of shares of Common Stock, reasonably acceptable to Merrill Lynch, at a
commercially reasonable cost of borrow. If the Company does not notify Merrill
Lynch of its election pursuant to the immediately preceding sentence (i) Merrill
Lynch may then accelerate the repurchases and settlement of the shares of Common
Stock notwithstanding the Daily Share Purchase Amount limitations or other
limits in this Agreement, or (ii) to the extent Merrill Lynch, in a commercially
reasonable manner, cannot accelerate the daily purchases sufficiently without
incurring significant costs or Merrill Lynch determines in good faith that
accelerating the purchases may result in a violation of federal or state
securities laws, Merrill Lynch can require the Company to settle the transaction
within three Trading Days by delivering shares of Common Stock to Merrill Lynch
equal to the number of Initial Shares less the number of shares of Common Stock
purchased by Merrill Lynch as of such date against a payment per share equal to
(A) in the case of delivery by the Company of shares of Common Stock registered
for resale under the Securities Act, the Closing Price on the Trading Day
immediately preceding such date of delivery, or (B) in the case of delivery by
the Company of shares of Common Stock not registered for resale under the
Securities Act, the price at which Merrill Lynch can sell such shares; and (I)
either the Company or Merrill Lynch will pay the Final Settlement Value as

 

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provided in Sections l(c) and (d) and (II) the Company will pay to Merrill Lynch
the Acceleration Fee. If Merrill Lynch exercises its option pursuant to
subclause (i) or (ii) of this Section 2(c), the date of such exercise shall be
referred to as the “Extraordinary Borrow Acceleration Date.”

 

(d) Extraordinary Dividends. In the event that (i) the Company declares an
extraordinary dividend, (ii) the Company declares an increase in its regular
quarterly dividend under circumstances where the ex-dividend date for its
regular quarterly dividend reflecting such increase occurs during the
Transaction Term or (iii) a dividend is declared and an ex-dividend date occurs
during the Transaction Term (other than an Ex-Date (as hereinafter defined) (the
date of each such occurrence a “Trigger Date”) (A) Merrill Lynch may accelerate
the repurchases and settlement of the shares of Common Stock on the day
immediately following the Trigger Date notwithstanding the Daily Share Purchase
Amount limitations or other limits in this Agreement or (B) to the extent
Merrill Lynch, in a commercially reasonable manner, cannot accelerate the daily
purchases because such acceleration cannot practically make Merrill Lynch whole
for additional costs associated with any event described in subclauses (i), (ii)
or (iii) above or if Merrill Lynch determines in good faith that accelerating
the purchases may result in a violation of federal or state securities laws,
Merrill Lynch can require the Company to settle the transaction immediately by
delivering shares of Common Stock to Merrill Lynch equal to the number of
Initial Shares less the number of shares of Common Stock purchased as of the
Trigger Date against a payment per share equal to (1) in the case of delivery by
the Company of shares of Common Stock registered for resale under the Securities
Act, the Closing Price on the Trading Day immediately preceding such date of
delivery, or (2) in the case of delivery by the Company of shares of Common
Stock not registered for resale under the Securities Act, the price at which
Merrill Lynch can sell such shares, and (I) either the Company or Merrill Lynch
will pay the

 

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Final Settlement Value as provided in Sections l(c) and (d), and (II) the
Company will pay to Merrill Lynch the Acceleration Fee. If Merrill Lynch
exercises its option pursuant to subclauses (A) or (B) of this Section 2(d), the
date of such exercise shall be referred to as the “Dividend Acceleration Date.”

 

(e) Disruption Event. To the extent that Merrill Lynch determines in a
commercially reasonable manner that as a result of the occurrence of any event
occurring in the market or as a result of limitations provided in this Agreement
Merrill Lynch cannot purchase a sufficient amount of shares of Common Stock
equal to the number of Initial Shares less the sum of all Actual Share Purchase
Amounts which have been executed up to and including the date of such
determination (the “Remaining Shares”), Merrill Lynch may require the Company to
deliver to Merrill Lynch the Remaining Shares against a payment per share equal
to (a) in the case of delivery by the Company of shares of Common Stock
registered for resale under the Securities Act, the Closing Price on the Trading
Day immediately preceding such date of delivery, or (b) in the case of delivery
by the Company of shares of Common Stock not registered for resale under the
Securities Act, the price at which Merrill Lynch can sell such shares; provided,
that Merrill Lynch will have discretion as to the timing of such sales and will
use its reasonable efforts to obtain the best bid price in the private market,
and the case of (a) and (b) above, the Company will pay to Merrill Lynch the
Acceleration Fee; provided, that if Merrill Lynch ceases purchasing shares of
Common Stock pursuant to Section 3.l(b)(iv) in light of internal policies and
procedures reasonably adopted by Merrill Lynch, the Company shall not be
required to pay the Acceleration Fee. If Merrill Lynch exercises its option
pursuant to this Section 2(e), the date of such exercise shall be referred to as
the “Disruption Acceleration Date.”

 

(ii) Merrill Lynch will determine the Final Settlement Value using the Closing
Price described above in (i) for the Remaining Shares.

 

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Section 3. Covenants.

 

(a) The Company covenants and agrees with Merrill Lynch:

 

(i) during the Transaction Term, neither the Company nor any of its affiliates
shall take any action that would cause the purchases by Merrill Lynch pursuant
to Section 3(b)(i) of this Agreement not to comply with the provisions of Rule
10b-18 under the Exchange Act as if such provisions applied;

 

(ii) during the Transaction Term, to promptly notify Merrill Lynch
telephonically (which oral communication shall be promptly confirmed by telecopy
to Merrill Lynch) that as a result of an acquisition or other business
combination transaction or for any other reason, the Company determines that the
Company will be engaged in a distribution of shares of Common Stock or other
securities for which Common Stock is a reference security for purposes of Rule
102 of Regulation M under the Exchange Act and to promptly notify Merrill Lynch
by telecopy of the period commencing on the date that is one (1) business day
before the commencement of such distribution and ending on the day on which the
Company completes the distribution; and

 

(iii) (A) within five (5) Trading Days of the date hereof, the Company shall
have delivered to Merrill Lynch an opinion of In-house Counsel of the Company
dated as of the date of this Agreement as to the matters set forth in Annex B
hereto and in form and substance reasonably satisfactory to Merrill Lynch.

 

(b) Merrill Lynch covenants and agrees with the Company:

 

(i) subject to clauses (ii), (iii), (iv) and (v) below, to use its best efforts
to purchase, or cause to be purchased, on each Trading Day during the
Transaction Term

 

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commencing on the Trading Day immediately following the Settlement Date, the
Daily Share Purchase Amount on the open market at the then market price;

 

(ii) in connection with bids and purchases pursuant to clause (i) above, Merrill
Lynch shall comply, or cause compliance, with the timing and volume provisions
of Rule 10b-18(b)(2) and (4) under the Exchange Act as if such provisions
applied;

 

(iii) in connection with bids and purchases pursuant to clause (i) above,
Merrill Lynch will effect purchases at a purchase price that does not exceed the
highest independent bid or the last independent transaction price, whichever is
higher, reported in the consolidated system at the time such purchases are
effected (as those terms are defined in Rule l0b-18 under the Exchange Act);

 

(iv) not to purchase shares of Common Stock on any Trading Day with respect to
which Merrill Lynch reasonably determines in good faith that it is reasonably
required, in light of legal or regulatory requirements, or related policies and
procedures reasonably adopted by Merrill Lynch in light of legal or regulatory
requirements, to refrain from purchasing shares of Common Stock on any such
Trading Day. Merrill Lynch shall promptly notify the Company upon exercising its
rights pursuant to this clause (iv) and shall subsequently promptly notify the
Company on the day Merrill Lynch shall resume purchasing shares of Common Stock
pursuant to clause (i) above, it being understood that Merrill Lynch shall not
be required to indicate to the Company the reason for Merrill Lynch’s exercise
of its rights pursuant to this clause (iv) if Merrill Lynch reasonably
determines in good faith that disclosing such reason to the Company may result
in a violation of federal or state securities laws or is prohibited by Merrill
Lynch’s internal conflicts policies and procedures; and

 

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(v) in connection with purchases pursuant to clause (i) above, Merrill Lynch
will effect all purchases through its U.S. broker dealer, Merrill Lynch, Pierce,
Fenner & Smith Incorporated;

 

Section 4. Representations and Warranties.

 

The Company hereby represents and warrants to Merrill Lynch that as of the date
hereof and each Trading Day during the Transaction Term:

 

(a) the Company has all power and authority to execute this Agreement and enter
into the Plan and the transactions contemplated hereby;

 

(b) this Agreement has been duly authorized, validly executed and delivered by
the Company and constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance or other similar laws affecting the rights of
creditors now or hereafter in effect, and to equitable principles that may limit
the right to specific enforcement of remedies);

 

(c) the Company will have a sufficient number of treasury shares or duly
authorized but unissued shares of Common Stock available to deliver the Cap
Amount;

 

(d) the Company is not entering into this Agreement (i) to create actual or
apparent trading activity in the Common Stock (or any security convertible into
or exchangeable for Common Stock) or (ii) to facilitate a future distribution of
the Common Stock (or any security convertible into or exchangeable for Common
Stock) or in connection with a future issuance of securities as part of a plan,
in either case with the intention to manipulate the price of the Common Stock
(or any security convertible into or exchangeable for Common Stock);

 

(e) the purchase of the Initial Shares by the Company, the compliance by the
Company with all of the provisions of this Agreement and the consummation of the
transactions herein

 

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contemplated will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or any other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, other than such defaults which would not
impair the ability of the Company to perform its obligations hereunder in all
material respects, nor will such action result in any violation of the
provisions of the Restated Articles of Incorporation or Bylaws of the Company or
any statute or any rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its properties;

 

(f) no consent, approval, authorization, order, registration or qualification of
or with any court or governmental agency or body having jurisdiction over the
Company is required for the purchase of the Initial Shares by the Company, the
compliance by the Company with all the terms of this Agreement, or the
consummation by the Company of the transactions contemplated by this Agreement,
other than the registration of shares of Common Stock pursuant to the
Registration Rights Agreement; and

 

(g) the Company has made its own independent inquiry as to the legal, tax,
credit and accounting aspects of the transactions contemplated by this Agreement
and any related transactions, and the Company has not relied on Merrill Lynch,
Merrill Lynch’s legal counsel or Merrill Lynch’s accounting advisors for legal,
tax, credit or accounting advice in connection with the transactions
contemplated by this Agreement or any related transactions. The Company agrees
and acknowledges that Merrill Lynch and its affiliates may from time to time,
not in the capacity of the Company’s agent but in the ordinary course of their
business, execute transactions for their own account or the account of customers
and hold and deal in securities or options on

 

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securities of the Company (including, without limitation, Common Stock) and that
Merrill Lynch and its affiliates may continue to conduct such transactions
during the Transaction Term.

 

Merrill Lynch hereby represents and warrants to the Company that:

 

(a) Merrill Lynch has all power and authority to execute this Agreement and to
consummate the transactions contemplated hereby;

 

(b) this Agreement has been duly authorized, validly executed and delivered by
Merrill Lynch and constitutes a legal, valid and binding agreement of Merrill
Lynch, enforceable against Merrill Lynch in accordance with its terms (subject,
as to enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance or other similar laws affecting
the rights of creditors now or hereafter in effect, and to equitable principles
that may limit the right to specific enforcement of remedies);

 

(c) Merrill Lynch has made its own independent inquiry as to the legal, tax,
credit and accounting aspects of the transactions contemplated by this Agreement
and any related transactions, and Merrill Lynch has not relied on the Company or
its legal counsel or accounting advisors for legal, tax, credit or accounting
advice in connection with the transactions contemplated by this Agreement or any
related transactions; and

 

(d) Merrill Lynch acknowledges that its rights under this Agreement (other than
Section 5) do not directly or indirectly give rise to any rights or claims
against the Company as a creditor of the Company.

 

Section 5. Indemnification.

 

(i) The Company agrees to indemnify Merrill Lynch and its affiliates and their
respective directors, officers, employees, agents and controlling persons
(Merrill Lynch and each such person being an “Indemnified Party”) from and
against any and all losses, claims, damages and liabilities, joint or several,
to which such Indemnified Party may become subject (and with

 

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respect to which is not duplicative of reimbursements otherwise made pursuant to
the terms of this Agreement other than Section 5) under any applicable federal
or state law, or otherwise, and related to or arising out of (a) the breach by
the Company of any of its representations or warranties contained in this
Agreement or the Plan and (b) the breach by the Company of any of its covenants
or agreements contained in this Agreement or the Plan, and will reimburse any
Indemnified Party for all expenses (including reasonable counsel fees and
expenses) in connection with the investigation of, preparation for or defense or
settlement of any pending or threatened claim or any action or proceeding
arising therefrom, whether or not such Indemnified Party is a party except if
such claim, action or proceeding is initiated or brought by or on behalf of the
Company. The Company will not be liable under the foregoing indemnification
provision to the extent that any loss, claim, damage, liability or expense is
found in a final judgment by a court to have resulted directly from willful
misconduct or gross negligence on the part of Merrill Lynch or on the part of
any other Indemnified Party.

 

(ii) If the indemnification provided for in this Agreement is for any reason
held unenforceable, the Company agrees to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with the same) for which such indemnification is held
unenforceable as shall be appropriate to reflect (1) the relative fault of the
Company on the one hand and the Indemnified Parties on the other hand in
connection with the actions or inactions that have resulted in such losses,
claims, damages, liabilities and expenses, (2) the relative benefits received by
the Company on the one hand and Merrill Lynch on the other hand from the
transactions contemplated by this Agreement and (3) any other relevant equitable
considerations. Relative fault shall be determined by reference to, among other
things, each such party’s relative intent, knowledge, access to information and
opportunity to correct or prevent such action or inaction. The Company and
Merrill Lynch each

 

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agree that it would not be just and equitable if contribution pursuant to this
subparagraph (ii) were to be determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 5, Merrill
Lynch shall not be required to contribute in excess of the amount equal to the
excess of (I) the compensation received by Merrill Lynch pursuant to this
Agreement over (II) the amount of any damages which Merrill Lynch has otherwise
been required to pay by reason of any such action or inaction.

 

(iii) The Company agrees that without the prior written consent of Merrill
Lynch, which consent shall not be unreasonably withheld, it will not settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding in respect of which indemnification could be sought
under the indemnification provision of this Agreement unless such settlement,
compromise or consent includes an unconditional release of each Indemnified
Party from all liability arising out of such claim, action or proceeding.

 

(v) The provisions of this Section 5 shall survive any termination of this
Agreement or completion of the transactions contemplated hereby for three (3)
years.

 

(vi) Promptly after receipt by an Indemnified Party of notice of the
commencement of any action, such Indemnified Party will, if a claim in respect
thereof may be made against the Company under this Section 5, notify the Company
in writing of the commencement thereof, but the omission so to notify the
Company will not relieve it from any liability which it may have to any
Indemnified Party otherwise than under this Section 5 except to the extent that
the Company’s rights are materially prejudiced as a result of such delay. In
case such notice of any such action shall be so given, the Company shall be
entitled to participate at its own expense in the defense, or if it so elects,
to assume the defense of such action, in which event such defense

 

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shall be conducted by counsel chosen by the Company and reasonably satisfactory
to the Indemnified Party or Indemnified Parties who shall be defendant or
defendants in such action, and such defendant or defendants shall bear the fees
and expenses of any additional counsel retained by them; but if the Company
shall elect not to assume the defense of such action, the Company will reimburse
such Indemnified Party or Indemnified Parties for the reasonable fees and
expenses of any counsel retained by them; provided, however, if the defendants
in any such action (including impleaded parties) include both the Indemnified
Parties and the Company and counsel for the Company shall have reasonably
concluded that there may be a conflict of interest involved in the
representation by a single counsel of both the Indemnifying Parties and the
Company, the Indemnified Party or Indemnified parties shall have the right to
select separate counsel, satisfactory to the Company (it being understood,
however, that the Company shall not be liable for the expenses of more than one
separate counsel representing the Indemnified Parties who are parties to such
action).

 

Section 6. Certain Definitions.

 

As used herein the following terms shall have the meanings set forth below:

 

“Acceleration Fee” shall have the meaning set forth in Annex A hereto.

 

“Actual Share Purchase Amount” shall mean the actual number of shares of Common
Stock purchased by Merrill Lynch pursuant to Section 3(b)(i) of this Agreement
on any given Trading Day.

 

“Actual Share Purchase Value” shall mean, on any given Trading Day, the product
of the Actual Share Purchase Amount and the corresponding Settlement Price.

 

“Aggregate Actual Share Purchase Value” shall mean the amount equal to the
aggregate value of all Actual Share Purchase Values, as calculated during the
Transaction Term.

 

“Aggregate Commissions” shall have the meaning set forth in Annex A hereto.

 

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“Aggregate Purchase Price” shall have the meaning set forth in Annex A hereto.

 

“Aggregate Purchase Price Adjustment Value” shall mean the sum (which may be
positive, if Merrill Lynch owes the Company value, or negative, if the Company
owes Merrill Lynch value) of all Daily Accrual Values for each Trading Day
during the Transaction Term.

 

“Applicable Adjustment Rate” shall mean, for any given Trading Day, an interest
rate equal to the Daily Federal Funds Rate.

 

“Calculation Agent” shall mean Merrill Lynch International.

 

“Cap Amount” shall have the meaning set forth in Annex A hereto.

 

“Closing Price” on any day shall mean the last reported sales price regular way
of the Common Stock on such day or, in case no such sales price is reported on
such day, the average of the reported closing bid and asked prices regular way
of the Common Stock, in each case on the NYSE, or if not then traded on the
NYSE, the principal securities exchange or quotation system on which the Common
Stock is then listed or admitted to trading, or if not then listed or admitted
to trading on a securities exchange or quotation system, the average of the
closing bid and asked prices of the Common Stock in the over-the-counter market
on the day in question as reported by the National Quotations Bureau
Incorporated, or a similarly generally accepted reporting service, or, if not so
available in such manner, as furnished by any NYSE member firm selected by the
Calculation Agent.

 

“Daily Effective Rate” shall mean the federal funds target rate as of the
Settlement Date annualized on a daily basis less the Spread.

 

“Daily Notional Amount” shall mean an amount determined by the Calculation Agent
equal to the product of (i) the Initial Price and (ii) the amount by which the
Initial Shares exceeds the sum of all Actual Share Purchase Amounts which have
been executed up to and including the Trading Day preceding the applicable
Trading Day.

 

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“Daily Rebate Value” shall mean an amount determined by the Calculation Agent
equal to the product of (i) the Daily Effective Rate, (ii) 1/360 and (ii) each
corresponding Daily Notional Amount.

 

“Daily Share Purchase Amount” shall have the meaning set forth in Annex A
hereto.

 

“Daily Share Purchase Value” shall mean the product of the Actual Share Purchase
Amount and the Initial Price.

 

“Deficit Daily Value” shall mean, on any given Trading Day, if the Settlement
Price is less than the Initial Price, the positive value by which the Daily
Share Purchase Value exceeds the Actual Share Purchase Value, but in no event
less than zero.

 

“Ex-Date” shall have the meaning set forth in Annex A hereto.

 

“Excess Daily Value” shall mean, on any given Trading Day, if the Settlement
Price is greater than the Initial Price, the positive value by which the Actual
Share Purchase Value exceeds the Daily Share Purchase Value, but in no event
less than zero.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

“Final Settlement Value” shall mean (i) the Aggregate Actual Share Purchase
Value minus (ii) the Aggregate Purchase Price minus (iii) the Aggregate Purchase
Price Adjustment Value.

 

“Final Stock Settlement Shares” shall mean a number of shares of Common Stock
determined by the Calculation Agent (rounded up or down to the nearest whole
number) equal to the number of shares of Common Stock that the Company would be
required to deliver to Merrill Lynch to satisfy its obligations to Merrill Lynch
pursuant to Section I, based on bids in the market for such number of shares of
Common Stock as of the Maturity Date.

 

“Initial Price” shall mean the closing price of the Common Stock on the
Execution Date as agreed to by the parties.

 

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“Maturity Date” shall mean the earlier of (A) the date on which the total number
of shares of Common Stock purchased by Merrill Lynch pursuant to and for
purposes of satisfying Merrill Lynch’s obligation under Section 3(b)(i) of this
Agreement (including for purposes of determining the Final Settlement Value) is
equal to or greater than the Initial Shares, provided, that such date may not be
after November 8,2005, (B) an Extraordinary Borrow Acceleration Date (C) a
Dividend Acceleration Date and (D) a Disruption Acceleration Date.

 

“NYSE” shall mean the New York Stock Exchange, Inc.

 

“Purchase Price Adjustment” shall mean adjustment amounts accrued on the Excess
Daily Value or Deficit Daily Value, as applicable, and excluding the Trading Day
on which such Excess Daily Value or Deficit Daily Value, as applicable, arises
up from the first business day immediately succeeding the Execution Date to and
including the Final Settlement Date at the Applicable Adjustment Rate for such
Trading Day.

 

“Registration Rights Agreement” shall mean the Registration Rights Agreement,
substantially in the form of Annex C attached hereto and with such changes to
which the parties in good faith may mutually agree.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Settlement Price” shall mean, on any given Trading Day, the weighted average
market price per share paid by Merrill Lynch to purchase the Actual Share
Purchase Amount.

 

“Spread” shall have the meaning set forth in Annex A hereto.

 

“Stock Settlement Deficiency” shall mean the occurrence each date, if any, on
which the amount received by Merrill Lynch from the sale of the Final Stock
Settlement Shares, plus any other shares of Common Stock delivered by the
Company to Merrill Lynch pursuant to Section l(d), is less than the Final
Settlement Value.

 

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“Stock Settlement Deficiency Amount” shall mean the amount by which the amount
received by Merrill Lynch from the sale of the Final Stock Settlement Shares,
plus any other shares of Common Stock delivered by the Company to Merrill Lynch
pursuant to Section l(d), is less than the Final Settlement Value.

 

“Structure Fee” shall have the meaning set forth in Annex A hereto.

 

“Trading Day” shall mean any day on which the Common Stock is traded on the
NYSE, or, if not then traded on the NYSE, the principal securities exchange or
quotation system on which such securities are then traded or, if not then traded
on a securities exchange or quotation system, in the over-the-counter market.

 

“Transaction Term” shall mean the period commencing on the Settlement Date and
terminating on, and including, the Maturity Date.

 

Section 7. Miscellaneous.

 

(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and obligations
set forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.

 

(b) Assignment. Neither the rights under this Agreement nor the obligations
created by this Agreement shall be assignable or delegable, in whole or in part,
by either party herein without the prior written consent of the other, and any
attempt to assign or delegate any rights or obligations arising under this
Agreement without such consent shall be void.

 

(c) Waivers, etc. No failure or delay on the part of either party in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.

 

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No amendment, modification or waiver of any provision of this Agreement nor
consent to any departure by either party therefrom shall in any event be
effective unless the same shall be in writing, and, in the case of a waiver or
consent, shall be effective only in the specific instance and for the purpose
for which given.

 

(d) Beneficiaries. This Agreement shall be binding upon, and inure solely to the
benefit of, the Company and Merrill Lynch and no other person shall acquire any
rights hereunder. Without limiting the generality of the foregoing, Merrill
Lynch’s obligations under Section 3(b)(i) are solely for the benefit of the
Company and not the holders of any of the Company’s securities.

 

(e) Changes of Law. If, due to any change in applicable law or regulations or
the interpretation thereof by any court of law or other body having jurisdiction
subsequent to the date of this Agreement, performance of any provision of this
Agreement or any transaction contemplated hereby shall become impracticable or
impossible, the parties hereto shall use their best efforts to find and employ
an alternative means to achieve the same or substantially the same result as
that contemplated by such provision.

 

(f) Confidentiality. Subject (i) to any contrary requirement of law or
applicable regulator, (ii) to the right of each party to enforce its rights
hereunder in any legal action and (iii) in the case of the Company, to the
determination by its counsel that disclosure is appropriate or necessary, each
party shall keep strictly confidential and shall cause its employees and agents
to keep strictly confidential the terms of this Agreement and any information of
or concerning the other party which it or any of its agents or employees may
acquire pursuant to, or in the course of performing its obligations under, any
provision of this Agreement. Merrill Lynch hereby consents to the issuance of a
press release by the Company announcing its entry into this

 

22

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Agreement and the filing with the Commission of such information relating
thereto as required under the Exchange Act, upon advice of counsel.

 

(g) Expenses. The Company will pay or cause to be paid all expenses incident to
the performance of its obligations under this Agreement, including the fees and
disbursements of the Company’s counsel and accountants and other experts.
Merrill Lynch will pay its own expenses incident to the performance of its
obligations under this Agreement.

 

(h) Headings. Descriptive headings herein are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement.

 

(i) Counterparts. This Agreement may be executed by the parties hereto in
counterparts, and each such executed counterpart shall be, and shall be deemed
to be, an original instrument and all such counterparts, taken together, shall
constitute one and the same instrument.

 

(j) Notices. All notices, consents, requests, instructions, approvals and other
communications provided for herein shall be validly given, made or served if in
writing and delivered personally, by telegram, by telecopy or sent by overnight
courier, postage prepaid:

 

if to Merrill Lynch:

4 Vesey Street, 17th Floor

New York, New York 10080

Attention: Brian Carroll

Telecopy No.: (917) 778-0835

+issgelpnydocumentation@exchange.ml.com

 

and, in connection with any notices

pursuant to Section 3(a)(ii) by

telephone and telecopy or e-mail to:

Merrill Lynch & Co.

North Tower

World Financial Center

New York, New York 10281

Attention: Charles Plohn

Telephone No.: (212) 449-4577

Telecopy No.: (212) 449-0355

 

with a copy to:

 

23

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William R. Massey, Esq.

Sidley Austin Brown & Wood LLP

787 Seventh Avenue

New York, New York 10019

 

if to the Company:

 

Duke Energy Corporation

526 South Church Street

Charlotte, NC 28202-1803

Attention: Myron L. Caldwell

Telephone No.: (704) 382-7066

Telecopy No.: (704) 382-7363

 

or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by telegram or telecopy
shall be deemed delivered when evidence of the transmission is received by the
sender and shall be confirmed in writing by overnight courier, postage prepaid.
Notice given by overnight courier as set out above shall be deemed delivered the
business day after the date the same is mailed.

 

(k) Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without reference
to conflict of law principles.

 

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If the foregoing is in accordance with our understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding Agreement between the
Company and you.

 

Very truly yours,

 

DUKE ENERGY CORPORATION

 

 

By                                      
                                                            

Name:

Title:

 

Accepted as of the date

first written above.

 

MERRILL LYNCH INTERNATIONAL

 

 

By                                      
                                                            

Name:

Title:

 

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