exv10w8



 





EXHIBIT 10.8




Execution Copy




 





East Tennessee Natural Gas Company




$150,000,000




5.71% Senior Notes due December 18, 2012




 






Note Purchase Agreement




 






Dated as of December 15, 2002




 





 









 








Table of Contents




	 	 	 	 	 	 	 
	Section	 	Heading	 	Page	 
	Section 1.
	 	Authorization of Notes	 	 	 1	 
	 
	 	 	 	 	 	 
	Section 2.
	 	Sale and Purchase of Notes	 	 	 1	 
	 
	 	 	 	 	 	 
	Section 3.
	 	Closing	 	 	 2	 
	 
	 	 	 	 	 	 
	Section 4.
	 	Conditions to Closing	 	 	 2	 
	 
	Section 4.1.
	 	Representations and Warranties	 	 	2	 
	Section 4.2.
	 	Performance; No Default	 	 	2	 
	Section 4.3.
	 	Compliance Certificates	 	 	2	 
	Section 4.4.
	 	Opinions of Counsel	 	 	3	 
	Section 4.5.
	 	Purchase Permitted by Applicable Law, etc.	 	 	3	 
	Section 4.6.
	 	Sale of Other Notes	 	 	3	 
	Section 4.7.
	 	Payment of Special Counsel Fees	 	 	3	 
	Section 4.8.
	 	Private Placement Number	 	 	3	 
	Section 4.9.
	 	Changes in Corporate Structure	 	 	3	 
	Section 4.10.
	 	Funding Instructions	 	 	4	 
	Section 4.11.
	 	Proceedings and Documents	 	 	4	 
	 
	 	 	 	 	 	 
	Section 5.
	 	Representations and Warranties of the Company	 	 	 4	 
	 
	Section 5.1.
	 	Organization; Power and Authority	 	 	4	 
	Section 5.2.
	 	Authorization, etc.	 	 	4	 
	Section 5.3.
	 	Disclosure	 	 	4	 
	Section 5.4.
	 	Organization and Ownership of Shares of Subsidiaries	 	 	5	 
	Section 5.5.
	 	Financial Statements	 	 	5	 
	Section 5.6.
	 	Compliance with Laws, Other Instruments, etc.	 	 	5	 
	Section 5.7.
	 	Governmental Authorizations, etc.	 	 	6	 
	Section 5.8.
	 	Litigation; Observance of Statutes and Orders	 	 	6	 
	Section 5.9.
	 	Taxes	 	 	6	 
	Section 5.10.
	 	Title to Property; Leases	 	 	6	 
	Section 5.11.
	 	Licenses, Permits, etc.	 	 	6	 
	Section 5.12.
	 	Compliance with ERISA	 	 	7	 
	Section 5.13.
	 	Private Offering by the Company	 	 	7	 
	Section 5.14.
	 	Use of Proceeds; Margin Regulations	 	 	8	 
	Section 5.15.
	 	Existing Indebtedness	 	 	8	 
	Section 5.16.
	 	Foreign Assets Control Regulations, etc.	 	 	8	 
	Section 5.17.
	 	Status under Certain Statutes	 	 	8	 
	 
	 	 	 	 	 	 
	Section 6.
	 	Representations of the Purchaser	 	 	 9	 






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	Section	 	Heading	 	Page	 
	Section 6.1.
	 	Purchase for Investment	 	 	9	 
	Section 6.2.
	 	Source of Funds	 	 	9	 
	 
	 	 	 	 	 	 
	Section 7.
	 	Information as to Company	 	 	11	 
	 
	Section 7.1.
	 	Financial and Business Information	 	 	11	 
	Section 7.2.
	 	Officer’s Certificate	 	 	13	 
	Section 7.3.
	 	Inspection	 	 	13	 
	 
	 	 	 	 	 	 
	Section 8.
	 	Prepayment of the Notes	 	 	14	 
	 
	Section 8.1.
	 	Maturity	 	 	14	 
	Section 8.2.
	 	Optional Prepayments with Make-Whole Amount	 	 	14	 
	Section 8.3.
	 	Change in Control	 	 	14	 
	Section 8.4.
	 	Allocation of Partial Prepayments	 	 	16	 
	Section 8.5.
	 	Maturity; Surrender, etc.	 	 	16	 
	Section 8.6.
	 	Purchase of Notes	 	 	16	 
	Section 8.7.
	 	Make-Whole Amount	 	 	17	 
	 
	 	 	 	 	 	 
	Section 9.
	 	Affirmative Covenants	 	 	18	 
	 
	Section 9.1.
	 	Compliance with Law	 	 	18	 
	Section 9.2.
	 	Insurance	 	 	19	 
	Section 9.3.
	 	Maintenance of Properties	 	 	19	 
	Section 9.4.
	 	Payment of Taxes	 	 	19	 
	Section 9.5.
	 	Legal Existence, etc.	 	 	19	 
	 
	 	 	 	 	 	 
	Section 10.
	 	Negative Covenants	 	 	20	 
	 
	Section 10.1.
	 	Consolidated Funded Debt	 	 	20	 
	Section 10.2.
	 	Restriction on Liens	 	 	20	 
	Section 10.3.
	 	Consolidated Funded Debt	 	 	20	 
	Section 10.4.
	 	Restriction on Asset Sales	 	 	20	 
	Section 10.5.
	 	Restriction on Consolidation, Merger, Etc.	 	 	20	 
	Section 10.6.
	 	Business of Company	 	 	21	 
	Section 10.7.
	 	Transactions with Affiliate	 	 	21	 
	 
	 	 	 	 	 	 
	Section 11.
	 	Events of Default	 	 	22	 
	 
	 	 	 	 	 	 
	Section 12.
	 	Remedies on Default, etc.	 	 	24	 
	 
	Section 12.1.
	 	Acceleration	 	 	24	 
	Section 12.2.
	 	Other Remedies	 	 	24	 
	Section 12.3.
	 	Rescission	 	 	24	 
	Section 12.4.
	 	No Waivers or Election of Remedies, Expenses, etc.	 	 	25	 
	 
	 	 	 	 	 	 
	Section 13.
	 	Registration; Exchange; Substitution of Notes	 	 	25	 
	 
	Section 13.1.
	 	Registration of Notes	 	 	25	 






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	Section	 	Heading	 	Page	 
	Section 13.2.
	 	Transfer and Exchange of Notes	 	 	25	 
	Section 13.3.
	 	Replacement of Notes	 	 	26	 
	 
	 	 	 	 	 	 
	Section 14.
	 	Payments on Notes	 	 	26	 
	 
	Section 14.1.
	 	Place of Payment	 	 	26	 
	Section 14.2.
	 	Home Office Payment	 	 	27	 
	 
	 	 	 	 	 	 
	Section 15.
	 	Expenses, etc.	 	 	27	 
	 
	Section 15.1.
	 	Transaction Expenses	 	 	27	 
	Section 15.2.
	 	Survival	 	 	27	 
	 
	 	 	 	 	 	 
	Section 16.
	 	Survival of Representations and Warranties; Entire Agreement	 	 	27	 
	 
	 	 	 	 	 	 
	Section 17.
	 	Amendment and Waiver	 	 	28	 
	 
	Section 17.1.
	 	Requirements	 	 	28	 
	Section 17.2.
	 	Solicitation of Holders of Notes	 	 	28	 
	Section 17.3.
	 	Binding Effect, etc.	 	 	29	 
	Section 17.4.
	 	Notes Held by Company, etc.	 	 	29	 
	 
	 	 	 	 	 	 
	Section 18.
	 	Notices	 	 	29	 
	 
	 	 	 	 	 	 
	Section 19.
	 	Reproduction of Documents	 	 	30	 
	 
	 	 	 	 	 	 
	Section 20.
	 	Confidential Information	 	 	30	 
	 
	 	 	 	 	 	 
	Section 21.
	 	Substitution of Purchaser	 	 	31	 
	 
	 	 	 	 	 	 
	Section 22.
	 	Miscellaneous	 	 	31	 
	 
	Section 22.1.
	 	Successors and Assigns	 	 	31	 
	Section 22.2.
	 	Payments Due on Non-Business Days	 	 	31	 
	Section 22.3.
	 	Severability	 	 	32	 
	Section 22.4.
	 	Construction	 	 	32	 
	Section 22.5.
	 	Counterparts	 	 	32	 
	Section 22.6.
	 	Governing Law	 	 	32	 
	Section 22.7.
	 	Jurisdiction	 	 	32	 
	 
	 	 	 	 	 	 
	Signature
	 	 	 	 	33	 






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	Schedule A

	 	—
	 	Information Relating to Purchasers
	 
	 	 	 	 
	Schedule B

	 	—
	 	Defined Terms
	 
	 	 	 	 
	 Schedule 5.3

	 	—
	 	Disclosure Materials
	 
	 	 	 	 
	Schedule 5.4

	 	—
	 	Subsidiaries of the Company and Ownership of Subsidiary Stock
	 
	 	 	 	 
	Schedule 5.5

	 	—
	 	Financial Statements
	 
	 	 	 	 
	Schedule 5.14

	 	—
	 	Use of Proceeds
	 
	 	 	 	 
	Schedule 5.15

	 	—
	 	Existing Indebtedness
	 
	 	 	 	 
	Exhibit 1

	 	—
	 	Form of 5.71% Senior Note due December 18, 2012
	 
	 	 	 	 
	Exhibit 4.4(a)

	 	—
	 	Form of Opinion of Special Counsel for the Company
	 
	 	 	 	 
	Exhibit 4.4.(b)

	 	—
	 	Form of Opinion of Special Tennessee Counsel to the Company
	 
	 	 	 	 
	Exhibit 4.4(c)

	 	—
	 	Form of Opinion of Special Counsel for the Purchasers







-iv- 









 







East Tennessee Natural Gas Company

5400 Westheimer Ct.

WO-8L27

Houston, TX 77056




5.71% Senior Notes due December 18, 2012




			
	 	 	 
	To the Purchaser Listed in
	 	Dated as of December 15, 2002
	     the attached Schedule A	 	 
	     which is a Signatory Hereto:	 	 





Ladies and Gentlemen:




     East Tennessee Natural Gas Company, a Tennessee corporation (the “Company”), agrees
with you as follows:



Section 1. Authorization of Notes.




     The Company will authorize the issue and sale of $150,000,000 aggregate principal amount of
its 5.71% Senior Notes due December 18, 2012 (the “Notes”, such term to include any such
notes issued in substitution therefor pursuant to Section 13 of this Agreement or the Other
Agreements (as hereinafter defined)). The Notes shall be substantially in the form set out in
Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain
capitalized terms used in this Agreement are defined in Schedule B; references to a “Schedule” or
an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.



Section 2. Sale and Purchase of Notes.




     Subject to the terms and conditions of this Agreement, the Company will issue and sell to you
and you will purchase from the Company, at the Closing provided for in Section 3, Notes in the
principal amount specified opposite your name in Schedule A at the purchase price of 100% of the
principal amount thereof. Contemporaneously with entering into this Agreement, the Company is
entering into separate Note Purchase Agreements (the “Other Agreements”) identical with this
Agreement with each of the other purchasers named in Schedule A (the “Other Purchasers”), providing
for the sale at such Closing to each of the Other Purchasers of Notes in the principal amount
specified opposite its name in Schedule A. Your obligation hereunder, and the obligations of the
Other Purchasers under the Other Agreements, are several and not joint obligations, and you shall
have no obligation under any Other Agreement and no liability to any Person for the performance or
nonperformance by any Other Purchaser thereunder.



 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





Section 3. Closing.




     The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur
at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, at 10:00
a.m. Chicago time, at a closing (the “Closing”) on December 18, 2002. At the Closing the
Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such
greater number of Notes in denominations of at least $1,000,000 as you may request) dated the date
of the Closing and registered in your name (or in the name of your nominee), against delivery by
you to the Company or its order of immediately available funds in the amount of the purchase price
therefor by wire transfer of immediately available funds for the account of the Company to account
number 323-8-87171 at JPMorgan Chase Bank, New York, NY, ABA 021000021. If at the Closing the
Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the
conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at
your election, be relieved of all further obligations under this Agreement, without thereby waiving
any rights you may have by reason of such failure or such nonfulfillment.



Section 4. Conditions to Closing.




     Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject
to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions:



     Section 4.1. Representations and Warranties. The representations and warranties of
the Company in this Agreement shall be correct when made and at the time of the Closing.



     Section 4.2. Performance; No Default. The Company shall have performed and complied
with all agreements and conditions contained in this Agreement required to be performed or complied
with by it prior to or at the Closing, and after giving effect to the issue and sale of the Notes
(and the application of the proceeds thereof as contemplated by Schedule 5.14), no Default or Event
of Default shall have occurred and be continuing.



Section 4.3. Compliance Certificates.





     (a) Officer’s Certificate. The Company shall have delivered to you an Officer’s
Certificate, dated the date of the Closing, certifying that the conditions specified in
Sections 4.1, 4.2 and 4.9 have been fulfilled.




     (b) Secretary’s Certificate. The Company shall have delivered to you a certificate
certifying as to the resolutions attached thereto and other corporate proceedings relating
to the authorization, execution and delivery of the Notes and the Agreements.



     Section 4.4. Opinions of Counsel. You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Robinson, Bradshaw & Hinson, P.A.,
counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





covering such other matters incident to the transactions contemplated hereby as you or your counsel
may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to
you), (b) from Waller, Landsen, Dortch & Davis, special Tennessee counsel for the Company, covering
the matters set forth in Section 4.4(b) and (c) from Chapman and Cutler, your special counsel in
connection with such transactions, substantially in the form set forth in Exhibit 4.4(c) and
covering such other matters incident to such transactions as you may reasonably request.




     Section 4.5. Purchase Permitted by Applicable Law, etc. On the date of the Closing
your purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to
which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York
Insurance Law) permitting limited investments by insurance companies without restriction as to the
character of the particular investment, (b) not violate any applicable law or regulation
(including, without limitation, Regulation T, U or X of the Board of Governors of the Federal
Reserve System) and (c) not subject you to any tax, penalty or liability under or pursuant to any
applicable law or regulation, which law or regulation was not in effect on the date hereof. If
requested by you, you shall have received an Officer’s Certificate certifying as to such matters of
fact as you may reasonably specify to enable you to determine whether such purchase is so
permitted.



     Section 4.6. Sale of Other Notes. Contemporaneously with the Closing, the Company shall sell
to the Other Purchasers, and the Other Purchasers shall purchase, the Notes to be purchased by them
at the Closing as specified in Schedule A.



     Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section
15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4 to the extent reflected in a statement of such
counsel rendered to the Company at least one Business Day prior to the Closing.



     Section 4.8. Private Placement Number. A Private Placement Number issued by Standard
& Poor’s CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.



     Section 4.9. Changes in Corporate Structure. The Company shall not have changed its
jurisdiction of incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity, at any time
following the date of the most recent financial statements referred to in Schedule 5.5.



     Section 4.10. Funding Instructions. At least three Business Days prior to the date of the
Closing, you shall have received written instructions executed by a Responsible Officer of the
Company directing the manner of the payment of funds and setting forth (a) the name and address of
the transferee bank, (b) such transferee bank’s ABA number and (c) the account name and number into
which the purchase price for the Notes is to be deposited.



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     Section 4.11. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special counsel, and you and
your special counsel shall have received all such counterpart originals or certified or other
copies of such documents as you or they may reasonably request.



Section 5. Representations and Warranties of the Company.




          The Company represents and warrants to you that:




     Section 5.1. Organization; Power and Authority. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. The Company has the corporate power and authority to own or
hold under lease the properties it purports to own or hold under lease, to transact the business it
transacts and proposes to transact, to execute and deliver this Agreement and the Other Agreements
and the Notes and to perform the provisions hereof and thereof.



     Section 5.2. Authorization, etc. This Agreement, the Other Agreements and the Notes
have been duly authorized by all necessary corporate action on the part of the Company, and this
Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights
generally and (b) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).



     Section 5.3. Disclosure. The Company, through its agent, Wachovia Securities, Inc.,
has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum dated
November 2002 (the “Memorandum”), relating to the transactions contemplated hereby. This
Agreement, the Memorandum, the documents, certificates or other writings identified in Schedule 5.3
and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary to make the statements
therein not misleading in light of the circumstances under which they were made. Since December 31,
2001, there has been no change in the financial condition, operations, business or properties of
the Company or any of its Subsidiaries except changes that individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect.



     Section 5.4. Organization and Ownership of Shares of Subsidiaries. (a) Schedule 5.4
is (except as noted therein) a complete and correct list of the Company’s Subsidiaries, showing, as
to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the
percentage of shares of each class of its capital stock or similar equity interests outstanding
owned by the Company and each other Subsidiary.



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     (b) All of the outstanding shares of capital stock or similar equity interests of each
Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been
validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary
free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).



     (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its jurisdiction of
organization, and is duly qualified as a foreign corporation or other legal entity and is in good
standing in each jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each
such Subsidiary has the corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business it transacts and
proposes to transact.



     Section 5.5. Financial Statements. The Company has delivered to each Purchaser
copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All
of said financial statements (including in each case the related schedules and notes) fairly
present in all material respects the consolidated financial position of the Company and its
Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of
their operations and cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except as set forth in
the notes thereto (subject, in the case of any interim financial statements, to normal year-end
adjustments).



     Section 5.6. Compliance with Laws, Other Instruments, etc. The execution, delivery
and performance by the Company of this Agreement and the Notes will not (a) contravene, result in
any breach of, or constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any other Material agreement
or instrument to which the Company or any Subsidiary is bound or by which the Company or any
Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or
result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or Governmental Authority applicable to the Company or any
Subsidiary or (c) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.



     Section 5.7. Governmental Authorizations, etc. No consent, approval or authorization
of, or registration, filing or declaration with, any Governmental Authority is required in
connection with the execution, delivery or performance by the Company of this Agreement or the
Notes.



     Section 5.8. Litigation; Observance of Statutes and Orders. (a) There are no
actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any
court or before any arbitrator of any kind or before or by any Governmental Authority that,



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.



     (b) Neither the Company nor any Subsidiary is in default under any order, judgment, decree or
ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law,
ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental
Authority, which default or violation, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.



     Section 5.9. Taxes. All income tax returns that the Company and its Subsidiaries are
required to file have been filed, and all taxes shown to be due and payable on such returns and all
other taxes and assessments payable by them have been paid, to the extent such taxes and
assessments have become due and payable and before they have become delinquent, except for any
taxes and assessments (a) the amount of which is not individually or in the aggregate Material or
(b) the amount, applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be,
has established adequate reserves in accordance with GAAP. The Federal income tax liabilities of
the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for
all fiscal years up to and including the fiscal year ended December 31, 2001.



     Section 5.10. Title to Property; Leases. The Company and its Subsidiaries have good
and sufficient title to their respective Material properties, including all such properties
reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have
been acquired by the Company or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement, except for those defects in title and Liens that, individually or in the aggregate,
would not have a Material Adverse Effect. All Material leases are valid and subsisting and are in
full force and effect in all material respects.



     Section 5.11. Licenses, Permits, etc. The Company and its Subsidiaries own or possess
all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks
and trade names, or rights thereto, that are Material, without known conflict with the rights of
others, except for those conflicts that, individually or in the aggregate, would not have a
Material Adverse Effect.



     Section 5.12. Compliance with ERISA. (a) The Company and each ERISA Affiliate have
operated and administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be expected to result
in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or
condition has occurred or exists that would reasonably be expected to result in the incurrence of
any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any
of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant
to Title I or IV of ERISA or to such penalty or excise tax provisions or to



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.



     (b) The present value of the aggregate benefit liabilities under each of the Plans (other than
Multiemployer Plans), determined as of the end of such Plan’s most recently ended plan year on the
basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent
actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term “benefit liabilities” has the meaning specified in
section 4001 of ERISA and the terms “current value” and “present value” have the meanings specified
in section 3 of ERISA.



     (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not
subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.



     (d) The expected post-retirement benefit obligation (determined as of the last day of the
Company’s most recently ended fiscal year in accordance with Financial Accounting Standards Board
Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by
section 4980B of the Code) of the Company and its Subsidiaries is not Material.



     (e) The execution and delivery of this Agreement and the issuance and sale of the Notes
hereunder will not involve any transaction that is subject to the prohibitions of section 406 of
ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of
the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made
in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the
sources of the funds used to pay the purchase price of the Notes to be purchased by you.



     Section 5.13. Private Offering by the Company. Neither the Company nor anyone acting
on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any
Person other than you, the Other Purchasers and not more than 65 other Institutional Investors,
each of which has been offered the Notes at a private sale for investment. Neither the Company nor
anyone acting on its behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of Section 5 of the Securities Act.



     Section 5.14. Use of Proceeds; Margin Regulations. The Company will apply the
proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the proceeds from the
sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of Regulation X of
said Board (12 CFR 224). Margin stock does not constitute more than 2% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 2% of the value of such assets. As



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the
meanings assigned to them in said Regulation U.



     Section 5.15. Existing Indebtedness. Other than Indebtedness of a Subsidiary owed to another
Subsidiary, Schedule 5.15 sets forth a complete and correct list of all outstanding
Indebtedness of the Company and its Subsidiaries as of September 30, 2002, since which date there
has been no Material change in the amounts, interest rates, sinking funds, installment payments or
maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any
Subsidiary is in default and no waiver of default is currently in effect, in the payment of any
principal or interest on any Indebtedness of the Company or such Subsidiary and no event or
condition exists with respect to any Indebtedness of the Company or any Subsidiary the outstanding
principal amount of which exceeds $1,000,000 that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Indebtedness to become due and
payable before its stated maturity or before its regularly scheduled dates of payment.



     Section 5.16. Foreign Assets Control Regulations, etc. Neither the sale of the Notes
by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the
Enemy Act, as amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or
executive order relating thereto. Without limiting the foregoing, neither the Company nor any
Subsidiary (a) is or will become a person whose property or interests in property are blocked
pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed.
Reg. 49079 (2001)) or (b) engages or will engage in any dealings or transactions, or be otherwise
associated, with any such person.



     Section 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary
is an “investment company” registered or required to be registered under the Investment Company Act
of 1940, as amended, or is subject to regulation under the Public Utility Holding Company Act of
1935, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as
amended.



Section 6. Representations of the Purchaser.




     Section 6.1. Purchase for Investment. You represent that (a) you are purchasing the
Notes for your own account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be within your or their
control; (b) this Agreement constitutes the legal, valid and binding obligation enforceable against
you in accordance with the terms hereof, except as enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement
of creditors’ rights generally and (ii) general principles of equity (regardless of such
enforceability is considered in equity or at law); and (c) you, and any other account for which you
are purchasing the Notes, are an “accredited investor” within the meaning of Rule 501 of Regulation
D promulgated under the Securities Act. You understand that the Notes have not



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







been registered under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required by law, and that
the Company is not required to register the Notes.



     Section 6.2. Source of Funds. You represent that at least one of the following statements is
an accurate representation as to each source of funds (the “Source”) to be used by you to pay the
purchase price of the Notes to be purchased by you hereunder:




     (a) the Source is an “insurance company general account” (as the term is defined in the
United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in
respect of which the reserves and liabilities (as defined by the annual statement for life
insurance companies approved by the National Association of Insurance Commissioners (the
“NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of any
employee benefit plan together with the amount of the reserves and liabilities for the
general account contract(s) held by or on behalf of any other employee benefit plans
maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the
same employee organization in the general account do not exceed 10% of the total reserves
and liabilities of the general account (exclusive of separate account liabilities) plus
surplus as set forth in the NAIC Annual Statement filed with your state of domicile; or




     (b) the Source is a separate account that is maintained solely in connection with your
fixed contractual obligations under which the amounts payable, or credited, to any employee
benefit plan (or its related trust) that has any interest in such separate account (or to
any participant or beneficiary of such plan (including any annuitant)) are not affected in
any manner by the investment performance of the separate account; or




     (c) the Source is either (i) an insurance company pooled separate account, within the
meaning of PTE 90-1 or (ii) a bank collective investment fund, within the meaning of the PTE
91-38 and, except as you have disclosed to the Company in writing pursuant to this paragraph
(c), no employee benefit plan or group of plans maintained by the same employer or employee
organization beneficially owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or




     (d) the Source constitutes assets of an “investment fund” (within the meaning of Part V
of PTE 84-14 (the “QPAM Exemption”)) managed by a “qualified professional asset manager” or
“QPAM” (within the meaning of Part V of the QPAM Exemption), no employee benefit plan’s
assets that are included in such investment fund, when combined with the assets of all other
employee benefit plans established or maintained by the same employer or by an affiliate
(within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the
definition of “control” in Section V(e) of the QPAM Exemption) owns a 5% or more interest in
the Company



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose
assets are included in such investment fund have been disclosed to the Company in writing
pursuant to this paragraph (d); or




     (e) the Source constitutes assets of a “plan(s)” (within the meaning of Section IV of
PTE 96-23 (the “INHAM Exemption”)) managed by an “in-house asset manager” or “INHAM” (within
the meaning of Part IV of the INHAM exemption), the conditions of Part I(a), (g) and (h) of
the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled
by the INHAM (applying the definition of “control” in Section IV(h) of the INHAM Exemption)
owns a 5% or more interest in the Company and (i) the identity of such INHAM and (ii) the
name(s) of the employee benefit plan(s) whose assets constitute the Source have been
disclosed to the Company in writing pursuant to this clause (e); or




     (f) the Source is a governmental plan; or




     (g) the Source is one or more employee benefit plans, or a separate account or trust
fund comprised of one or more employee benefit plans, each of which has been identified to
the Company in writing pursuant to this paragraph (g); or




     (h) the Source does not include assets of any employee benefit plan, other than a plan
exempt from the coverage of ERISA.



     As used in this Section 6.2, the terms “employee benefit plan”, “governmental plan”, and
“separate account” shall have the respective meanings assigned to such terms in Section 3 of ERISA.



Section 7. Information as to Company.




     Section 7.1. Financial and Business Information. The Company shall deliver to each holder of
Notes that is an Institutional Investor:




     (a) Quarterly Statements — within 60 days after the end of each quarterly fiscal period
in each fiscal year of the Company (other than the last quarterly fiscal period of each such
fiscal year) or, if earlier, within 15 days after such date as the Company is required to
file a Quarterly Report with the Securities and Exchange Commission, duplicate copies of:




     (i) a consolidated balance sheet of the Company and its Subsidiaries as at the
end of such quarter, and




     (ii) consolidated statements of income, changes in shareholders’ equity and
cash flows of the Company and its Subsidiaries for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal year ending with such
quarter,



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement






setting forth in each case in comparative form the figures for the corresponding periods in
the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments;




     (b) Annual Statements — within 105 days after the end of each fiscal year of the
Company or, if earlier, within 15 days of such date as the Company is required to file an
Annual Report with the Securities and Exchange Commissions, duplicate copies of:




     (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the
end of such year, and




     (ii) consolidated statements of income, changes in shareholders’ equity and
cash flows of the Company and its Subsidiaries, for such year,




setting forth in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion
thereon of independent certified public accountants of recognized national standing, which
opinion shall state that such financial statements present fairly, in all material respects,
the financial position of the companies being reported upon and their results of operations
and cash flows and have been prepared in conformity with GAAP, and that the examination of
such accountants in connection with such financial statements has been made in accordance
with generally accepted auditing standards, and that such audit provides a reasonable basis
for such opinion in the circumstances;




     (c) SEC and Other Reports — to the extent provided or filed by the Company or any
Subsidiary, promptly upon their becoming available, one copy of (i) each financial
statement, report, notice or proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and (ii) each regular or periodic report, each registration
statement that shall have become effective (without exhibits except as expressly requested
by such holder), and each final prospectus and all amendments thereto filed by the Company
or any Subsidiary with the Securities and Exchange Commission;




     (d) Notice of Default or Event of Default — promptly, and in any event within five days
after a Responsible Officer becoming aware of the existence of any Default or Event of
Default, a written notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;




     (e) ERISA Matters — promptly, and in any event within five days after a Responsible
Officer becoming aware of any of the following, a written notice setting forth the nature
thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with
respect thereto:



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement






     (i) with respect to any Plan, any reportable event, as defined in section
4043(c) of ERISA and the regulations thereunder, for which notice thereof has not
been waived pursuant to such regulations as in effect on the date hereof; or




     (ii) the taking by the PBGC of steps to institute, or the threatening by the
PBGC of the institution of, proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan
that such action has been taken by the PBGC with respect to such Multiemployer Plan;
or




     (iii) any event, transaction or condition that could result in the incurrence
of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans, or in the imposition of any Lien on any of the rights, properties or
assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or
such penalty or excise tax provisions, if such liability or Lien, taken together
with any other such liabilities or Liens then existing, would reasonably be expected
to have a Material Adverse Effect; and




     (f) Requested Information — with reasonable promptness, such other data and information
relating to the business, operations, affairs, financial condition, assets or properties of
the Company or any of its Subsidiaries or relating to the ability of the Company to perform
its obligations hereunder and under the Notes as from time to time may be reasonably
requested by any such holder of Notes.



     Section 7.2. Officer’s Certificate. Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of
a Senior Financial Officer setting forth:




     (a) Covenant Compliance — the information (including detailed calculations) required in
order to establish whether the Company was in compliance with the requirements of Section
10.1 through Section 10.5 hereof, inclusive, during the quarterly or annual period covered
by the statements then being furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the
case may be, permissible under the terms of such Sections, and the calculation of the
amount, ratio or percentage then in existence); and




     (b) Event of Default — a statement that such officer has reviewed the relevant terms
hereof and has made, or caused to be made, under his or her supervision, a review of the
transactions and conditions of the Company and its Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during such period
of any condition or event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







limitation, any such event or condition resulting from the failure of the Company or any
Subsidiary to comply with any Environmental Law), specifying the nature and period of
existence thereof and what action the Company shall have taken or proposes to take with
respect thereto.



     Section 7.3. Inspection. The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor:




     (a) No Default — if no Default or Event of Default then exists, at the expense of such
holder and upon reasonable prior notice to the Company, to visit the principal executive
office of the Company, to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company’s officers, and, with the consent of the Company (which
consent will not be unreasonably withheld) to visit the other offices and properties of the
Company and each Subsidiary, all at such reasonable times and as often as may be reasonably
requested in writing; and




     (b) Default — if a Default or Event of Default then exists, at the expense of the
Company, to visit and inspect any of the offices or properties of the Company or any
Subsidiary, to examine all their respective books of account, records, reports and other
papers, to make copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public accountants (and
by this provision the Company authorizes said accountants to discuss the affairs, finances
and accounts of the Company and its Subsidiaries), all at such times and as often as may be
requested.



Section 8. Prepayment of the Notes.




     Section 8.1. Maturity. The Notes shall not be subject to a scheduled prepayment prior to the
final maturity date thereof.



     Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may, at its option,
upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes,
in an amount not less than 10% of the aggregate principal amount of the Notes then outstanding in
the case of a partial prepayment, at 100% of the principal amount so prepaid, together with
interest accrued thereon to the date of such prepayment, plus the Make-Whole Amount determined for
the prepayment date with respect to such principal amount. The Company will give each holder of
Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and
not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify
such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal
amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.4),
and the interest to be paid on the prepayment date with respect to such principal amount being
prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the
estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of
such notice were the date of the prepayment), setting forth the details of such computation. Two
Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date.



     Section 8.3. Change in Control. (a) Notice of Change in Control or Control Event. The
Company will, within five Business Days after any Responsible Officer has knowledge of the
occurrence of any Change in Control or Control Event, give written notice of such Change in Control
or Control Event to each holder of Notes unless notice in respect of such Change in Control (or the
Change in Control contemplated by such Control Event) shall have been given pursuant to
subparagraph (b) of this Section 8.3. If a Change in Control has occurred, such notice shall
contain and constitute an offer to prepay Notes as described in subparagraph (c) of this Section
8.3 and shall be accompanied by the certificate described in subparagraph (g) of this Section 8.3.



     (b) Condition to Company Action. The Company will not take any action that consummates or
finalizes a Change in Control unless (i) at least 30 days prior to such action it shall have given
to each holder of Notes written notice containing and constituting an offer to prepay Notes as
described in subparagraph (c) of this Section 8.3, accompanied by the certificate described in
subparagraph (g) of this Section 8.3, and (ii) contemporaneously with such action, it prepays all
Notes required to be prepaid in accordance with this Section 8.3.



     (c) Offer to Prepay Notes. The offer to prepay Notes contemplated by subparagraphs (a) and
(b) of this Section 8.3 shall be an offer to prepay, in accordance with and subject to this Section
8.3, all, but not less than all, the Notes held by each holder (in this case only, “holder” in
respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean
such beneficial owner) on a date specified in such offer (the “Proposed Prepayment Date”). If such
Proposed Prepayment Date is in connection with an offer contemplated by subparagraph (a) of this
Section 8.3, such date shall be not less than 30 days and not more than 120 days after the date of
such offer (if the Proposed Prepayment Date shall not be specified in such offer, the Proposed
Prepayment Date shall be the first Business Day after the 45th day after the date of such offer).



     (d) Rejection. A holder of Notes may accept the offer to prepay made pursuant to this Section
8.3 by causing a notice of such acceptance to be delivered to the Company not later than 15 days
after receipt by such holder of the most recent offer of prepayment. A failure by a holder of
Notes to respond to an offer to prepay made pursuant to this Section 8.3 shall be deemed to
constitute a rejection of such offer by such holder.



     (e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this Section 8.3 shall be
at 100% of the principal amount of such Notes, together with interest on such Notes accrued to the
date of prepayment, but without Make-Whole Amount or other premium. The prepayment shall be made
on the Proposed Prepayment Date except as provided in subparagraph (f) of this Section 8.3.



     (f) Deferral Pending Change in Control. The obligation of the Company to prepay Notes
pursuant to the offers required by subparagraph (c) and accepted in accordance with subparagraph
(d) of this Section 8.3 is subject to the occurrence of the Change in Control in



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







respect of which such offers and acceptances shall have been made. In the event that such Change
in Control has not occurred on the Proposed Prepayment Date in respect thereof, the prepayment
shall be deferred until, and shall be made on, the date on which such Change in Control occurs.
The Company shall keep each holder of Notes reasonably and timely informed of (i) any such deferral
of the date of prepayment, (ii) the date on which such Change in Control and the prepayment are
expected to occur, and (iii) any determination by the Company that efforts to effect such Change in
Control have ceased or been abandoned (in which case the offers and acceptances made pursuant to
this Section 8.3 in respect of such Change in Control shall be deemed rescinded).



     (g) Officer’s Certificate. Each offer to prepay the Notes pursuant to this Section 8.3 shall
be accompanied by a certificate, executed by a Senior Financial Officer of the Company and dated
the date of such offer, specifying: (i) the Proposed Prepayment Date; (ii) that such offer is made
pursuant to this Section 8.3; (iii) the principal amount of each Note offered to be prepaid; (iv)
the interest that would be due on each Note offered to be prepaid, accrued to the Proposed
Prepayment Date; (v) that the conditions of this Section have been fulfilled; and (vi) in
reasonable detail, the nature and date or proposed date of the Change in Control.



     (h) Certain Definitions. “Change in Control” shall be deemed to have occurred if any person
(as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act as in effect on the
date of the Closing) or related persons constituting a group (as such term is used in Rule 13d-5
under the Exchange Act), other than Duke Energy Corporation, a North Carolina corporation, or an
Affiliate thereof which is Controlled (as defined in the definition of “Affiliate”) by Duke Energy
Corporation,




     (i) become the “beneficial owners” (as such term is used in Rule 13d-3 under the
Exchange Act as in effect on the date of the Closing), directly or indirectly, of more than
50% of the total voting power of all classes then outstanding of the Company’s Voting Stock,
or




     (ii) acquire after the date of the Closing (x) the power to elect, appoint or cause the
election or appointment of at least a majority of the members of the board of directors of
the Company, through beneficial ownership of the capital stock of the Company or otherwise,
or (y) all or substantially all of the properties and assets of the Company.



     “Control Event” means:




     (i) the execution by the Company or any of its Restricted Subsidiaries or Affiliates of
any agreement or letter of intent with respect to any proposed transaction or event or
series of transactions or events which, individually or in the aggregate, may reasonably be
expected to result in a Change in Control, or




     (ii) the execution of any written agreement which, when fully performed by the parties
thereto, would result in a Change in Control.



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     Section 8.4. Allocation of Partial Prepayments. In the case of each partial prepayment of the
Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof. All partial prepayments made pursuant to Section 8.3 shall be applied only to the
Notes of the holders who have elected to participate in such prepayment.



     Section 8.5. Maturity; Surrender, etc. In the case of each prepayment of Notes pursuant to
this Section 8, the principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such principal amount
accrued to such date and the applicable Make-Whole Amount, if any. From and after such date,
unless the Company shall fail to pay such principal amount when so due and payable, together with
the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and
cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal
amount of any Note.



     Section 8.6. Purchase of Notes. The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes
except (a) upon the payment or prepayment of the Notes in accordance with the terms of this
Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate
pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions.
Any such offer shall provide each holder with sufficient information to enable it to make an
informed decision with respect to such offer, and shall remain open for at least 20 Business Days.
If the holders of more than 25% of the principal amount of the Notes then outstanding accept such
offer, the Company shall promptly notify the remaining holders of such fact and the expiration date
for the acceptance by holders of Notes of such offer shall be extended by the number of days
necessary to give each such remaining holder at least ten Business Days from its receipt of such
notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any
Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any such Notes.



     Section 8.7. Make-Whole Amount. The term “Make-Whole Amount” means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments
with respect to the Called Principal of such Note over the amount of such Called Principal,
provided that the Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following meanings:




     “Called Principal” means, with respect to any Note, the principal of such Note that is
to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and
payable pursuant to Section 12.1, as the context requires.




     “Discounted Value” means, with respect to the Called Principal of any Note, the amount
obtained by discounting all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the Settlement Date with



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







respect to such Called Principal, in accordance with accepted financial practice and at
a discount factor (applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Reinvestment Yield with respect to such Called Principal.




     “Reinvestment Yield” means, with respect to the Called Principal of any Note, the sum
of (a) 0.50% plus (b) the yield to maturity implied by (i) the yields reported, as of 10:00
A.M. (New York City time) on the second Business Day preceding the Settlement Date with
respect to such Called Principal, on the display designated as “Page PX1” on the Bloomberg
Financial Markets System (or such other display as may replace Page PX1 on the Bloomberg
Financial Markets System) for actively traded on-the-run U.S. Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal as of such Settlement
Date, or (ii) if such yields are not reported as of such time or the yields reported as of
such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for
the latest day for which such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for actively traded
on-the-run U.S. Treasury securities having a constant maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date. Such implied yield will
be determined, if necessary, by (a) converting U.S. Treasury bill quotations to
bond-equivalent yields in accordance with accepted financial practice and (b) interpolating
linearly between (1) the actively traded on-the-run U.S. Treasury security with the maturity
closest to and greater than the Remaining Average Life and (2) the actively traded
on-the-run U.S. Treasury security with the maturity closest to and less than the Remaining
Average Life. The Reinvestment Yield shall be rounded to that number of decimal places as
appears in the coupon of the Note.




     “Remaining Average Life” means, with respect to any Called Principal, the number of
years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called
Principal into (ii) the sum of the products obtained by multiplying (a) the principal
component of each Remaining Scheduled Payment with respect to such Called Principal by (b)
the number of years (calculated to the nearest one-twelfth year) that will elapse between
the Settlement Date with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.




     “Remaining Scheduled Payments” means, with respect to the Called Principal of any Note,
all payments of such Called Principal and interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such Settlement Date is not a
date on which interest payments are due to be made under the terms of the Notes, then the
amount of the next succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on such Settlement Date
pursuant to Section 8.2 or 12.1.




     “Settlement Date” means, with respect to the Called Principal of any Note, the date on
which such Called Principal is to be prepaid pursuant to Section 8.2 or has



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	 	Note Purchase Agreement







become or is declared to be immediately due and payable pursuant to Section 12.1, as
the context requires.



Section 9. Affirmative Covenants.




          The Company covenants that so long as any of the Notes are outstanding:




     Section 9.1. Compliance with Law. The Company will, and will cause each of its Subsidiaries
to, comply with all laws, ordinances or governmental rules or regulations to which each of them is
subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect
all licenses, certificates, permits, franchises and other governmental authorizations necessary to
the ownership of their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations would not reasonably be
expected, individually or in the aggregate, to have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company and its Subsidiaries
taken as a whole.



     Section 9.2. Insurance. The Company will, and will cause each of its Subsidiaries to,
maintain, with financially sound and reputable insurers, insurance with respect to their respective
properties and businesses against such casualties and contingencies, of such types, on such terms
and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves
are maintained with respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.



     Section 9.3. Maintenance of Properties. The Company will, and will cause each of its
Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties
in good repair, working order and condition (other than ordinary wear and tear), so that the
business carried on in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable in the conduct of its
business and the Company has concluded that such discontinuance would not, individually or in the
aggregate, have a materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Company and its Subsidiaries taken as a whole.



     Section 9.4. Payment of Taxes. The Company will, and will cause each of its Subsidiaries to,
file, or cause to be filed, all income tax or similar tax returns required to be filed in any
jurisdiction and to pay and discharge, or cause to be paid and discharged, all taxes shown to be
due and payable on such returns and all other taxes, assessments, governmental charges, or levies
payable by any of them, to the extent such taxes and assessments have become due and payable and
before they have become delinquent, provided that neither the Company nor any Subsidiary need pay,
or cause to be paid, any such tax or assessment if (a) the amount, applicability or validity
thereof is contested by, or on behalf of, the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company or a Subsidiary



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	East Tennessee Natural Gas Company
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has established adequate reserves therefor in accordance with GAAP on the books of the Company or
such Subsidiary or (b) the nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a materially adverse effect on the business, operations, affairs,
financial condition, properties or assets of the Company and its Subsidiaries taken as a whole.



     Section 9.5. Legal Existence, etc. Subject to Section 10.5, the Company will at all times
preserve and keep in full force and effect its legal existence. Subject to Sections 10.4 and 10.5,
the Company will at all times preserve and keep in full force and effect the legal existence of
each of its Subsidiaries and all rights and franchises of the Company and its Subsidiaries unless,
in the good faith judgment of the Company, the termination of or failure to preserve and keep in
full force and effect such legal existence, right or franchise would not, individually or in the
aggregate, have a materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Company and its Subsidiaries taken as a whole.



Section 10. Negative Covenants.




          The Company covenants that so long as any of the Notes are outstanding:




     Section 10.1. Consolidated Funded Debt. The Company will not permit Consolidated Funded Debt
to exceed 65% of Total Adjusted Consolidated Capitalization.



     Section 10.2. Restriction on Liens. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien (other
than Permitted Liens) upon any of its property, assets or revenues, whether owned at the date of
the Closing or hereafter acquired, to secure any Indebtedness, without making effective provision
whereby the Notes and any other Indebtedness of the Company and its Subsidiaries then entitled
thereto shall be secured by such Lien equally and ratably with the Indebtedness thereby secured so
long as such Indebtedness shall be so secured.



     Section 10.3. Restriction on Subsidiary Indebtedness. The Company will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Indebtedness,
unless, at the time of incurrence of such Indebtedness, the aggregate amount of Indebtedness of
Subsidiaries, together with (without duplication) the aggregate amount of Indebtedness secured by
Liens permitted by clause (k) of the definition of “Permitted Liens” in Schedule B, shall not
exceed 15% of Total Adjusted Consolidated Capitalization.



          The foregoing first paragraph of this Section 10.3 shall not apply to (a) Indebtedness owed by
a Subsidiary of the Company to the Company or to another Subsidiary of the Company, (b)
Indebtedness in existence on the date hereof and set forth on Schedule 5.15 hereto, (c)
Indebtedness of any Person at the time it becomes a Subsidiary of the Company, (d) Indebtedness
secured by Permitted Liens (or which, if secured by Liens, would be Permitted Liens) under clauses
(a) through (g) or (j) of the definition of “Permitted Liens” in Schedule B,
and (e) any extension, renewal or refunding (or successive extension, renewal or refunding) of
any such Indebtedness of any Subsidiary without any increase in principal amount of such
Indebtedness and subject in each case to Section 10.1.




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	East Tennessee Natural Gas Company
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     Section 10.4. Restriction on Asset Sales. Except as provided in Section 10.5, the Company
will not, and will not permit any of its Subsidiaries to, make any Asset Sale during any fiscal
year of the Company, unless within one year of such Asset Sale, an amount equal to the Net Proceeds
of such Asset Sale is (a) applied to the purchase, prepayment or repayment of Indebtedness of the
Company or its Subsidiaries or (b) invested by the Company or any of its Subsidiaries in the
Business of the Company (as defined in Section 10.6).



     Section 10.5. Restriction on Consolidation, Merger, Etc. Without limiting the rights of the
holders of the Notes under Section 8.3, the Company agrees that it will not consolidate with or
merge into any other Person (including, without limitation, any of its Subsidiaries or Affiliates)
or sell, lease or otherwise dispose of the Pipeline or sell, lease or otherwise dispose of its
properties and assets as an entirety or substantially as an entirety to any Person (including,
without limitation, any of its Subsidiaries or Affiliates), unless (a) the Person formed by such
consolidation or surviving such merger or the Person which acquires by sale, lease or other
disposition the Pipeline or the properties and assets of the Company as an entirety or
substantially as an entirety shall be a Person organized and existing under the laws of the United
States of America or any State thereof or the District of Columbia, and shall expressly assume, by
written instrument, the due and punctual payment of the principal of, and premium (if any) and
interest on, the Notes and the performance of every covenant herein and the Notes on the part of
the Company to be performed or observed; (b) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing; and (c) immediately after
giving effect to such transaction, such successor or surviving Person or such Person which acquires
by sale, lease or other disposition the Pipeline or the properties and assets of the Company as an
entirety or substantially as an entirety could incur $1 of additional Funded Debt. Upon any
consolidation or merger, or any transfer by the Company of the Pipeline or its properties and
assets as an entirety or substantially as an entirety to any Person, in accordance with the
foregoing, the successor corporation formed by such consolidation or into which the Company is
merged or the Person to which such transfer is made shall succeed to, and be substituted for, the
Company hereunder and under the Notes.



     Section 10.6. Business of the Company. The Company will not, and will not permit any of its
Subsidiaries to, engage in any material line of business other than the lines of business in which
the Company and its Subsidiaries are engaged on the date hereof and other energy related lines of
business (collectively, the “Business of the Company”).



     Section 10.7. Transactions with Affiliate. The Company will not, and will not permit any
Subsidiary to, enter into directly or indirectly any Material transaction or Material group of
related transactions (including, without limitation, the purchase, lease, sale or exchange of
property of any kind or
the rendering of any service) with any Affiliate (other than the Company or another Subsidiary),
except pursuant to the reasonable requirements of the Company’s or such Subsidiary’s business and
upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be
obtainable in a comparable arm’s-length transaction with a Person that is not an Affiliate of the
Company or such Subsidiary; provided that none of the following shall be deemed a violation of this
Section 10.7: (a) any agreement or transaction by the Company or any of its Subsidiaries which is
in compliance with all laws, ordinances or governmental rules or regulations to which the Company
or such Subsidiary is subject and is not



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	East Tennessee Natural Gas Company
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prohibited by any Governmental Authority, (b) any
transaction permitted by Section 10.3, (c) any declaration of a dividend by the Company or any of
its Subsidiaries in compliance with all laws, ordinances and governmental rules and regulations to
which the Company or such Subsidiary, as the case may be, is subject, (d) direct or indirect
advances by the Company or any of its Subsidiaries to Duke Capital Corporation, a Delaware
corporation (“Duke Capital”), in accordance with customary practice and in the ordinary course of
business of the Company, its Subsidiaries and their Affiliates, including, without limitation, the
advance by the Company of the proceeds from the issuance of the Notes as set forth Schedule 5.14,
and (e) compensation, fee, indemnification, vacation, health and life insurance, deferred
compensation, retirement and/or savings plans and other similar programs, plans or arrangements
pertaining to directors, officers and employees of the Company or any of its Subsidiaries entered
into in accordance with customary practice and in the ordinary course of a business of the Company,
its Subsidiaries and their Affiliates.



Section 11. Events of Default.




     An “Event of Default” shall exist if any of the following conditions or events shall occur and
be continuing:




     (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any,
on any Note when the same becomes due and payable, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise; or




     (b) the Company defaults in the payment of any interest on any Note for more than five
Business Days after the same becomes due and payable; or




     (c) the Company defaults in the performance of or compliance with any term contained in
Sections 10.1 through 10.5; or




     (d) the Company defaults in the performance of or compliance with any term contained
herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and
such default is not remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company receiving written notice of
such default from any holder of a Note (any such written notice to be identified as a
“notice of default” and to refer specifically to this paragraph (d) of Section 11); or




     (e) any representation or warranty made in writing by or on behalf of the Company or by
any Responsible Officer of the Company in this Agreement or in any
certificate furnished in connection with this Agreement proves to have been false or
incorrect in any material respect on the date as of which made; or




     (f) (i) the Company or any Significant Subsidiary is in default (as principal or as
guarantor or other surety) in the payment of any principal of or premium or make-whole
amount or interest on any Indebtedness that is outstanding in an aggregate principal amount
of at least $25,000,000 beyond any period of grace provided with



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







respect thereto, or (ii)
the Company or any Significant Subsidiary is in default in the performance of or compliance
with any term of any evidence of any Indebtedness in an aggregate outstanding principal
amount of at least $25,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such default or condition
such Indebtedness has become, or has been declared due and payable before its stated
maturity or before its regularly scheduled dates of payment; or




     (g) the Company or any Significant Subsidiary (i) is generally not paying, or admits in
writing its inability to pay, its debts as they become due, (ii) files, or consents by
answer or otherwise to the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, (v) is adjudicated as insolvent or to
be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or




     (h) a court or governmental authority of competent jurisdiction enters an order
appointing, without consent by the Company or any of its Significant Subsidiaries, a
custodian, receiver, trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its Significant
Subsidiaries, or any such petition shall be filed against the Company or any of its
Significant Subsidiaries and such petition shall not be dismissed within 60 days; or




     (i) a final judgment or judgments for the payment of money aggregating in excess of
$25,000,000 are rendered against one or more of the Company and its Significant Subsidiaries
and which judgments are not, within 60 days after entry thereof, bonded, discharged or
stayed pending appeal; or




     (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the
Code for any plan year or part thereof or a waiver of such standards or extension of any
amortization period is sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected to be filed with the
PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have
notified the Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate “amount of unfunded benefit liabilities” (within the
meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with
Title IV of ERISA, shall exceed $25,000,000, (iv) the Company or any ERISA Affiliate shall
have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







employee benefit
plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi)
the Company or any Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase the liability of
the Company or any Subsidiary thereunder; and any such event or events described in clauses
(i) through (vi) above, either individually or together with any other such event or events,
would reasonably be expected to have a Material Adverse Effect.


As used in Section 11(j), the terms “employee benefit plan” and “employee welfare benefit plan”
shall have the respective meanings assigned to such terms in section 3 of ERISA.




Section 12. Remedies on Default, etc.




     Section 12.1. Acceleration. (a) If an Event of Default with respect to the Company described
in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of
paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause
encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.



     (b) If any other Event of Default has occurred and is continuing, any holder or holders of
more than 51% in principal amount of the Notes at the time outstanding may at any time at its or
their option, by notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.



     (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and
is continuing, any holder of Notes at the time outstanding affected by such Event of Default may at
any time, at its option, by notice or notices to the Company, declare all the Notes held by it to
be immediately due and payable.



     Upon any Note’s becoming due and payable under this Section 12.1, whether automatically or by
declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note,
plus (i) all accrued and unpaid interest thereon and (ii) the Make-Whole Amount determined in
respect of such principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand, protest or further
notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the Notes free from
repayment by the Company (except as herein specifically provided for), and that the provision for
payment of a Make-Whole Amount by the Company in
the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is
intended to provide compensation for the deprivation of such right under such circumstances.



     Section 12.2. Other Remedies. If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been declared immediately due
and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to
protect and enforce the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement contained



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







herein or
in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or otherwise.



     Section 12.3. Rescission. At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 66-2/3% in principal
amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any
such declaration and its consequences if (a) the Company has paid all overdue interest on the
Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and
are unpaid other than by reason of such declaration, and all interest on such overdue principal and
Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than
non-payment of amounts that have become due solely by reason of such declaration, have been cured
or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this
Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any
right consequent thereon.



     Section 12.4. No Waivers or Election of Remedies, Expenses, etc. No course of dealing and no
delay on the part of any holder of any Note in exercising any right, power or remedy shall operate
as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right,
power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be
exclusive of any other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the obligations of the
Company under Section 15, the Company will pay to the holder of each Note on demand such further
amount as shall be sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation, reasonable
attorneys’ fees, expenses and disbursements.



Section 13. Registration; Exchange; Substitution of Notes.




     Section 13.1. Registration of Notes. The Company shall keep at its principal executive office
a register for the registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address of each transferee
of one or more Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered shall be deemed and
treated as the owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy
of the names and addresses of all registered holders of Notes.



     Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note at the principal
executive office of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a written instrument of
transfer duly executed by the registered holder of such Note or its attorney duly authorized in
writing and accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company’s expense (except as



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







provided
below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be substantially in
the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if
no interest shall have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $1,000,000, provided that if necessary to
enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in
a denomination of less than $1,000,000. Any transferee of a Note, or purchaser of a participation
therein, shall, by its acceptance of such Note be deemed to make the same representations to the
Company regarding the Note or participation as you and the Other Purchasers have made pursuant to
Section 6.2, provided that such entity may (in reliance upon information provided by the Company,
which shall not be unreasonably withheld) make a representation to the effect that the purchase by
such entity of any Note will not constitute a non-exempt prohibited transaction under section
406(a) of ERISA.



     Section 13.3. Replacement of Notes. Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from such Institutional
Investor of such ownership and such loss, theft, destruction or mutilation), and




     (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to
it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser
or another holder of a Note with a minimum net worth of at least $50,000,000, such Person’s
own unsecured agreement of indemnity shall be deemed to be satisfactory), or




     (b) in the case of mutilation, upon surrender and cancellation thereof,


the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and
bearing interest from the date to which interest shall have been paid on such lost, stolen,
destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if
no interest shall have been paid thereon.




Section 14. Payments on Notes.




     Section 14.1. Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New
York at the principal office of JPMorgan Chase Bank in such jurisdiction. The Company may at any
time, by notice to each holder of a Note, change the place of payment of the Notes so long as such
place of payment shall be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.



     Section 14.2. Home Office Payment. So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to the



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







contrary, the
Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and
interest by the method and at the address specified for such purpose below your name in Schedule A,
or by such other method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of the Company made concurrently
with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated by the Company
pursuant to Section 14.1. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note purchased by you under
this Agreement and that has made the same agreement relating to such Note as you have made in this
Section 14.2.



Section 15. Expenses, etc.




     Section 15.1. Transaction Expenses. Whether or not the transactions contemplated hereby are
consummated, the Company will pay all reasonable costs and expenses (including reasonable
attorneys’ fees of a special counsel and, if reasonably required, local or other counsel) incurred
by you and each Other Purchaser or holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this Agreement or the
Notes (whether or not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether
or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any
subpoena or other legal process or informal investigative demand issued in connection with this
Agreement or the Notes, or by reason of being a holder of any Note and (b) the costs and expenses,
including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Notes. The Company will pay, and will save you and each other
holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of
brokers and finders (other than those retained by you).



     Section 15.2. Survival. The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this
Agreement or the Notes, and the termination of this Agreement.



Section 16. Survival of Representations and Warranties; Entire Agreement.




     All representations and warranties contained herein shall survive the execution and delivery
of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a
Note, regardless of any investigation made at any time by or on behalf of you or any other holder
of a Note. All statements contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of
the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







you and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.



Section 17. Amendment and Waiver.




     Section 17.1. Requirements. This Agreement and the Notes may be amended, and the observance
of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and
only with) the written consent of the Company and the Required Holders, except that (a) no
amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any
defined term (as it is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of the holder of each
Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating
to acceleration or rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes
the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of
Sections 8, 11(a), 11(b), 12, 17 or 20.



Section 17.2. Solicitation of Holders of Notes.




          (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the
amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the
date a decision is required, to enable such holder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or
of the Notes. The Company will deliver executed or true and correct copies of each amendment,
waiver or consent effected pursuant to the provisions of this Section 17 to each holder of
outstanding Notes promptly following the date on which it is executed and delivered by, or receives
the consent or approval of, the requisite holders of Notes.




          (b) Payment. The Company will not directly or indirectly pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any
security, to any holder of Notes as consideration for or as an inducement to the entering into by
any holder of Notes of any waiver or amendment of any of the terms and provisions hereof or of the
Notes unless such remuneration is concurrently paid, or security is concurrently granted, on the
same terms, ratably to each holder of Notes then outstanding whether or not such holder consented
to such waiver or amendment.




     Section 17.3. Binding Effect, etc. Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and upon each future
holder of any Note and upon the Company without regard to whether such Note has been marked to
indicate such amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or
impair any right consequent thereon. No course of dealing between the Company and the holder of
any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein, the term “this



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







Agreement” and
references thereto shall mean this Agreement as it may from time to time be amended or
supplemented.



     Section 17.4. Notes Held by Company, etc. Solely for the purpose of determining whether the
holders of the requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this Agreement or the
Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon
the direction of the holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall
be deemed not to be outstanding.



Section 18. Notices.




     All notices and communications provided for hereunder shall be in writing and sent (a) by
telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized
overnight delivery service (charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:




     (i) if to you or your nominee, to you or it at the address specified for such
communications in Schedule A, or at such other address as you or it shall have specified to
the Company in writing,




     (ii) if to any other holder of any Note, to such holder at such address as such other
holder shall have specified to the Company in writing, or




     (iii) if to the Company, to the Company at its address set forth at the beginning
hereof to the attention of Treasurer, with a copy to the Company c/o Duke Capital
Corporation at 422 South Church Street, Charlotte, NC 28201-1904, Attn: Treasurer and a
copy to the Company at 5400 Westheimer Ct., WO-8L27, Houston, TX 77056, Attn: General
Counsel or at such other address as the Company shall have specified to the holder of each
Note in writing.


Notices under this Section 18 will be deemed given only when actually received.




Section 19. Reproduction of Documents.




     This Agreement and all documents relating thereto, including, without limitation, (a)
consents, waivers and modifications that may hereafter be executed, (b) documents received by you
at the Closing (except the Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to you, may be reproduced by you by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar process and you may
destroy any original document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the original is in existence
and whether or not such reproduction was made by you in the regular



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in
evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.



Section 20. Confidential Information.




     For the purposes of this Section 20, “Confidential Information” means information delivered to
you by or on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by you as being
confidential information of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to you prior to the time of such
disclosure, (b) subsequently becomes publicly known through no act or omission by you or any Person
acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the
Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section
7.1 that are otherwise publicly available. You will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by you in good faith to protect
confidential information of third parties delivered to you, provided that you may deliver or
disclose Confidential Information to (i) your directors, trustees, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of
the investment represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information substantially in accordance
with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional
Investor to which you sell or offer to sell such Note or any part thereof or any participation
therein (if such Person has agreed in writing prior to its receipt of such Confidential Information
to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase
any security of the Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or
state regulatory authority having jurisdiction over you, (vii) the National Association of
Insurance Commissioners or any similar organization, or any nationally recognized rating agency
that requires access to information about your investment portfolio, or (viii) any other Person to
which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response
to any subpoena or other legal process, (y) in connection with any litigation to which you are
a party and in which you are legally required to deliver or disclose such information, based upon
advice of your legal counsel, whose reasonable fees and expenses in connection with such
determination shall be for the account of the Company, or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights and remedies under
your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed
to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. On reasonable request by the Company in connection with the
delivery to any holder of a Note of information required to be delivered to such holder under this
Agreement or requested by such holder (other than a holder that is a party to this



-29-









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement







Agreement or its
nominee or any other holder that shall have previously delivered such a confirmation), such holder
will confirm in writing that it is bound by the provisions of this Section 20.



Section 21. Substitution of Purchaser.




     You shall have the right to substitute any one of your Affiliates as the purchaser of the
Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice
shall be signed by both you and such Affiliate, shall contain such Affiliate’s agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with
respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever
the word “you” is used in this Agreement (other than in this Section 21), such word shall be deemed
to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by
such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word “you” is
used in this Agreement (other than in this Section 21), such word shall no longer be deemed to
refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original
holder of the Notes under this Agreement.



Section 22. Miscellaneous.




     Section 22.1. Successors and Assigns. All covenants and other agreements contained in this
Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent holder of a Note)
whether so expressed or not.



     Section 22.2. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to
the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any
Note that is due on a date other than a Business Day shall be made on the next succeeding Business
Day without including the additional days elapsed in the computation of the interest payable on
such next succeeding Business Day; provided that any payment of principal or interest due on the
final maturity of the Notes on a date other than a Business Day shall be made on the immediately
preceding Business Day.



     Section 22.3. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by
law) not invalidate or render unenforceable such provision in any other jurisdiction.



     Section 22.4. Construction. Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained herein, so that
compliance with any one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers to action to be taken
by any Person, or which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     Section 22.5. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute one instrument. Each
counterpart may consist of a number of copies hereof, each signed by fewer than all, but together
signed by all, of the parties hereto.



     Section 22.6. Governing Law. This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State of New York,
excluding choice-of-law principles of the law of such State that would require the application of
the laws of a jurisdiction other than such State.



     Section 22.7. Jurisdiction. The Company hereby (i) irrevocably submits and consents to the
jurisdiction of the federal court located within the County of New York, State of New York (or if
such court lacks jurisdiction, the State courts located therein), and irrevocably agrees that all
actions or proceedings relating to this Agreement may be litigated in such courts, and (ii) waives
any objection which it may have based on improper venue or forum non conveniens to the conduct of
any proceeding in any such court and waives personal service of any and all process upon it, and
(iii) consents that all such service of process be made by delivery to it at the address of such
Person set forth in Section 18. Nothing contained in this section shall affect the right of any
holder of a Note to serve legal process in any other manner permitted by law or to bring any action
or proceeding in the courts of any jurisdiction against the Company or to enforce a judgment
obtained in the courts of any other jurisdiction.



* * * * *




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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








     If you are in agreement with the foregoing, please sign the form of agreement on the
accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing
shall become a binding agreement between you and the Company.



	 	 	 	 	 
	 	Very truly yours,





East Tennessee Natural Gas Company

 	 
	 	By  	/s/
Dorothy M. Ables 	 
	 	 	Name:  	Dorothy M. Ables 	 
	 	 	Title:  	Senior Vice President and

Chief Financial Officer 	 
	 



The foregoing is hereby

agreed to as of the

date thereof.




[Add Purchaser Signature Block]




	 	 	 	 	 
	 	Allstate Life Insurance Company

 	 
	 	By:  	/s/ Jerry D. Zinkula
 	 
	 	 	Authorized Signatory 	 
	 	 	 
	 	By:  	/s/ Daniel C. Leimbach
 	 
	 	 	Authorized Signatory 	 
	 	 	 	 
	 
	 	Allstate Life Insurance Company of New York

 	 
	 	By:  	/s/ Jerry D. Zinkula
 	 
	 	 	Authorized Signatory 	 
	 	 	 
	 	By:  	/s/ Daniel C. Leimbach
 	 
	 	 	Authorized Signatory 	 
	 	 	 	 
	 
	 	American United Life Insurance Company

 	 
	 	By:  	/s/ Kent R. Adams
 	 
	 	 	Vice President Fixed Income Securities 	 
	 	 	 	 
	 
	 	Connecticut General Life Insurance Company

 	 
	 	By:  	CIGNA Investments, Inc. (authorized agent)
 	 



	 	 	 	 	 
	 	By:  	/s/ Sean M. Feeley
 	 
	 	 	Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	First Colony Life Insurance Company

 	 
	 	By:  	Prudential Private Placement Investors, L.P.,
 	 
	 	 	as Investment Adviser 	 
	 	 	 
	 	By:  	Prudential Private Placement Investors, Inc.,
 	 
	 	 	as General Partner 	 



	 	 	 	 	 
	 	By:  	/s/ Randall M. Kob
 	 
	 	 	Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	General Electric Capital Assurance Company

 	 
	 	By:  	Prudential Private Placement Investors, L.P.,
 	 
	 	 	as Investment Adviser 	 
	 	 	 
	 	By:  	Prudential Private Placement Investors, Inc.,
 	 
	 	 	as General Partner 	 



	 	 	 	 	 
	 	By:  	/s/ Randall M. Kob
 	 
	 	 	Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	Hartford Fire Insurance Company

 	 
	 	By:  	Hartford Investment Services, Inc.
 	 
	 	 	Its Agent and Attorney-in-Fact 	 



	 	 	 	 	 
	 	By:  	/s/ Ronald A. Mendel
 	 
	 	 	Senior Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	Hartford Life and Accident Insurance Company

 	 
	 	By:  	Hartford Investment Services, Inc.
 	 
	 	 	Its Agent and Attorney-in-Fact 	 



	 	 	 	 	 
	 	By:  	/s/ Ronald A. Mendel
 	 
	 	 	Senior Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	New York Life Insurance Company

 	 
	 	By:  	/s/ Ruthard C. Murphy II
 	 
	 	 	Investment Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	New York Life Insurance and Annuity Corporation

 	 
	 	By:  	New York Life Investment Management LLC,
 	 
	 	 	its Investment Manager 	 



	 	 	 	 	 
	 	By:  	/s/ Ruthard C. Murphy II
 	 
	 	 	Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	Pioneer Mutual Life Insurance Company

 	 
	 	By:  	American United Life Insurance
 	 
	 	 	Company, Its Agent 	 



	 	 	 	 	 
	 	By:  	/s/ Kent R. Adams
 	 
	 	 	Vice President Fixed Income Securities 	 
	 	 	 	 



	 	 	 	 	 
	 	The Prudential Insurance Company of America

 	 
	 	By:  	/s/ Randall M. Kob
 	 
	 	 	Vice President 	 
	 	 	 	 



	 	 	 	 	 
	 	The Variable Annuity Life Insurance Company



The Franklin Life Insurance Company

 	 
	 	By:  	AIG Global Investment Corp.,
 	 
	 	 	Investment Adviser 	 



	 	 	 	 	 
	 	By:  	/s/ Sarah M. Helmich
 	 
	 	 	Vice President 	 
	 	 	 	 
	 





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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








Defined Terms




     Where the character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation is required to be
made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the
extent applicable, except where such principles are inconsistent with the express requirements of
this Agreement.



     Where any provision in this Agreement refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.



     As used herein, the following terms have the respective meanings set forth below or set forth
in the Section hereof following such term:



     “Affiliate” means, at any time, and with respect to any Person, any other Person that at such
time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is
under common Control with, such first Person. As used in this definition, “Control” means the
possession, directly or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by contract or
otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a
reference to an Affiliate of the Company.



     “Asset Sale” means any sale, transfer, lease or other disposition of any property or asset of
the Company or any of its Subsidiaries except a sale, transfer, lease or other disposition (a) of
cash, (b) of temporary cash investments, (c) of trade receivables, (d) of inventories of gas and
materials and supplies other than (i) in connection with a sale, transfer, lease or other
disposition of property, plant and equipment or (ii) for the primary purpose of financing the
purchase, storage or transportation of such gas or materials and supplies by the Company or any of
its Subsidiaries, (e) by the Company to any of its Subsidiaries or by any Subsidiary of the Company
to the Company or to another Subsidiary of the Company or (f) of other assets in the ordinary
course of business; provided, however, that any such sale, transfer, lease or other disposition in
any fiscal year shall not be deemed to constitute an Asset Sale unless and until, and only to the
extent that, such sale, transfer, lease or other disposition and all prior sales, transfers, leases
or other dispositions in such fiscal year (1) result in Net Proceeds exceeding 10% of Consolidated
Net Worth determined as of the end of the immediately preceding fiscal year or (2) involve
properties and assets accounting for more than 10% of Consolidated Net Income for the immediately
preceding fiscal year.



     “Business Day” means (a) for the purposes of Section 8.6 only, any day other than a Saturday,
a Sunday or a day on which commercial banks in New York City are required or authorized to be
closed, and (b) for the purposes of any other provision of this Agreement, any day other than a
Saturday, a Sunday or a day on which commercial banks in Houston, Texas, Charlotte, North Carolina
or New York, New York are required or authorized to be closed.



Schedule B

(to Note Purchase Agreement)




 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     “Business of the Company” is defined in Section 10.6.



     “Closing” is defined in Section 3.



     “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules
and regulations promulgated thereunder from time to time.



     “Company” means East Tennessee Natural Gas Company, a Tennessee corporation.



     “Confidential Information” is defined in Section 20.



     “Consolidated Funded Debt” means the Funded Debt of the Company and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP.



     “Consolidated Net Income” means the net income of the Company and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP.



     “Consolidated Net Worth” means the par or stated value of stock plus paid-in capital plus
retained earnings (or minus accumulated deficit) as shown on a consolidated balance sheet of the
Company and its Subsidiaries prepared in accordance with GAAP.



     “Default” means an event or condition the occurrence or existence of which would, with the
lapse of time or the giving of notice or both, become an Event of Default.



     “Default Rate” means that rate of interest that is the greater of (i) 1% per annum above the
rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 1% over the rate
of interest publicly announced by JPMorgan Chase Bank in New York, New York as its “base” or
“prime” rate.



     “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 governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.



     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time in effect.



     “ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as
a single employer together with the Company under section 414 of the Code.



     “Event of Default” is defined in Section 11.



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



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	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     “Funded Debt” means any (a) Indebtedness maturing by its terms more than one year from the
date of determination, including Indebtedness by its terms renewable or extendable at the option of
the obligor to a date later than one year from the date of determination and (b) any Indebtedness
maturing by its terms in one year or less from the date of determination and not renewable or
extendable at the option of the obligor to a date later than one year from the date of
determination, unless the obligor had no such Indebtedness outstanding for a period of at least 30
consecutive days during the 365-day period prior to the date of determination. Indebtedness
secured by Permitted Liens shall be included in Funded Debt if such Indebtedness otherwise meets
the definitional requirements thereof.



     “GAAP” means generally accepted accounting principles as in effect from time to time in the
United States of America.



     “Governmental Authority” means




     (a) the government of




     (i) the United States of America or any State or other political subdivision
thereof, or




     (ii) any jurisdiction in which the Company or any Subsidiary conducts all or
any part of its business, or which asserts jurisdiction over any properties of the
Company or any Subsidiary, or




     (b) any entity exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, any such government.



     “holder” means, with respect to any Note, the Person in whose name such Note is registered in
the register maintained by the Company pursuant to Section 13.1.



     “Indebtedness” means, as to any Person, (a) indebtedness for borrowed money or for the
deferred purchase price of property or services purchased, (b) all indebtedness of others for
borrowed money or for the deferred purchase price of property or services purchased secured by a
Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by
such Person (provided that the amount of such indebtedness not assumed shall in no event be deemed
to exceed the fair market value of such property), (c) rental obligations required to be
capitalized under GAAP and (d) direct guarantees by such Person of the Indebtedness of others;
provided that, in any event, “Indebtedness” shall not include current accounts payable incurred in
the ordinary course of business.



     “Institutional Investor” means (a) any original purchaser of a Note, (b) any holder of a Note
holding more than 5% of the aggregate principal amount of the Notes then outstanding, and (c) any
bank, trust company, savings and loan association or other financial institution, any pension plan,
any investment company, any insurance company, any broker or dealer, or any other similar financial
institution or entity, regardless of legal form.



B-3









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     “Lien” means any mortgage, pledge, hypothecation, security interest, encumbrance, charge or
lien (statutory or otherwise) (including, without limitation, any conditional sale or other title
retention agreement and any capitalized lease having substantially the same economic effect as any
of the foregoing) or the filing of any financial statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of the foregoing.



     “Make-Whole Amount” is defined in Section 8.7.



     “Material” means material in relation to the business, operations, affairs, financial
condition, assets, or properties of the Company and its Subsidiaries taken as a whole.



     “Material Adverse Effect” means a material adverse effect on (a) the business, operations,
affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a
whole, or (b) the ability of the Company to perform its obligations under this Agreement and the
Notes, or (c) the validity or enforceability of this Agreement or the Notes.



     “Memorandum” is defined in Section 5.3.



     “Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in
section 4001(a)(3) of ERISA).



     “Net Proceeds” with respect to the sale or other disposition of any asset by the Company or
any of its Subsidiaries (including in connection with any sale-leaseback) means the excess, if any,
of (a) the aggregate amount received in cash (including any cash received by way of deferred
payment pursuant to a note receivable, other noncash consideration or otherwise, but, for the
purposes of Section 10.4, only as and when such cash is so received) in connection with such sale
or other disposition of any asset, over (b) the sum of (i) the principal amount of and premium, if
any, on any Indebtedness which is secured by or which finances any such asset (other than
Indebtedness assumed by the purchaser of such asset) and which is required to be, and is, repaid in
connection with such sale or other disposition thereof, (ii) the out-of-pocket expenses incurred by
the Company or any of its Subsidiaries in connection with such sale or other disposition and (iii)
all taxes, including taxes measured by income, calculated as if the Company and its Subsidiaries
were a separate consolidated group for tax purposes, and assuming such sale or other disposition of
any such asset was the only transaction in which the Company and its Subsidiaries engaged during
the relevant period without giving effect to any carryforwards, carrybacks or credits.



     “Notes” is defined in Section 1.



     “Officer’s Certificate” means a certificate of a Senior Financial Officer or of any other
officer of the Company whose responsibilities extend to the subject matter of such certificate.



     “Other Agreements” is defined in Section 2.



     “Other Purchasers” is defined in Section 2.



B-4









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any
successor thereto.



     “Permitted Liens” means:



     (a) Liens incurred in connection with workmen’s compensation, unemployment insurance, old age
pensions, social security and public liability laws and similar legislation;



     (b) Liens existing on any property of any Person at the time it becomes a Subsidiary of the
Company or existing prior to the time of acquisition upon any property acquired by the Company or
any of its Subsidiaries through purchase, merger or consolidation or otherwise, whether or not
assumed by the Company or such Subsidiary, provided that such Lien shall not encumber any asset
other than the assets which are being acquired and, at the time of such acquisition, the incurring
of such Indebtedness secured by such Lien and permitting such Indebtedness to exist does not
violate Section 10.1;



     (c) Liens on any property acquired, constructed or improved by the Company or any of its
Subsidiaries after the date hereof which are created or assumed contemporaneously with, or within
120 days after, such acquisition or completion of such construction or improvement, or within six
months thereafter pursuant to a firm commitment for financing arranged with a lender or investor
within such 120-day period, to secure or provide for the payment of all or any part of the purchase
price of such property or the cost of such construction or improvement incurred after the date of
hereof or, in addition to mortgages contemplated by clause (b) above, mortgages on any property
existing at the time of acquisition thereof; provided, however, that the mortgages shall not apply
to any property theretofore owned by the Company or any of its Subsidiaries (including but not
limited to the Pipeline) other than, in the case of any such construction or improvement, any
theretofore unimproved real property on which the property so constructed or the improvement is
located;



     (d) statutory liens of landlords and other liens imposed by law, such as carrier’s,
warehousemen’s, mechanic’s, materialmen’s and vendor’s liens, or contractual liens, all to the
extent incurred in good faith in the ordinary course of business securing amounts not overdue for a
period of more than 60 days or which are being contested in good faith by appropriate proceedings
diligently conducted;



     (e) Liens securing the payment of taxes, assessments and governmental charges or levies,
either (i) not delinquent or (ii) being contested in good faith by appropriate proceedings
diligently conducted;



     (f) Liens upon deposits of cash in favor of banks or other depository institutions arising
from customary rights of setoff;



     (g) any judgment lien, unless the judgment it secures shall not, within 60 days after the
entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have
been discharged within 60 days after expiration of any such stay;



B-5









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     (h) Liens in existence on the date hereof and set forth on Schedule 5.15 hereto;



     (i) Liens (excluding Liens on the Pipeline) in favor of the Company or any of its
Subsidiaries;



     (j) any extension, renewal or refunding (or successive extension, renewal or refunding) of any
Lien referred to in clause (b), (c) or (h), provided that no such Lien is extended to cover
additional property (other than replacement property) and that the amount of Indebtedness secured
thereby is not increased; and



     (k) any Lien not otherwise permitted pursuant to clauses (a) through (j), provided that the
aggregate amount of Indebtedness secured by such Lien and all other existing Liens permitted
pursuant to this clause (k), together with (without duplication) the aggregate amount of
Indebtedness of Subsidiaries permitted pursuant to the first paragraph of Section 10.3, shall not,
at the time of incurrence of such Lien, exceed 15% of Total Adjusted Consolidated Capitalization.



     “Person” means an individual, partnership, corporation, limited liability company,
association, trust, unincorporated organization, or a government or agency or political subdivision
thereof.



     “Pipeline” means the Company’s natural gas pipeline system, including compressor stations,
metering facilities and communication systems, as it existed on September 30, 2002 and including
subsequent replacements thereof.



     “Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) that is or,
within the preceding five years, has been established or maintained, or to which contributions are
or, within the preceding five years, have been made or required to be made, by the Company or any
ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.



     “property” or “properties” means, unless otherwise specifically limited, real or personal
property of any kind, tangible or intangible, choate or inchoate.



     “QPAM Exemption” means Prohibited Transaction Class Exemption 84-14 issued by the United
States Department of Labor.



     “Required Holders” means, at any time, the holders of at least 51% in principal amount of the
Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its
Affiliates).



     “Responsible Officer” means any Senior Financial Officer and any other officer of the Company
with responsibility for the administration of the relevant portion of this Agreement.



     “Securities Act” means the Securities Act of 1933, as amended from time to time.



B-6









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement





     “Senior Financial Officer” means any president, any vice president, the chief financial
officer, principal accounting officer, treasurer or comptroller of the Company.



     “Significant Subsidiary” means at any time any Subsidiary that would at such time constitute a
“significant subsidiary” (as such term is defined in Regulation S-X of the Securities and Exchange
Commission as in effect on the date of the Closing) of the Company.



     “Subsidiary” means, as to any Person, any corporation, association or other business entity in
which such Person or one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint venture if more than a
50% interest in the profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and
does ordinarily take major business actions without the prior approval of such Person or one or
more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a
“Subsidiary” is a reference to a Subsidiary of the Company.



     “Total Adjusted Consolidated Capitalization” means the excess of (a) the sum of (i) the par or
stated value of stock plus paid-in capital plus retained earnings (or minus accumulated deficit) as
shown on a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance
with GAAP and (ii) Consolidated Funded Debt over (b) goodwill arising subsequent to the date of the
Closing, as shown on such consolidated balance sheet.




B-7









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








Schedule 5.3

Disclosure Documents




None




Schedule 5.3

(to Note Purchase Agreement)




 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








Schedule 5.4

Organization and Ownership of Shares of Subsidiaries




	 	 	 	 	 
	 	 	 	 	Percentage of Shares
	 	 	 	 	Owned by Company or a
	Name of Subsidiary	State of Incorporation	Wholly Owned Subsidiary
	Duke Energy Gas
Transmission Investments,
LLC
	 	Delaware	 	100%
	Duke Energy Gas
Transmission Investments,
Inc.
	 	Delaware	 	100%
	Duke Energy Gas Services
Finance Corporation
	 	Delaware	 	100%






Schedule 5.4

(to Note Purchase Agreement)





 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








Schedule 5.5

Financial Statements





	1.	 	Company’s audited financial statements (March 14, 2000 — December 31, 2000 and 2001)
	 
	2.	 	Company’s pro forma financial statements (2002-2004)





Schedule 5.5


(to Note Purchase Agreement)





 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








Schedule 5.14

Use of Proceeds




     Proceeds from the issuance of the Notes (the “Proceeds”) will be advanced to Duke Capital
Corporation (“Duke Capital”), which manages the cash of its subsidiaries, including the Company, on
a centralized basis. Duke Capital will use these Proceeds for general corporate purposes,
including, without limitation, the repayment of short-term debt, capital expenditures (including
the Company’s Patriot Project and maintenance projects), the repayment of subsidiaries’ debt and
for its subsidiaries’ general corporate purposes. Proceeds advanced by the Company to Duke Capital
will be netted with existing parent advance accounts and the net amount will be recorded on the
Company’s consolidated balance sheet as an asset entitled “Advances receivable – parent.”



Schedule 5.14

(to Note Purchase Agreement)





 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








Schedule 5.15

Existing Indebtedness




None




Schedule 5.15

(to Note Purchase Agreement)





 









 








[Form of Note]




     THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR ANY OTHER SECURITIES LAWS. NEITHER THIS NOTE NOR ANY PORTION HEREOF MAY
BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.



East Tennessee Natural Gas Company




5.71% Senior Note due December 18, 2012




			
	 	 	 
	No. [                    ]
	 	[Date]
	$[                    ]
	 	PPN 275515 A@ 3






     For Value Received, the undersigned, East Tennessee Natural Gas Company
(herein called the “Company”), a corporation organized and existing under the laws of the State of
Tennessee, hereby promises to pay to [                    ], or registered assigns, the principal
sum of [                    ] Dollars on December 18, 2012, with interest (computed on the basis
of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 5.71%
per annum from the date hereof, payable semiannually, on the eighteenth day of each June and
December in each year, commencing with the June 18 or December 18 next succeeding the date hereof,
until the principal hereof shall have become due and payable, and (b) to the extent permitted by
law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of
interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase
Agreements referred to below), payable semiannually as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of
(i) 6.71% or (ii) 1% over the rate of interest publicly announced by JPMorgan Chase Bank from time
to time in New York, New York as its “base” or “prime” rate.



     Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are
to be made in lawful money of the United States of America at JPMorgan Chase Bank or at such other
place as the Company shall have designated by written notice to the holder of this Note as provided
in the Note Purchase Agreements referred to below.



     This Note is one of a series of Senior Notes (herein called the “Notes”) issued pursuant to
separate Note Purchase Agreements, dated as of December 15, 2002 (as from time to time amended, the
“Note Purchase Agreements”), between the Company and the respective Purchasers named therein and is
entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note
Purchase Agreements and (ii) to have made the representation set forth in Section 6.2 of the Note
Purchase Agreements, provided that such holder may (in reliance upon information provided by the
Company, which shall not be unreasonably withheld) make a



Exhibit 1

(to Note Purchase Agreement)




 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement




representation to the effect that the purchase by such holder of any Note will not constitute
a non-exempt prohibited transaction under section 406(a) of ERISA.




     This Note is a registered Note and, as provided in the Note Purchase Agreements, upon
surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney
duly authorized in writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for registration of transfer,
the Company may treat the person in whose name this Note is registered as the owner hereof for the
purpose of receiving payment and for all other purposes, and the Company will not be affected by
any notice to the contrary.



     This Note is subject to prepayment, in whole or from time to time in part, at the times and on
the terms specified in the Note Purchase Agreements, but not otherwise.



     If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing,
the principal of this Note may be declared or otherwise become due and payable in the manner, at
the price (including any applicable Make-Whole Amount) and with the effect provided in the Note
Purchase Agreements.



[Remainder of Page Intentionally Blank]




E-1-2 









 







			
	East Tennessee Natural Gas Company
	 	Note Purchase Agreement








     This Note shall be construed and enforced in accordance with, and the rights of the parties
shall be governed by the law of the State of New York, excluding choice-of-law principles of the
law of such State that would require the application of laws of a jurisdiction other than such
State.



	 	 	 	 	 
	 	East Tennessee Natural Gas Company

 	 
	 	By  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




E-1-3