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[Duke[LOGO] Duke Energy
Logo](R)
Proxy
Statement
and notice of
20012002 Annual Meeting
[Duke[LOGO] Duke Energy Logo](R)
526 South Church Street
Charlotte, NC 28202-1802
March 19, 200127, 2002
Dear Shareholder:
I am pleased to invite you to our annual meeting to be held on April 26, 200125, 2002
in the O. J. Miller Auditorium located in our Charlotte headquarters building.
We will discuss our 2001 performance in 2000 and our goals for 20012002, and respond to any
questions you may have. Enclosed with this proxy statement are your proxy card,
and voting instructions and the 2000Duke Energy's 2001 annual report.
Within the proxy statement you will see that the Board of Directors has
proposed for your approval certain amendments to our Articles of Incorporation.
These proposed changes are designed to modernize this important document and
bring it in line with those of many of our peer companies. On behalf of the
Board of Directors, I urge your support for these important proposals.
As in the past, we are offering you the opportunity to cast your vote by
telephone or online via the Internet. Whether you choose to vote by proxy card,
telephone or Internet, it would help if you would vote as soon as possible.
I look forward to seeing you at the annual meeting.
Sincerely,
R. B./s/ R.B. Priory
R.B. PRIORY
Chairman of the Board, President
and Chief Executive Officer
[Duke[LOGO] Duke Energy Logo](R)
526 South Church
Street
Charlotte, NC
28202-1802
Notice of Annual Meeting of Shareholders
April 26, 200125, 2002
March 19, 200127, 2002
We will hold the annual meeting of shareholders of Duke Energy Corporation on
Thursday,
April 26, 200125, 2002, at 10:00 a.m. in the O. J. Miller Auditorium in the Energy
Center located at
526 South Church Street in Charlotte, North Carolina.
The purpose of the annual meeting is to consider and take action on the
following:
1. Election of threefour nominees as Class II directors and one nominee as a Class
I directors.director.
2. Ratification of Deloitte & Touche LLP as Duke Energy's independent auditors
for 2001.
3. A proposal2002.
Amendment to amend the Articles of Incorporation to:
3A. Update the corporate purpose clause.
3B. Authorize serial preferred stock.
3C. Increase the shareholder vote required to increasechange the amountBy-Laws.
3D. Decrease the permissible range of authorized Common Stock from 1,000,000,000 to 2,000,000,000
shares.size of the Board of Directors.
4. A proposal to amend the Duke Energy 1998 Long-Term Incentive Plan.
5. A shareholder proposal relating to contributions to political
movements and entities, if properly presented at the annual meeting.
6. A shareholder proposal relating to investments in alternative energy
sources, if properly presented at the annual meeting.
5. A shareholder proposal relating to the role of the Board of Directors in
long-term strategic planning, if properly presented at the annual meeting.
6. A shareholder proposal relating to the appointment of independent auditors
who only render audit services, if properly presented at the annual meeting.
7. Any other business thatA shareholder proposal relating to a study of the risk and responsibility
for public harm due to Duke Energy's nuclear program, if properly comes beforepresented
at the annual meeting.
Shareholders of record as of March 1, 2001February 28, 2002 can vote at the annual meeting.
This proxy statement, proxy card and voting instructions, along with our 20002001
annual report to shareholders, are being distributed on or about March 19, 2001.27, 2002.
Your vote is very important. If voting by mail, please sign, date and return
the enclosed proxy card in the enclosed prepaid envelope, and allow sufficient
time for the postal service to deliver your proxy before the meeting. If voting
by telephone or on the Internet, please follow the instructions on your proxy
card.
By order of the Board of Directors
/s/ Richard W. Blackburn
Richard W. Blackburn
Executive Vice President,
General Counsel and Secretary
Table of Contents
Commonly Asked Questions and Answers About the Annual Meeting 1
Proposals to be Voted Upon 4
Proposal 1: Election of Directors 4
Proposal 2: Ratification of Deloitte & Touche LLP as
Duke Energy's Independent Auditors for 2001 4
Proposal 3: Amendment to the Articles of Incorporation to
Increase the Amount of Authorized Common Stock 4
Proposal 4: Amendment to the Duke Energy 1998 Long-Term
Incentive Plan 5
Proposal 5: Shareholder Proposal Relating to Contributions to
Political Movements and Entities 10
Proposal 6: Shareholder Proposal Relating to Investments in
Alternative Energy Sources 11
The Board of Directors 14
Beneficial Ownership 18
Information on the Board of Directors 20
Report of the Audit Committee 22
Report of the Compensation Committee 23
Performance Graph 28
Compensation 29
Summary Compensation Table 29
Long-Term Incentive Plan - Awards in 2000 31
Option Grants in 2000 31
Option Exercises and Year-End Values 32
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements 32
Retirement Plan Information 34
Other Information 36
Appendix A - Charter of the Audit Committee--------------------------------------------------------------------------------
Commonly Asked Questions and Answers About the Annual Meeting......................... 1
Proposals to be Voted Upon
Proposal 1: Election of Directors................................................ 3
Proposal 2: Ratification of Deloitte & Touche LLP as
Duke Energy's Independent Auditors for 2002............................. 3
Amendment to the Articles of Incorporation to:
Proposal 3A: Update the Corporate Purpose Clause................................. 3
Proposal 3B: Authorize Serial Preferred Stock.................................... 4
Proposal 3C: Increase the Shareholder Vote Required to Change the By-Laws........ 6
Proposal 3D: Decrease the Permissible Range of Size of the Board of Directors.... 7
Shareholder Proposals:
Proposal 4: Investments in Alternative Energy Sources............................ 7
Proposal 5: Role of the Board of Directors in Long-Term Strategic Planning....... 8
Proposal 6: Appointment of Independent Auditors Who Only Render Audit Services... 9
Proposal 7: Study of the Risk and Responsibility for Public Harm Due to Duke
Energy's Nuclear Program................................................ 11
The Board of Directors................................................................ 13
Beneficial Ownership.................................................................. 17
Information on the Board of Directors................................................. 18
Report of the Audit Committee......................................................... 20
Report of the Compensation Committee.................................................. 21
Performance Graph..................................................................... 24
Compensation
Summary Compensation Table........................................................ 25
Option Grants in 2001............................................................. 27
Option Exercises and Year-End Values.............................................. 28
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.................................................................... 29
Retirement Plan Information....................................................... 30
Other Information..................................................................... 31
Exhibit A - Extract from the Articles of Incorporation of Duke Energy Corporation
showing proposed amendments to Article IV.............................. A-1
Exhibit B - Extract from the Articles of Incorporation of Duke Energy Corporation
showing proposed amendment to Article VII.............................. B-1
Commonly Asked Questions and Answers About the Annual Meeting
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Q: WHAT AMWhat am I VOTING ON?voting on?
A: o. Election of threefive directors: the nominees are Ann Maynard Gray,
Dennis R. HendrixG. Alex Bernhardt, Sr.,
William A. Coley, Max Lennon, Leo E. Linbeck, Jr. and Harold S. Hook;
oJames T. Rhodes;
. Ratification of Deloitte & Touche LLP as Duke Energy's independent
auditors for 2001;
o2002;
. Amendment to the Articles of Incorporation to:
. Update the corporate purpose clause;
. Authorize serial preferred stock;
. Increase the shareholder vote required to increasechange the authorized
Common Stock;
o Amendment toBy-Laws;
. Decrease the Duke Energy 1998 Long-Term Incentive Plan;
o A shareholder proposal relating to contributions to political movements
and entities,permissible range of size of the Board of Directors;
. Shareholder proposals, if properly presented at the annual meeting; and
o A shareholder proposalmeeting,
relating to investmentsto:
. Investments in alternative energy sources, if properly presented atsources;
. The role of the annual meeting.Board of Directors in long-term strategic planning;
. The appointment of independent auditors who only render audit services;
and
. A study of the risk and responsibility for public harm due to Duke
Energy's nuclear program.
Q: WHO CAN VOTE?Who can vote?
A: Common shareholders of Duke Energy as of the close of business on the record
date, March 1, 2001February 28, 2002, can vote at the annual meeting, either in person or
by proxy. Each share of Duke Energy Common Stock has one vote.
Q: HOW DOHow do I VOTE?vote?
A: Sign and date each proxy card that you receive and return it in the prepaid
envelope or vote by telephone or on the Internet. If we receive your signed
proxy card (or properly transmitted telephone or Internet proxy) before the
annual meeting, we will vote your shares as you direct. You can specify when
submitting your proxy whether your shares should be voted for all, some or
none of the nominees for director. You can also specify whether you approve,
disapprove or abstain from voting on the other five9 proposals.
If you use the proxy card and simply sign, date and return it without making
any selections, your proxy will be voted in accordance with the
recommendations of the Board of Directors:
o. in favor of the election of the nominees for directorsdirector named in Proposal 1;
o. in favor of Proposals 2, 33A, 3B, 3C and 4;3D; and
o. against Proposals 4, 5, 6 and 6.7.
Q: MAYMay I CHANGE MY VOTE?change my vote?
A: You may change your vote by:
o. casting another vote either in person at the meeting or by one of the
other methods discussed above; or
o. notifying the Corporate Secretary, in care of the Investor Relations
Department, at Post Office Box 1005, Charlotte, NC 28201-1005.
1
Q: CANCan I VOTE MY SHARES BY TELEPHONE OR ON THE INTERNET?vote my shares by telephone or on the Internet?
A: If you hold your shares in your own name, you may vote by telephone or on
the Internet, by following the instructions included on your proxy card.
Your deadline for voting by telephone or on the Internet is 11:59 p.m.,
April 24, 2001.23, 2002.
If your shares are held in "street name,"name" (in a brokerage account, for
example), you will need to contact your broker or other nominee holder to
find out whether you will be able to vote by telephone or on the Internet.
Q: WILL MY SHARES BE VOTED IFWill my shares be voted if I DO NOT PROVIDE MY PROXY?do not provide my proxy?
A: No, ifNo. If you hold your shares directly in your own name, they will not be
voted if you do not provide a proxy unless you vote in person at the
meeting. Brokerage firms generally have the authority to vote customers'
unvoted shares on certain "routine" matters. If your shares are held in the
name of a brokerage firm, the brokerage firm can vote your shares for the
election of directors and for Proposals 2, 3A and 43D (but not the other
proposals) if you do not timely provide your proxy because these matters are
considered "routine" under the applicable rules.
Q: AS A DUKE ENERGY EMPLOYEE, HOW DOAs a Duke Energy employee, how do I VOTE SHARES HELD IN MY ACCOUNT IN THE
DUKE ENERGY RETIREMENT SAVINGS PLAN?vote shares held in my account in the
Duke Energy Retirement Savings Plan?
A: If you are a participant in the Duke Energy Retirement Savings Plan, you
have the right to direct the Plan trustee in the voting of those shares of
Duke Energy Common Stock that are held by the Plan and allocated to your
Plan account on any issues presented at the annual meeting. Plan participant
proxies will be treated confidentially.
If you elect not to vote by proxy, shares allocated to your Plan account
will be voted by the Plan trustee in the same proportion as those shares
held by the Plan for which the Plan trustee has received direction from Plan
participants.
1
Commonly Asked Questions and Answers About the Annual Meeting
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Q: WHAT CONSTITUTES A QUORUM?What constitutes a quorum?
A: As of the record date, March 1, 2001, 742,013,462February 28, 2002, 778,199,474 shares of Duke Energy
Common Stock were issued and outstanding and entitled to vote at the
meeting. In order to conduct the annual meeting, a majority of the shares
entitled to vote must be present in person or by proxy. This is referred to
as a "quorum." If you submit a properly executed proxy card or vote by
telephone or on the Internet, you will be considered part of the quorum.
Abstentions and broker "non-votes" will be counted as present and entitled
to vote for purposes of determining a quorum. A broker "non-vote" occurs
when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting
power with respect to that item and has not received instructions from the
beneficial owner.
Q: WHAT VOTE IS NEEDED FOR THESE PROPOSALS TO BE ADOPTED?What vote is needed for these proposals to be adopted?
A: Directors are elected by a plurality of the votes cast at the meeting.
"Plurality" means that the nominees receiving the largest number of votes
cast are elected as directors up to the maximum number of directors to be
chosen at the meeting. A majority of the votes cast at the meeting is
required to approve the other proposals.proposals, except that 80% of the Common Stock
outstanding on February 28, 2002 is required to approve Proposal 3D. For the
election of directors,
2
abstentions and broker "non-votes" will not be
counted. For the other proposals, abstentions and broker "non-votes" will
not be counted as votes cast.
Q: WHO CONDUCTS THE PROXY SOLICITATION AND HOW MUCH WILL IT COST?Who conducts the proxy solicitation and how much will it cost?
A: Duke Energy is asking for your proxy for the annual meeting and will pay all
the costs of asking for shareholder proxies. We have hired Georgeson
Shareholder Communications, Inc. to help us send out the proxy materials and
ask for proxies. Georgeson's fee for these services is $17,500,$22,500, plus
out-of-pocket expenses. We can ask for proxies through the mail or
personally by telephone, telegram, fax or other means. We can use directors,
officers and regular employees of Duke Energy to ask for proxies. These
people do not receive additional compensation for these services. We will
reimburse brokerage houses and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses for forwarding solicitation
material to the beneficial owners of Duke Energy Common Stock.
Q: HOW DOES A SHAREHOLDER NOMINATE SOMEONE TO BE A DIRECTOR OF DUKE ENERGY OR
BRING BUSINESS BEFORE THE ANNUAL MEETING?How does a shareholder nominate someone to be a director of Duke Energy or
bring business before the annual meeting?
A: Nominations for director may be made only by the Board of Directors or by a
shareholder who has given the proper notice, as provided in the By-Laws,
between 90 and 120 days prior to the first anniversary of the previous
year's annual meeting. For the 20022003 annual meeting, we must receive this
notice on or after December 27, 2001,26, 2002, and on or before January 26, 2002.25, 2003.
Other business may be brought before an annual meeting by a shareholder who
has delivered notice (containing certain information specified in the
By-Laws) within the time limits described above for delivering notice of a
nomination for the election of a director. These requirements apply to any
matter that a shareholder wishes to raise at an annual meeting other than
through the SEC's shareholder proposal procedures. If you intend to use the
SEC procedures and wish to have your proposal included in next year's proxy
statement, you must deliver the proposal in writing to our Corporate
Secretary by November 19, 2001.27, 2002.
A copy of the full text of the By-Law advance notice provisions discussed
above may be obtained by writing to the Office of the Corporate Secretary,
Post Office Box 1006, Charlotte, North Carolina 28201-1006.
Q: HOW DOES THE RECENT STOCK SPLIT AFFECT THE INFORMATION IN THIS PROXY
STATEMENT?
A: Except for the number of authorized shares set forth in Proposal 3 or as
otherwise noted, all references to numbers of shares, stock option data and
market prices of Duke Energy Common Stock in this proxy statement have been
restated to reflect the stock split.
32
Proposals to be Voted Upon
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PROPOSAL 1:
Election of Directors
The Board of Directors recommends a vote FOR each nominee.
The Board of Directors of Duke Energy consists of 12 members, divided into
three classes. The three-year terms of the classes are staggered so that the
term of one class expires at each annual meeting. The terms of the threefour Class
III directors will expire at the 2002 annual meeting. In addition, James T.
Rhodes, who was appointed as a Class I director by the Board of Directors on
October 30, 2001, will stand for election at the 2002 annual meeting. If
elected, his term will expire at the 2004 annual meeting.
The Board of Directors has nominated the following Class III directors for
re-election: Ann Maynard Gray, Dennis R. Hendrixelection: G. Alex Bernhardt, Sr., William A. Coley, Max Lennon and Harold S. Hook.Leo E.
Linbeck, Jr. It has nominated James T. Rhodes for election as a Class I
director.
If any director is unable to stand for re-election,election, the Board of Directors may
reduce the number of directors or designate a substitute. In that case, shares
represented by proxies may be voted for a substitute director. We do not expect
that any nominee will be unavailable or unable to serve.
As part of our agreement to acquire Westcoast Energy Inc., the Board of
Directors agreed to appoint Michael E.J. Phelps, Westcoast's Chief Executive
Officer, as a director of Duke Energy following consummation of the
transaction. Since such consummation did not occur in sufficient time to permit
the Board of Directors to nominate Mr. Phelps and have him included in this
proxy statement as a nominee for election to the Board of Directors, he will be
appointed as a director in Class I at the next regular meeting of the Board of
Directors following the consummation of the Westcoast acquisition. The Board of
Directors intends to nominate Mr. Phelps for election to the Board of Directors
at the 2003 annual meeting.
PROPOSAL 2:
Ratification of Deloitte & Touche LLP as Duke Energy's Independent Auditors for
20012002
The Board of Directors recommends a vote FOR this proposal.
The Board of Directors, upon recommendation of the Audit Committee, has
reappointed, subject to shareholder ratification, the firm of Deloitte & Touche
LLP, certified public accountants, as independent auditors to examine Duke
Energy's accounts for the year 2001.2002. If the shareholders do not ratify this
appointment, the Board of Directors will consider other certified public
accountants upon recommendation of the Audit Committee.
A representative of Deloitte & Touche LLP will, as in prior years, attend the
annual meeting and will have the opportunity to make a statement and be
available to respond to appropriate questions.
PROPOSALS 3A through 3D:
Amendments to the Articles of Incorporation
While our Articles of Incorporation have been amended many times over the years
as the need arose, until recently no attempt has been made to determine whether
this document as a whole reflects modern corporate practices. As a result of a
recent analysis, the Board of Directors has determined that a number of
provisions contained in the Articles of Incorporation are either outmoded or no
longer necessary and recommends that the shareholders approve the adoption of
proposed amendments to those provisions as discussed below.
PROPOSAL 3:
Increase3A:
Updating of the Corporate Purpose Clause
The Board of Directors recommends a vote FOR this proposal.
State law allows a corporation to state in Authorized Commonits Articles of Incorporation the
purpose or purposes for which it is organized. The corporate purpose clause
currently set forth in Article III of our Articles of Incorporation was adopted
in 1917 and, consistent with the practice at that time, is very specific. While
augmented in later years and now of considerable length, it does not reflect
Duke Energy's current operations. The Board of Directors believes it would be
advisable to replace this outdated provision with a modern Article which states
that Duke Energy may engage in any lawful act or activity for which
corporations may be organized under the business corporation statute of North
Carolina, as amended from time to time. The proposed amendment is not intended
to change or otherwise affect Duke Energy's current business strategy. Rather,
it is standard language frequently used by North Carolina corporations and is a
desirable part of the set of proposals designed to modernize Duke Energy's
Articles of Incorporation.
3
Proposals to be Voted Upon
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PROPOSAL 3B:
Authorization of Serial Preferred Stock
The Board of Directors recommends a vote FOR this proposal.
Under Article IV of the Articles of Incorporation, Duke Energy completed a two-for-one split of its Common Stock in January 2001.
After giving effectis currently
authorized to the stock split, Duke Energy had outstanding on March 1,
2001 approximately 742,013,462issue 2,000,000,000 shares of Common Stock, outwithout par value,
12,500,000 shares of 1,000,000,000Preferred Stock, $100 par value per share, 10,000,000
shares of Preferred Stock A, $25 par value per share, and 1,500,000 shares of
Preference Stock, $100 par value per share. As of February 28, 2002, there were
outstanding 778,199,474 shares of Common Stock, five series of Preferred Stock
without sinking fund requirements having an aggregate par value of
$178,000,000, two series of Preferred Stock with sinking fund requirements
having an aggregate par value of $38,000,000 and one series of Preferred Stock
A without sinking fund requirements having a par value of $31,000,000. There
were no shares of Preference Stock outstanding as of that date.
Reasons for the Proposed Amendment
The basic structure of Article IV relating to the issuance of the Preferred
Stock and the Preferred Stock A (Preferred Stocks) by series was adopted during
the 1950's based upon statutory authorization enacted many years earlier, and
has a number of features prevalent at that time that are no longer desirable.
These include a two-thirds class vote of the Preferred Stocks for issuances
exceeding 250,000 shares in the case of Preferred Stock or 1,000,000 shares in
the case of Preferred Stock A unless certain earnings and assets tests are met,
and for the approval of certain mergers and consolidations involving Duke
Energy regardless of size and whether or not Duke Energy is the surviving
corporation. Article IV also does not permit the Board of Directors to issue
series of the Preferred Stocks having general voting power.
The Board of Directors believes that it would be advisable to amend Article IV
to authorize a new class of Preferred Stock, to be known as "Serial Preferred
Stock," consisting of 20,000,000 shares issuable in series, which would provide
the flexibility needed to meet current requirements of the securities market or
the exigencies of negotiations for the acquisition of other corporations or
properties. The proposed Serial Preferred Stock would not be set aside for any
specific purpose, but would be subject to issuance in the discretion of the
Board of Directors from time to time for any proper corporate purpose without
further action by the shareholders. The terms of any new series will be
dependent largely on conditions existing at the time of issuance and therefore
cannot be indicated at the present time.
The Board of Directors has no immediate intention to enter into any
negotiations, agreements or understandings with respect to the proposed Serial
Preferred Stock, but considers it advisable and in the best interests of Duke
Energy to have such shares authorized and available for issuance. In addition,issuance to meet future
requirements if and when the need arises. Requiring the shareholders to meet
and approve each separate issuance of a series would be time-consuming and
costly, particularly in those instances where the number of shares to be issued
may be small in relation to the total capital of Duke Energy. Moreover, if
shareholder approval of such securities were postponed until a specific need
arose, the delay could, in some instances, deprive Duke Energy of opportunities
otherwise available.
If the shareholders approve the proposed amendment to Article IV, Duke Energy
will have approximately
61,205,939no longer issue any shares reserved for issuanceof Preferred Stock or Preferred Stock A and
anticipates that over time it will redeem or otherwise retire the outstanding
series of those classes of stock when it is deemed cost-efficient to do so and
otherwise advantageous under various stock-based plans,
assuming shareholder approvalthe circumstances. One of the outstanding series
of Preferred Stock with sinking fund requirements must be redeemed by Duke
Energy in December of this year, and the other outstanding series is
mandatorily redeemable in installments commencing in June 2003. By that time,
all outstanding series of Preferred Stock without sinking fund requirements
will be subject to redemption at the annual meetingoption of Duke Energy. The outstanding
series of Preferred Stock A without sinking fund requirements will be subject
to redemption at the option of Duke Energy commencing in December 2003.
The proposal of the Board of Directors contemplates that when all series of
Preferred Stock and Preferred Stock A are redeemed or otherwise retired, the
Articles of Incorporation will be amended, without further shareholder
authorization, to delete all references to the Preferred Stock and the
Preferred Stock A in Article IV of the Articles of Incorporation. At such time,
the Serial Preferred Stock, if and when issued, will become the senior equity
securities of Duke Energy.
4
Proposals to be Voted Upon
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Proposal 3B continued
Proposed Serial Preferred Stock
The Serial Preferred Stock will rank junior to the Preferred Stock and the
Preferred Stock A and senior to the Preference Stock and the Common Stock with
respect to dividends and distribution of assets upon liquidation, dissolution
or winding up of Duke Energy.
The Board of Directors will be authorized to determine at the time of creating
each series the designations, preferences, limitations and relative rights of
the series permitted to be fixed by the Board of Directors pursuant to proposed
Article IV, including, but not limited to, the distinctive designation of and
the number of shares in the series, the terms of any dividend payable thereon,
the terms, if any, on which shares of the series may be redeemed, the terms of
any applicable sinking fund, any conversion or voting rights of the series and
the amount payable upon liquidation, dissolution or winding up of Duke Energy.
All shares of Serial Preferred Stock of the same series will be identical in
all respects and, except for the permitted variances and differences between
series expressly provided for in the resolutions creating the series as
contemplated by the proposed Article IV, all shares of Serial Preferred Stock
of all series will be identical in all respects.
Subject to the prior rights of the Preferred Stocks, each series of Serial
Preferred Stock with dividend rights will be entitled to receive, if declared
by the Board of Directors, and before any dividends are paid on the Preference
Stock or the Common Stock, dividends upon such terms as may be fixed by the
Board of Directors for such series.
Duke Energy will be permitted to redeem, pursuant to the provisions of any
applicable sinking fund or otherwise, any series of Serial Preferred Stock, or
any part thereof, upon such terms as the Board of Directors may fix at the time
it creates such series.
If so provided by the Board of Directors at the time of creation of the series,
the shares of a series of Serial Preferred Stock may be convertible or
exchangeable into shares of Common Stock or other securities of Duke Energy or
of any other corporation or other entity, upon terms fixed at the time of
creation of the series.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Duke Energy, the holders of each series of Serial Preferred Stock
will be entitled to receive, subject to the prior payment in full of the
amounts payable in such event to the holders of the Preferred Stocks and before
any distribution is made to the holders of the Preference Stock or the Common
Stock, the distributive amount fixed by the Board of Directors at the time such
series was created.
The holders of the Serial Preferred Stock will have such voting rights as a
series or otherwise with respect to the election of directors or otherwise as
may be fixed by the Board of Directors at the time of the creation of the
series, in addition to any voting rights provided by law.
If so provided by the Board of Directors at the time of creation of the series,
the shares of a series of Serial Preferred Stock may be subject to restrictions
and conditions upon the issuance of any additional Serial Preferred Stock
ranking on a parity with or prior to such shares as to dividends or upon
dissolution.
The holders of the Serial Preferred Stock will have no preemptive rights. The
Serial Preferred Stock, when issued, will be fully paid and nonassessable.
The full text of the proposed 4Article IV of the Articles of Incorporation,
which includes the provisions for the proposed Serial Preferred Stock, is set
forth in Exhibit A to this proxy statement. The foregoing description of the
proposed Serial Preferred Stock is qualified in its entirety by reference to
such provisions.
Anti-Takeover Aspects
The Board of Directors has undertaken not to issue the Serial Preferred Stock
for the principal purpose of acting as an anti-takeover device and to seek
shareholder approval prior to authorizing the issuance of any Serial Preferred
Stock for that purpose.
Serial Preferred Stock can be, and has been, used by corporations specifically
for anti-takeover purposes. For example, shares of Serial Preferred Stock can
be privately placed with purchasers who support a board of directors in
opposing a tender offer or other hostile takeover bid, or can be issued to
dilute the stock ownership and voting power of a third party seeking a merger
or other extraordinary corporate transaction. Under these and similar
circumstances, the Serial Preferred Stock can serve to perpetuate incumbent
management and can adversely affect shareholders who may want to participate in
the tender offer or other transaction.
The Board of Directors is sensitive to these issues, particularly because Duke
Energy's Articles of Incorporation and By-Laws already contain provisions that
may have an anti-takeover effect. These provisions require, among other things,
(i) a classified Board of Directors, (ii) a vote of at least
5
increase in shares reserved for issuance under theProposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 3B continued
80% of Duke Energy's voting power to amend certain provisions of its Articles
of Incorporation, and (iii) advance notice procedures with respect to
shareholder proposals and nominations of directors. Duke Energy 1998 Long-Term
Incentive Plan. In viewalso has a
shareholder rights plan, the effect of which may be to discourage attempts to
gain control of Duke Energy without the approval of the Board of Directors. The
shareholder rights plan would not be affected by the proposed authorization of
shares of Serial Preferred Stock.
The proposal to amend Article IV is not part of a plan to adopt a series of
anti-takeover measures, and Duke Energy has no present intent to propose other
anti-takeover measures in future proxy solicitations. To emphasize this point,
the Board of Directors has approvedadopted resolutions that state that the Serial
Preferred Stock authorized by the proposed amendment of Article IV:
a) not be used for the principal purpose of acting as an amendmentanti-takeover device
without shareholder approval; and
b) not be given supermajority voting rights except possibly with respect to
proposed amendments to the Articles of Incorporation to increasealtering materially
existing provisions of the number of shares of
authorized CommonSerial Preferred Stock from 1,000,000,000 to 2,000,000,000 shares. The Board
recommends that the shareholders approve the proposed amendment.
Reasons for the Amendment
The Board believes it advisable to increaseor creating, or increasing
the authorized numberamount of, sharesany class of Common Stock because there may be insufficient shares available for issuance
from timestock ranking, as to time for purposes which the Board determines to be in Duke Energy's
interest. These purposes would include financing growth, effecting stock splitsdividend or
stock dividends, providing shares for employee benefit and dividend
reinvestment plans, possible acquisitions and other general corporate purposes
relatedassets, prior to the development and expansion of the corporate enterprise. The Board
believes it will be advantageous to be able to act promptly with respect to
investment or acquisition opportunities without the expense and delay involved
in convening special shareholder meetings to authorize additional shares which
may be issued in connection with such opportunities. Duke Energy is not
currently planning any material acquisition, although such transactions are
considered from time to time.
The additional shares of Common Stock, if authorized, would have the same rights
and privileges as the shares of Common Stock presently outstanding. The Articles
of Incorporation provide that holders of shares of Common Stock do not have
preemptive rights.
While the Board believes it advisable to increase the number of authorized
shares of Common Stock for the reasons set forth above, the Board realizes that
the increase in the number of authorized shares could be used for anti-takeover
purposes as Duke Energy could issue additional shares to make more difficult or
discourage an attempt to acquire control of Duke Energy. Duke Energy is not
aware of any effort to accumulate its securities or obtain control by means of a
tender offer, proxy contest or otherwise.Serial Preferred Stock.
--------
Unless required by North Carolina law, or by the applicable rules of the New York Stock
Exchange, no further authorization for the
issuance of Commonthe Serial Preferred Stock by the
shareholders would be necessary, but any such
issuance would be subject to the approval of the North Carolina Utilities
Commission and The Public Service Commission of South Carolina.
PROPOSAL 4:
AmendmentFinancial Statements
A copy of the annual report to shareholders was mailed on or about March 27,
2002 to each shareholder of record on February 28, 2002. Reference is made to
the consolidated financial statements of Duke Energy, 1998 Long-Term Incentive Planselected quarterly data
and management's discussion and analysis of results of operations and financial
condition, all appearing in such report, which are incorporated herein by this
reference. The consolidated financial statements of Duke Energy incorporated
herein have been examined by Deloitte & Touche LLP, independent auditors, to
the extent and for the periods indicated in their report thereon.
PROPOSAL 3C:
Requiring a Majority Vote of Holders of Outstanding Shares to Adopt, Amend or
Repeal the By-Laws
The Board of Directors recommends a vote FOR this proposal.
North Carolina law currently permits the shareholders to adopt, amend or repeal
the by-laws of a corporation at a meeting of the shareholders at which a
majority of the shares entitled to vote on the matter is present in person or
by proxy if the votes cast at the meeting favoring the action exceed the votes
cast at the meeting opposing the action. This could allow a minority (and in
certain circumstances a small minority) of the shareholders, without any
involvement by the board of directors of the corporation in the process, to
effect significant changes in a corporation's by-laws.
The Board of Directors believes that the By-Laws of Duke Energy, which,
together with its Articles of Incorporation, constitute its fundamental
governing documents, should be changed by the shareholders only when holders of
a majority of the outstanding shares entitled to vote on the matter favor such
change. Accordingly, the Board of Directors proposes to add a new Article VII
to the Articles of Incorporation, which would, as permitted by North Carolina
law, require the affirmative vote of the holders of at least a majority of the
combined voting power of the then outstanding shares of stock of all classes
entitled to vote generally in the election of directors, voting together as a
single class, for the shareholders to adopt, amend or repeal any provisions in
the By-Laws. This voting requirement would also apply to any amendment or
repeal of new Article VII of the Articles of Incorporation or the adoption of
any provision inconsistent with the new Article.
The full text of the proposed Article VII of the Articles of Incorporation,
which would replace current Article VII which is no longer required to be
included as part of the Articles of Incorporation, is set forth in Exhibit B to
this proxy statement.
6
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
PROPOSAL 3D:
Decrease the Permissible Range of Size of the Board of Directors
The Board of Directors recommends a vote FOR this proposal.
The By-Laws of Duke Energy 1998 Long-Term Incentive Plan was approved by Duke Energy's
shareholders at the 1998 annual meeting. The purpose of the Plan is to
strengthen Duke Energy's ability to attract, motivate and retain employees and
outside directors and to provide an additional incentive for employees and
outside directors to promote Duke Energy's financial success and growth.
5
The Amendment
The Amendment seeks to increasehave provided since 1986 that the number of
shares reserved for issuance under
the Plan by an additional 30,000,000 shares and to increase the maximum number
of shares of Common Stock that may be issued under the Plan under restricted
stock awards, performance awards and phantom stock awards from 3,000,000 to
6,000,000. The additional shares reserved for issuance are needed to facilitate
the continued use of the Plan because the original authorization in 1998 of
30,000,000 shares is expected to be largely exhausted in the near term.
The Board of Directors approved the Amendment on December 20, 2000, subject to
shareholder approval.
The full text of the amended Plan has been filed electronically with the SEC
with this proxy statement. You are encouraged to read the full text of the Plan
if you need more information.
Other Principal Features of the Plan
Administration of the Plan. The Compensation Committee ofdirectors constituting the Board of Directors administers the Plan. The Compensation Committee determines who receives awards,
what types of awards are granted, when awards are granted, and the terms of
awards, except that awardswill be not less than twelve nor
more than twenty-four as fixed from time to outside directors and the Chairman, President and
Chief Executive Officer must be madetime within those limits by the
Board of Directors. Eligibility to Receive Awards. Substantially all employeesIn that year the number of directors was fixed at twenty.
This By-Law provision was carried forward into the Articles of Incorporation of
Duke Energy in 1991 when certain amendments were made to that document. At that
time the number of directors was fixed at nineteen.
Consistent with modern governance principles, the Board of Directors has tended
in recent years to favor a smaller board as being more effective and its subsidiaries and allhas fixed
the number of Duke Energy's outside directors are eligibleat twelve, commencing with the date of the 2002 annual
meeting. The Board of Directors believes that the number of directors
constituting the Board of Directors should be not less than nine nor more than
eighteen, with the actual number of directors within that range continuing to
be granted awards underfixed by the Plan.Board of Directors, and deems advisable a proposed amendment to
clause (a) of Article VIII of the Articles of Incorporation effecting this
change. The numberBoard of actual grantees may vary from year
to year.
Stock Option Awards. Awards of nonqualified stock options and incentive stock
options may be granted underDirectors has made a corresponding change in the Plan. Nonqualified stock options may be granted
to employees and outside directors; incentive stock options may be granted only
to employees. The maximum number of shares of Common Stock that may be granted
under stock options to any one participant during any calendar year is 2,000,000
shares. The value of Common Stock (determined at the time of grant) that may beBy-Laws,
subject to incentive stock options that become exercisable by any one employee
in any one year is limitedshareholder approval of the proposed amendment, to $100,000.
The maximum term of a stock option granted under the Plan is ten years. The
exercise price per share of an option is established by the Compensation
Committee and may not be less than the fair market value of a share of Common
Stock on the grant date. The Compensation Committee determines the extent to
which an option becomes and/or remains exercisable if the employment or service
of a participant terminates due to retirement, death, disability or certain
other circumstances, subject to limitations for incentive stock options.
Stock Appreciation Rights. The Compensation Committee may grant stock
appreciation rights under the Plan. A stock appreciation right entitles the
holder to receive the difference between the base price specified in the award
and the fair market value of a share of Common Stocktake effect on
the date of exercise,
with respect to each share of Common Stock to which the stock appreciation right
relates. The maximum number of shares of Common Stock subject to stock
appreciation rights granted to any one participant during any calendar year is
2,000,000 shares.
6
A stock appreciation right may be granted either in tandem with an option or on
a stand-alone basis. A stock appreciation right granted in tandem with an option
has a base price per share equal to the per share exercise price of the option
and generally has the same vesting and termination schedule as the option.
Exercise of the stock appreciation right as to a number of shares results in the
cancellation of the same number of shares under the option. A stock appreciation
right granted on a stand-alone basis will be exercisable as determined by the
Compensation Committee, but in no event after ten years from the date of grant.
The base price of a stand-alone stock appreciation right may not be less than
100% of the fair market value of a share of Common Stock on the date of grant.
Stock appreciation rights are payable in cash, in shares of Common Stock, or
both, as determined by the Compensation Committee.
Performance Awards. Performance awards are units denominated either in shares of
Common Stock ("performance shares") or in specified dollar amounts ("performance
units"). Performance awards are payable upon the achievement of performance
criteria established by the Compensation Committee at the beginning of the
performance period. The performance period may not exceed ten years from the
date of grant. At the end of the performance period, the Compensation Committee
determines the payment to be made based on the extent to which the performance
goals have been achieved. Performance awards are payable in cash, in shares of
Common Stock, or both, as determined by the Compensation Committee.
The Compensation Committee may grant performance awards that are intended to
qualify for exemption under section 162(m) of the Internal Revenue Code, as well
as performance awards that are not intended to so qualify. The performance
criteria for a section 162(m) qualified performance award may relate to Duke
Energy, a subsidiary or a business unit, and may be absolute or measured
relative to a peer group. Only the following criteria may be used for a section
162(m) qualified award: total shareholder return, stock price increase, return
on equity, return on capital, earnings per share, earnings before interest and
taxes, cash flow (including operating cash flow, free cash flow, discounted cash
flow return on investment, and cash flow in excess of costs of capital) and cost
per kWh. No more than $2.5 million may be payable in any one calendar year to
any one participant under a section 162(m) qualified performance unit award. No
more than 400,000 share units may be subject to a section 162(m) qualified
performance share award granted to any one participant in any calendar year.
Restricted Stock Awards. The Compensation Committee may grant restricted stock
awards under the Plan. Restricted stock awards contain restrictions with respect
to transferability and ownership of the shares of Common Stock granted and are
subject to forfeiture under certain conditions. The restrictions lapse in
accordance with the vesting requirements set forth in the award. Vesting
requirements may be based on the participant's continued employment for a
specified time period or on the attainment of specified business goals or
performance criteria. The Compensation Committee may require the payment of a
specified purchase price in connection with a restricted stock award.
No more than 400,000 shares of restricted stock intended to qualify under
section 162(m) may be granted to any one participant during any calendar year.
An award of restricted stock that is intended to qualify for exemption under
section 162(m) will have its vesting requirements limited to the performance
criteria described under "Performance Awards" above.
7
Phantom Stock Awards. The Compensation Committee may grant awards of phantom
stock under the Plan. A phantom stock award gives the participant the right to
receive the fair market value of a share of Common Stock on the vesting date
(subject to any applicable maximum value) for each unit of phantom stock
awarded. Vesting periods may be no more than ten years from the date of grant.
Phantom stock units may be subject to restrictions and conditions set by the
Compensation Committee. Payments of phantom stock awards may be in cash, in
shares of Common Stock, or both, as determined by the Compensation Committee.
Dividend Equivalent Awards. The Compensation Committee may grant dividend
equivalent awards under the Plan. A dividend equivalent award gives the
participant the right to receive cash payments that are equivalent to dividends
on the shares of Common Stock to which the award relates. Dividend equivalent
awards may be granted in tandem with other awards or on a stand-alone basis.
Dividend equivalent awards granted in tandem with other awards expire at the
time the underlying award is exercised, becomes otherwise payable, or expires.
Dividend equivalent awards may be payable in cash or in shares of Common Stock,
as determined by the Compensation Committee.
Term of the Plan. The Plan will terminate on April 16, 2008, except that the
Plan may be terminated earlier by the Board of Directors.
Other Information. The Board of Directors may amend the Plan at any time, except
that shareholder approval is required for amendments that change who is eligible
to participate in the Plan, increase the number of shares of Common Stock
reserved for issuance under the Plan or for certain kinds of awards, allow
grants of options at an exercise price below fair market value, or allow the
repricing of options.
The Compensation Committee may provide for the effect of a "change in control"
(as defined in the Plan) on awards granted under the Plan. Such provisions may
include accelerating or extending time periods for exercising, vesting or
realizing gain from any awards, waiving or modifying performance or other
conditions relating to payment or other rights under awards, or cash settlement
of awards.
Federal Income Tax Consequences. The following is a general description of the
federal income tax consequences to participants and Duke Energy relating to
awards that may be granted under the Plan. The description does not purport to
cover all tax consequences relating to awards.
The grant of a stock option will not result in taxable income at the time of
grant for the grantee or Duke Energy. The grantee will have no taxable income
upon exercising an incentive stock option (except that the alternative minimum
tax may apply), and Duke Energy will receive no deduction when an incentive
stock option is exercised. Upon exercising a nonqualified stock option, the
grantee will recognize ordinary income in the amount by which the fair market
value exceeds the option price; Duke Energy will be entitled to a deduction for
the same amount. The treatment to a grantee of a disposition of shares acquired
through the exercise of an option depends on how long the shares are held and on
whether the shares were acquired by exercising an incentive stock option or a
nonqualified stock option. Generally, there will be no tax consequence to Duke
Energy when shares acquired under an option are disposed of except that Duke
Energy may be entitled to a deduction if shares acquired upon exercise of an
incentive
8
stock option are disposed of before the applicable incentive stock option
holding periods have been satisfied.
The current federal income tax consequences of other awards authorized under the
Plan are generally in accordance with the following: stock appreciation rights
are subject to taxation in substantially the same manner as nonqualified stock
options; restricted stock subject to a substantial risk of forfeiture results in
income recognition of the excess of the fair market value of the shares of
Common Stock over the purchase price (if any) only at the time the restrictions
lapse (unless the recipient elects to accelerate recognition as of the date of
grant); performance awards, phantom stock awards and dividend equivalent awards
are generally subject to tax at the time of payment. In each of the foregoing
cases, Duke Energy will generally have a corresponding deduction at the same
time the participant recognizes income.
Compensation of the executive officers listed in the Summary Compensation Table
in "Compensation" below is subject to the tax deduction limits of section 162(m)
of the Internal Revenue Code. Stock options and stock appreciation rights that
qualify as "performance-based compensation" are exempt from section 162(m), thus
allowing Duke Energy the full tax deduction otherwise permitted for such compensation. The Plan enables the Compensation Committee to grant stock options
and stock appreciation rights that will be exempt from the deduction limits of
section 162(m) of the Internal Revenue Code.
The closing price of Duke Energy Common Stock on the New York Stock Exchange on
March 9, 2001 was $42.97 per share.
9
1998 Long-Term Incentive Plan Benefits
No determinations have been made with respect to benefits and amounts that will
be received or allocated under the Plan in the future. In 2000, the Compensation
Committee granted stock option awards under the Plan as described under "Option
Grants in 2000" in this proxy statement and as set forth in the table below. The
exercise price of each such option was $42.8125 or as otherwise noted. Phantom
stock units were also granted under the Plan in 2000 as described in footnote 2
of the Summary Compensation Table under "Compensation" and as set forth in the
table below. The fair market value of one phantom stock unit on the date of
grant was $42.8125.
Number of Shares Number of
Identity of Group Underlying Options Phantom Stock Units
- ----------------- ------------------ -------------------
All executive officers
as a group (11) 1,130,400 34,320
All non-executive directors
as a group (10) 40,000 --
All employees (including
non-executive officers) as a group (1,670) 4,829,408 137,000
In addition to the above, one executive officer received a restricted stock
award of 20,000 shares as part of his initial compensation package with a dollar
value of $827,500 on the date of grant, and H.J. Padewer received a performance
award as described in the table entitled "Long-Term Incentive Plan - Awards in
2000" in this proxy statement.approval.
SHAREHOLDER PROPOSALS
The following twofour proposals have been submitted by shareholders for inclusion
in this proxy statement. Upon oral or written request, we will promptly furnish
the names and addresses of the shareholders submitting the proposals, as well
as the number of shares they held at the time the proposals were submitted.
PROPOSAL 5:
Contributions to Political Movements and Entities4:
Investments in Alternative Energy Sources
The Board of Directors recommends a vote AGAINST this shareholder proposal.
Whereas the money for donations to political movements and political entities
comes from the profits of the company's operations, and belongs to the
shareholders; and since these contributions are nothing more than an overt
effort to control elections, shareholders should not be made to support
political movements or political entities with whom they do not agree.
The Board of Directors is requested to adopt a policy that no contribution to
any political movement or entity shall be made by Duke Energy; nor shall
solicitations for contributions to
10
any political movement or entity be made on company property, nor to any company
employee; nor shall company facilities or equipment be used for this purpose.
OPPOSING STATEMENT OF THE BOARD OF DIRECTORS
The Board of Directors has considered this proposal and believes that its
adoption is unnecessary and would not be in the best interests of Duke Energy or
its shareholders.
Duke Energy is subject to, and complies with, extensive federal and state
regulations relating to political contributions. Adoption of the proposal,
however, would prohibit it from continuing its customary support of various
political action committees and permitted state and local campaigns. Many of
Duke Energy's business activities are heavily regulated at the federal, state
and local levels, which affects its ability to own and maintain energy
facilities, and offer energy and energy-related products and services. Duke
Energy believes that its interaction with legislators and regulators influences
the products and services that it is able to offer and deliver, and believes in
the importance of participating in the political process on behalf of its
shareholders, customers, employees and other stakeholders. The proposal,
however, would limit Duke Energy's effectiveness and place it at a competitive
disadvantage by prohibiting its participation in various activities routinely
engaged in by energy companies and others.
In addition to placing Duke Energy at a competitive disadvantage, the proposal
does not define "political movement or entity" or provide any guidance as to how
it would determine whether or not a "movement or entity" is "political."
Consequently, the extremely broad language of the proposal could prohibit a
multitude of activities that shareholders would not commonly view as political
in nature.
The Board of Directors therefore recommends a vote AGAINST this shareholder
proposal.
PROPOSAL 6:
Investments in Alternative Energy Sources
The Board of directors recommends a vote AGAINST this shareholder proposal.
Invest in Clean Energy (ICE)(I.C.E.) Proposal
Be it resolved that Duke Energy shall invest sufficient resources to build new
electrical generation from solar and wind power sources to replace
approximately one percent (1%) of system capacity yearly for the next twenty
years with the goal of having the company producing twenty percent (20%) of
generation capacity from clean renewable sources in 20 years.
Supporting Statement
Utility deregulation demands the company present a good public image, and the
public is demanding progress towards clean energy.
Efforts must be made to slow down changes in global climate so that we can
continue to survive on planet earth.
11
The proposal allows flexibility in schedule for the Board of Directors to
implement this proposal. The 20% figure is just a reasonable and conservative
goal to aim for.
A one percent yearly addition to generation capacity allows for small pilot
plants to be built and tried as the program advances.
The company should look to building facilities that are made to last a long
time.
Solar power towers, wind farms, solar photovoltaic arrays and parabolic solar
troughsthermal collectors already exist in other places in this range of power
production, proving that Duke could realistically build such facilities in the
Carolinas and elsewhere.
OPPOSING STATEMENT OF THE BOARD OF DIRECTORSOpposing Statement of the Board of Directors
A proposal identical to this proposal was submitted at last year's annual
meeting by one of the two shareholders making this proposal and was opposed by
over 95% of the shareholders voting at the meeting. The Board of Directors
believes that this proposal is contrary to the best interests of Duke Energy
and the shareholders.
Duke Energy considers the development of clean, renewable energy sources to be
a matter of importance. It also supports research in the development and
commercial deployment of such technologies and closely monitors technological
developments in this sector. Duke Energy has developed several different
commercial projects utilizing these kinds of technologies through its Duke
Engineering & Services and DukeSolutions business units and participates in
commercial developments that are consistent with its business strategy and
capital investment requirements. As with other generation technologies deployed
by Duke Energy, renewable energy generation technologies must be economically
attractive in addition to their having technological feasibility.
The proponentproponents would have shareholders require Duke Energy to pursue certain
renewable energy sources without reference to any economic, scientific or
technical data on which to evaluate such actions. If adopted, the proposal
would require Duke Energy to replace its electric generating system capacity
with solar and wind power sources by approximately 1% per year, regardless of
whether 1% replacements are practical and regardless of cost, and to commit to
that timetable for the next 20 years.
7
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 4 continued
The proposal generally requires Duke Energy to replace portions of its electric
generation system in artificial, predetermined percentage amounts according to
an artificial, predetermined timetable. Changes in the composition of electric
generation systems, however, do not occur in successive increments of
approximately 1% and are not implemented on the basis of the sort of timetable
that the proposal specifies. Moreover, the proposal could require Duke Energy
to dismantle system capacity that might be highly productive in order to
replace it with solar and wind power technologies, replacements that would
involve very substantial costs with respect to construction and maintenance.
Based on data provided by the World Energy Assessment conducted by the United
Nations Development Programme, the technologies included in the proposal
presently are 3 times to 40 times as expensive as current conventional
generation technologies.
The timing and advisability of entering into any new business, such as
renewables, including research and marketing decisions relating to it, require
the judgment of experienced management. Duke Energy has experience in renewable
energy. It has participated in past research and development and commercial
ventures involving renewable energy, including biomass and solar energy.
In
2000, DukeSolutions, a Duke Energy business, announced new
12
capital investment in biomass fueled renewable energy projects. Duke Energy will
continue to pursue similar opportunities when its business strategy and capital
investment requirements are satisfied. However, the long-term time commitment and scale of investment required by the
proposal would not, in the Board's opinion, be in the best interests of
shareholders or customers.
The Board of Directors opposes this proposal because it requires Duke Energy to
adopt a highly restrictive and costly plan with respect to Duke Energy's future
electric operations. Duke Energy remains committed through research, technology
and innovation to meet consumers' demands for new products and services. Duke
Power, a Duke Energy company, is participating in a collaborative effort to
develop a voluntary green power program for North Carolina electric consumers.
The Board of Directors believes, however, that the requirement in the proposal
that Duke Energy should actively pursue a business activity such as renewable
energy sources, irrespective of consumers' demands, technical data and economic
factors, is unwarranted and not in the best interests of shareholders.
The Board of Directors thereforerecommends a vote AGAINST this proposal for the reasons
set forth above.
PROPOSAL 5:
Role of the Board of Directors in Long-Term Strategic Planning
The Board of Directors recommends a vote AGAINST this shareholder proposal.
13Resolved, that the shareowners of Duke Energy Corporation ("Company") hereby
urge that the Board of Directors prepare a description of the Board's role in
the development and monitoring of the Company's long-term strategic plan.
Specifically, the disclosure should include the following: (1) A description of
the Company's corporate strategy development process, including timelines; (2)
an outline of the specific tasks performed by the Board in the strategy
development and the compliance monitoring processes, and (3) a description of
the mechanisms in place to ensure director access to pertinent information for
informed director participation in the strategy development and monitoring
processes. This disclosure of the Board's role in the strategy development
process should be disseminated to shareowners through appropriate means,
whether it be posted on the Company's website or sent via a written
communication to shareowners.
Statement of Support
The development of a well-conceived corporate strategy is critical to the
long-term success of a corporation. While senior management of our Company is
primarily responsible for development of the Company's strategic plans, in
today's fast-changing environment it is more important than ever that the Board
engage actively and continuously in strategic planning and the ongoing
assessment of business opportunities and risks. It is vitally important that
the individual members of the Board, and the Board as an entity, participate
directly and meaningfully in the development and continued assessment of our
Company's strategic plan.
A recent report by PricewaterhouseCoopers entitled "Corporate Governance and
the Board - What Works Best" examined the issue of director involvement in
corporate strategy development. The Corporate Governance Report found that
chief executives consistently rank strategy as one of their top issues, while a
poll of directors showed that board contributions to the strategic planning
process are lacking. It states: "Indeed, it is the area most needing
improvement. Effective boards play a critical role in the development process,
by both ensuring a sound strategic planning process and scrutinizing the plan
itself with the rigor required to determine whether it deserves endorsement."
8
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 5 continued
The Company's proxy statement, and corporate proxy statements generally,
provides biographical and professional background information on each director,
indicates his or her compensation, term of office, and board committee
responsibilities. While this information is helpful in assessing the general
capabilities of individual directors, it provides shareholders no insight into
how the directors, individually and as a team, participate in the critically
important task of developing the Company's operating strategy. And while there
is no one best process for board involvement in the strategy development and
monitoring processes, shareholder disclosure on the Board's role in strategy
development would provide shareholders information with which to better assess
the performance of the board in formulating corporate strategy. Further, it
would help to promote "best practices" in the area of meaningful board of
director involvement in strategy development.
We urge your support for this important corporate governance reform.
Opposing Statement of the Board of Directors
The Board of Directors believes that this proposal is contrary to the best
interests of Duke Energy and the shareholders.
The Board of Directors annually reviews management's long-term strategic plan
and reviews strategic updates. It also reviews management's specific goals at
the beginning of the year and actual performance periodically. These duties are
consistent with Duke Energy's board governance principles, and the Board of
Directors fully recognizes the importance of these obligations. The Corporate
Performance Review Committee of the Board of Directors is responsible for
assessing the implementation of strategy by business unit or function.
The Board of Directors believes that no useful purpose would be served by
providing the shareholders with a detailed description of the role of the Board
of Directors in the development and monitoring of Duke Energy's long-term
strategic plan, as requested by the proposal.
A detailed description of the role of the Board of Directors in the strategy
development process would soon become obsolete in many respects. The
opportunities that appear to be available for a given future time period when a
strategic plan is designed are often very different from the opportunities that
actually materialize. Further, variances from a strategic plan typically
develop as performances are realized. For these reasons, the Board of Directors
evaluates Duke Energy's strategic plan and management's actual performance in
achieving Duke Energy's goals by using a dynamic process that analyzes numerous
factors and peer comparisons. Of necessity, this process changes over time.
The detailed description of Duke Energy's corporate strategy development
process, including timelines, as envisioned by the proposal, could compromise
sensitive corporate information. It thus could put Duke Energy at a competitive
disadvantage without in any way aiding the oversight function of the Board of
Directors.
Approval of the proposal would not in itself result in disclosure of the role
of the Board of Directors in the development and monitoring of Duke Energy's
long-term strategic plan. Approval by the shareholders would only serve to urge
the Board of Directors to provide the requested information. Disclosure would
actually occur only after the Board of Directors exercises its collective
business judgment in determining that making the disclosure would be in the
best interests of Duke Energy and the shareholders.
The Board of Directors recommends a vote AGAINST this proposal for the reasons
set forth above.
PROPOSAL 6:
Appointment of Independent Auditors Who Only Render Audit Services
The Board of Directors recommends a vote AGAINST this shareholder proposal.
RESOLVED: That the shareholders of Duke Energy request that the Board of
Directors adopt a policy that in the future the firm that is appointed to be
the Company's independent accountants will only provide audit services to the
Company and not provide any other services.
Supporting Statement
The Securities and Exchange Commission passed new proxy statement rules that
took effect February 5, 2001, which require companies to disclose how much they
pay their accounting firms for audit services and non-audit services.
The results have been startling. According to a Wall Street Journal article of
April 10, 2001: "The nation's biggest companies last year paid far more money
than previously estimated to their independent accounting firms for services
other than auditing, newly disclosed figures show, renewing questions about
whether such fees create conflicts of interest for auditing firms... At issue:
How objective can an accounting firm be in an audit when it is also making
millions of dollars providing the client with other services."
9
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 6 continued
That Wall Street Journal article reported that of the 307 S&P 500 companies it
had surveyed, the average fees for non-audit services were nearly three times
as big as the audit fees. The Company's 2001 proxy statement revealed that it
had paid its independent auditor $3.3 million for its audit work and $11.7
million for other work.
When the SEC was seeking comments on its accountant disclosure rules,
substantial institutional investors urged that auditors should not accept
non-audit fees from companies. The California Public Employees' Retirement
System's General Counsel, Kayla J. Gillan, wrote: "The SEC should consider
simplifying its Proposal and drawing a bright-line test: no non-audit services
to an audit client." TIAA-CREF's Chairman/CEO John H. Biggs wrote:
"...independent public audit firms should not be the auditors of any company
for which they simultaneously provide other services. It's that simple."
It is respectfully submitted that it would be in the best interests of the
Company's shareholders if the Board of Directors adopts a policy that in the
future any firm appointed to be the Company's independent accountants shall
only provide audit services to the Company and not provide any other services.
Opposing Statement of the Board of Directors
The Board of Directors believes that adoption of this proposal would not be in
the best interests of Duke Energy or its shareholders.
Duke Energy is closely monitoring developments and public concerns in the area
of auditor independence and will readily comply with evolving legal and
regulatory requirements. As Deloitte & Touche LLP has announced its intention
to split its management consulting business from its audit services business,
the Board of Directors believes that this proposal is unnecessary.
As noted in the discussion under "Fees Paid to Independent Auditors" under
"Other Information" below in this proxy statement, Duke Energy has retained
Deloitte & Touche LLP to advise it on a number of matters in addition to its
core auditing functions. As set forth in that section, Duke Energy engaged
Deloitte & Touche LLP to perform various "nonaudit" services in 2001 for which
that firm billed approximately $27.6 million. This amount included $21.9
million for tax services and $5.7 million primarily for advice related to
acquisitions and divestitures and for the issuance of consents and comfort
letters in connection with SEC filings and financing transactions. These
nonaudit services are compatible with maintaining auditor independence. Indeed,
the SEC stated in its release promulgating the auditor independence rules that
"[a]ccountants will continue to be able to provide a wide variety of non-audit
services to their audit clients."
Decisions to engage a particular accounting firm are made by Duke Energy only
when two conditions are met. The first is a determination that the accounting
firm's particular expertise, coupled with its knowledge of Duke Energy and
management and financial systems, provides substantial assurance of
high-quality and timely results with tangible cost savings. The second is a
determination that the engagement is consistent with the maintenance of auditor
independence as required by the auditor independence rules of the SEC. These
determinations are reviewed regularly with the Audit Committee, as noted in the
Report of the Audit Committee.
Discretion in determining the best allocation of tasks among accounting (and
other) firms is an essential component of the ability of the Board of Directors
and the Audit Committee to discharge their responsibilities to Duke Energy and
its shareholders. The Board of Directors believes that the retention of this
discretion is entirely consistent with Duke Energy's ability to monitor and
ensure the independence of its auditors. In the area of tax services, Duke
Energy uses a number of different firms and does not rely on any firm
exclusively.
The Executive Vice President and Chief Financial Officer, the Corporate
Controller and the Audit Committee monitor and evaluate the performance of
Deloitte & Touche LLP in both its auditing services and its nonaudit services,
the magnitude of the fees paid for such services and the compatibility of the
nonaudit services with the maintenance of the firm's independence. Moreover, in
late 2000, Duke Energy adopted restrictions beyond the requirements of the
auditor independence rules of the SEC by prohibiting Deloitte & Touche LLP from
providing internal auditing services or financial information systems design
and implementation services. Duke Energy will adopt further prohibitions on
various nonaudit services as warranted by the circumstances.
In addition to these internal procedures, Duke Energy annually seeks
shareholder ratification of its selection of independent auditors. Duke Energy
also provides to its shareholders information relating to fees paid to its
auditors as well as disclosure of the Audit Committee's consideration of
whether the provision of nonaudit services is compatible with maintaining their
independence, all as required by the rules of the SEC.
10
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 6 continued
Given the recent announcement of Deloitte & Touche LLP about its consulting
business, the protective measures already in place and the disclosures required
when independent auditors are selected for nonaudit work, the Board of
Directors believes there is little chance for abuse and no benefit to Duke
Energy or its shareholders from an arbitrary limitation on the power of
management and the Board of Directors to exercise business judgment in the
selection of auditors.
The Board of Directors recommends a vote AGAINST this proposal for the reasons
set forth above.
PROPOSAL 7:
Study of the Risk and Responsibility for Public Harm Due to Duke Energy's
Nuclear Program
The Board of Directors recommends a vote AGAINST this shareholder proposal.
Nuclear Risk and Responsibility
The shareholders request the Board of Directors to conduct an open
comprehensive study, utilizing independent public resources, oversight, and
participation (but excluding proprietary and confidential information),
defining Duke Energy's risk of, and potential responsibility for, causing
public harm due to the company's continued participation in nuclear energy
programs, and to prepare, at reasonable expense, a report for the next annual
shareholders' meeting in 2003.
Supporting Statement
Duke Energy's Environmental, Health & Safety Policy states:
Duke Energy highly values the health and safety of our employees, customers
and communities.
Duke Energy will engage in partnerships that enhance public environmental,
health & safety awareness and address common environmental, health & safety
issues.
Duke Energy will foster open dialogue and informed decision making through
meaningful and regular communication of environmental, health and safety
information with management, employees and the public.
Additional Supporting Statement
The last Nuclear Regulatory Commission study of reactor accident consequences
was done by the Sandia National Laboratory in 1981.
Duke Energy has made application to the Nuclear Regulatory Commission to renew
the operating licenses for the McGuire and Catawba nuclear plants for an
additional 20 years and, if approved, will have authorization to operate these
plants until the years 2041-2046. License approval by the Nuclear Regulatory
Commission, and subsequent operation of the reactors, would extend by 20 years
the risks associated with plant aging and the threats associated with terrorism.
The Nuclear Regulatory Commission acknowledges the threat of terrorism attacks
on nuclear facilities. While ongoing analysis at the federal level is
essential, when such questions are raised at the local level, they are often
considered generic and not within the scope of the license renewal process.
Opposing Statement of the Board of Directors
The Board of Directors believes that this proposal is contrary to the best
interests of Duke Energy and the shareholders.
Duke Energy takes very seriously its responsibility to operate its nuclear
facilities safely, and it has an outstanding record in discharging its
responsibility in this regard. Duke Energy continues to be one of the top
performers in the U.S. nuclear industry in terms of regulatory safety as
indicated by reviews of the Nuclear Regulatory Commission (NRC) and the
Institute of Nuclear Power Operations.
Duke Energy conducts probabilistic risk assessments for its nuclear facilities,
which are reactor safety studies that consider the likelihood of various
accident sequences and the likely results. These studies use the most current
risk assessment methodology and the most current reliability information. Duke
Energy uses these studies to identify changes that would enable it to continue
to operate its nuclear facilities in a safe manner. These studies are shared
with various federal regulatory agencies as appropriate and are updated as
necessary.
The proposal asks that an open comprehensive study utilizing independent public
resources be undertaken and implies that a meaningful study of this kind can be
conducted and a report thereon can be issued. In fact, a meaningful study of
the sort requested by the proposal would likely be impossible to conduct and
the report that is requested by the proposal may run counter to national
security interests. This is because a substantial amount of information that is
used to develop probabilistic risk assessments for Duke Energy's nuclear
facilities is not, and never has been, available to the public. Due to
restrictions placed on the public availability of information by the NRC
following the terrorist attacks of September 11, 2001, certain information that
previously was available to the public
11
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 7 continued
has since been restricted. To the extent that the proposal requests an analysis
of vulnerabilities to terrorist attack, that analysis would require the
consideration of security-sensitive information which has never been publicly
available. Disclosure of this kind of information could raise substantial
homeland security concerns.
Duke Energy also has in place effective aging management programs for its
nuclear facilities which have been approved by the NRC. Duke Energy is
committed to implementing additional aging management programs in the context
of license renewals for those facilities as necessary to mitigate the effects
of aging during any extended periods of operation.
The Board of Directors believes that a meaningful study and report of the kind
the proposal requests, using the sources the proposal requires and conducted in
the manner the proposal specifies, cannot be generated. Such a study would also
be unnecessary since Duke Energy's analyses and assessments already address the
kinds of risks that the proposal could legitimately have the new study address.
The Board of Directors thus believes that adoption of the proposal is not in
the best interests of Duke Energy and its shareholders.
The Board of Directors recommends a vote AGAINST this proposal for the reasons
set forth above.
12
The Board of Directors
- --------------------------------------------------------------------------------
Nominees for election at the annual meeting are marked with an asterisk (*).
(Photo)[PHOTO] G. ALEX BERNHARDT, SR.Alex Bernhardt, Sr.
G. Alex Bernhardt, Sr. *
Director since 1991
Chairman and CEO, Bernhardt Furniture Company, furniture manufacturer
Age 5758
Mr. Bernhardt has been associated with Bernhardt Furniture Company of Lenoir,
North Carolina, since 1965. He was named President and a director in 1976 and
became Chairman and CEO in 1996.
Mr. Bernhardt is a director of First Union
Corporation. He is a Class II director with a term expiring
in 2002.
(Photo) ROBERT[PHOTO] Robert J. BROWNBrown
Robert J. Brown
Director since 1994
Chairman and CEO, B&C Associates, Inc., marketing research and public relations
firm
Age 6667
Mr. Brown founded B&C Associates, Inc., High Point, North Carolina, in 1960,
served as its President from 1960 until 1968 and has been its Chairman and CEO
since 1973. He is a director of First UnionWachovia Corporation, Sonoco Products Company
and AutoNation, Inc. He is a Class III director with a term expiring in 2003.
(Photo) WILLIAM[PHOTO] William A. COLEYColey
William A. Coley *
Director since 1990
Group President, Duke Power, franchised electric operations of Duke Energy
Age 5758
Mr. Coley joined Duke Energy in 1966. He was named President of Duke Energy's
Associated Enterprises Group in 1994 and was appointed to his present position
in June 1997. He is a director of CT Communications, Inc. and SouthTrust
Corporation.
Mr. Coley is a Class II director with a term expiring in 2002.
1413
(Photo) WILLIAMThe Board of Directors
- --------------------------------------------------------------------------------
[PHOTO] William T. ESREYEsry
William T. Esrey
Director since 1985
Chairman and CEO, Sprint Corporation,
a diversified telecommunications holding company
Age 6162
Mr. Esrey has served as Chairman of Sprint Corporation since 1990 and as its
CEO since 1985. He was President of Sprint Corporation from 1985 to 1996. Mr.
Esrey is a director of Sprint Corporation, General Mills, Inc., and Exxon Mobil
Corporation and had been a director of PanEnergy Corp since 1985. He is a Class
III director with a term expiring in 2003.
(Photo) ANN MAYNARD GRAY *[PHOTO] Ann Maynard Gray
Ann Maynard Gray
Director since 1994
Former Vice President, ABC, Inc. and Former President, Diversified Publishing
Group of ABC, Inc., television, radio and publishing
Age 5556
Ms. Gray was President, Diversified Publishing Group of ABC, Inc. from 1991
until 1997, and was a Corporate Vice President of ABC, Inc. and its
predecessors from 1979 to 1998. She is a director of JP Morgan Funds, Elan
Corporation, plc, and The Phoenix Companies, Inc. and had been a director of
PanEnergy Corp since 1994. Ms. Gray is a Class I director of Elan Corporation, plc. as of
February 1, 2001.
(Photo) DENNISwith a term expiring
in 2004.
[PHOTO] Dennis R. HENDRIX *Hendrix
Dennis R. Hendrix
Director since 1990
Retired Chairman of the Board, PanEnergy Corp
Age 6162
Mr. Hendrix was Chairman of the Board of PanEnergy Corp from 1990 to 1997;1997, CEO
from 1990 to 1995;1995, and President from 1990 to 1993. He served as a director of
Texas Eastern Transmission Corporation (now Texas Eastern Transmission, LP)
from 1990 to 1997 and as its President and CEO from 1990 to 1994. Mr. Hendrix
is a director of Allied Waste Industries, Inc., International Power, PLC and
Newfield Exploration Company. 15He is a Class I director with a term expiring in
2004.
14
(Photo) HAROLD S. HOOK *
Director since 1978
Consultant; Retired Chairman and CEO, American General
Corporation, diversified financial services
Age 69
Mr. Hook retired from American General Corporation in 1997
after more than 18 years as Chairman and CEO. He serves as a
directorThe Board of Sprint Corporation and had been a director of
PanEnergy Corp since 1978.
(Photo) GEORGE DEAN JOHNSON, JR.Directors
- --------------------------------------------------------------------------------
[PHOTO] George Dean Johnson, Jr.
George Dean Johnson, Jr.
Director since 1986
CEO, Extended Stay America,
development, ownership and management of extended-stay lodging facilities
Age 5859
Mr. Johnson served as President of the Domestic Consumer
Division of Blockbuster Entertainment Corporation from 1993
until 1995. He was a co-founder of Extended Stay America and has served as its CEO
since 1995. Mr. JohnsonHe is a director of Extended Stay America, Boca Resorts, Inc., and
AutoNation, Inc. HeMr. Johnson is a Class III director with a term expiring in
2003.
(Photo) MAX LENNON[PHOTO] Max Lennon
Max Lennon *
Director since 1988
Retired President, Mars Hill College, Mars Hill, NC
Age 6061
Dr. Lennon assumed his present position inserved as President of Mars Hill College from 1996 after
servinguntil 2002. He
served as President of Eastern Foods, Inc. from 1994 through 1995. He was
previously involved in higher education from 1966 to 1994, his last tenure
being at Clemson University where he served as President for eight years. Dr.
Lennon is a director of Delta Woodside Industries, Inc., and Delta Apparel,
Inc. and Duck Head Apparel, Inc. He is a Class II director
with a term expiring in 2002.
16
(Photo) LEOApparel.
[PHOTO] Leo E. LINBECK, JR.Linbeck, Jr.
Leo E. Linbeck, Jr. *
Director since 1986
Chairman, President and CEO, Linbeck Corporation,
holding company of four construction-related firms
Age 6667
Mr. Linbeck assumed his present position in 1990 after serving as Chairman,
President and CEO of Linbeck Construction Corporation from 1975 to 1990. He
had beenserved as a director of PanEnergy Corp sincefrom 1986.
Mr. Linbeck is a Class II director
with a term expiring in 2002.
(Photo) JAMES15
The Board of Directors
- --------------------------------------------------------------------------------
[PHOTO] James G. MARTIN, PH.D.Martin
James G. Martin, Ph.D.
Director since 1994
Vice President, Carolinas HealthCare System
Age 6566
Dr. Martin was named to his present position in 1995. He served as Governor of
the State of North Carolina from 1985 to 1993 and was a member of the United
States House of Representatives, representing the Ninth District of North
Carolina, from 1973 to 1984. Dr. Martin is a director of Palomar Medical
Technologies, Inc., aaiPharma Inc. and Family Dollar Stores, Inc. He is a Class
III director with a term expiring in 2003.
(Photo) RICHARD[PHOTO] Richard B. PRIORYPriory
Richard B. Priory
Director since 1990
Chairman of the Board, President and CEO, Duke Energy Corporation
Age 5455
Mr. Priory became Chairman of the Board and CEO in June 1997 upon the merger of
Duke Energy and PanEnergy Corp and became President in November 1998. He had
served as President and Chief Operating Officer of Duke Energy from 1994 until
June 1997. He is a director of Dana Corporation and US Airways Group, Inc. and
serves on the boards of the Edison Electric Institute and the Institute of
Nuclear Power Operations. Mr. Priory is also a member of the National Academy
of Engineering. Mr. PrioryHe is a Class III director with a term expiring in 2003.
17[PHOTO] James T. Rhodes
James T. Rhodes *
Retired Chairman, President and CEO, Institute of Nuclear Power Operations
Age 60
Dr. Rhodes was appointed a director of Duke Energy Corporation in October 2001.
He was Chairman and CEO of the Institute of Nuclear Power Operations from 1998
to 2001 and Chairman, President and CEO from 1999 until 2001. He served as
President and CEO of Virginia Electric & Power Company, a subsidiary of
Dominion Resources, Inc., from 1989 until 1997.
16
Beneficial Ownership
- --------------------------------------------------------------------------------
This table indicates how much Duke Energy Common Stock was beneficially owned
by the current directors, the executive officers listed under "Summaryin the Summary
Compensation Table" inTable under "Compensation" below ("Named Executive Officers") and
by all current directors and executive officers as a group as of February 27, 2001.
o28,
2002.
. The shares listed as "Beneficially Owned" include shares held as of February
27, 200128, 2002 in our employee benefit plans and in trust for the current
directors under their compensation plan.
o The shares listed as "May Be Acquired" are shares of Duke Energy Common
Stock that can be acquired upon the exercise of stock options.
o. Beneficial ownership of shares by current directors and executive officers
as a group represents beneficial ownership of less than 1% of the
outstanding shares of Duke Energy Common Stock.
Shares of Common Stock
----------------------
Total
Beneficially Beneficially May Be
Name or Identity of Group Beneficially Total
Owned Owned(2) Acquired
- --------------------------------------------- ------------------- ----------------- -------------Beneficially Owned /2/
G.A. Bernhardt, Sr. 18,479 21,079 11,60021,618 26,718
R.P. Brace/1/ 20,559 132,359
R.J. Brown 8,729 11,329 11,60012,043 17,143
W.A. Coley(1) 42,826 242,076 577,000Coley/1/ 45,235 407,785
W.T. Esrey 48,017 50,617 11,60049,962 55,062
F.J. Fowler 104,544 468,316 745,522Fowler/1/ 104,723 648,172
A.M. Gray 30,631 33,231 11,60033,571 38,671
D.R. Hendrix 419,422 422,022 11,600420,763 425,863
H.S. Hook 49,743 52,343 11,60042,504 47,604
G.D. Johnson, Jr. 23,756 26,356 11,60027,047 32,147
M. Lennon 18,483 21,083 11,60021,802 26,902
L.E. Linbeck, Jr. 42,304 44,904 11,60045,011 50,111
J.G. Martin 10,362 11,262 9,90012,170 14,670
R.J. Osborne(1) 17,435 88,435 348,000Osborne/1/ 19,050 144,050
H.J. Padewer(1) 16,789 16,789 568,950Padewer/1/ 21,939 238,789
R.B. Priory(1) 27,539 654,339 1,726,800Priory/1/ 32,354 809,154
J.T. Rhodes 4,380 4,380
Directors and executive officers as a group (21) 972,476 2,709,815 5,468,489990,543 3,894,642
(1)/1/ Also own Common Stock equivalents under the Duke Energy Executive Savings
Planexecutive compensation
and benefits arrangements as of February 27, 200128, 2002 in the following
amounts: R.B. Priory, 58,196;383,281; R.P. Brace, 13,107; F.J. Fowler, 82,511;
H.J. Padewer, 1,626;111,533; W.A. Coley, 107,249;162,677; R.J. Osborne, 4,747.
(2)82,409.
/2/ Includes shares that may be acquired within 60 days after February 27, 2001.
18
28,
2002.
This table shows how many units of limited-partnershiplimited partnership interests in TEPPCO
Partners, L.P. were beneficially owned on February 27, 200128, 2002 by directors of
Duke Energy, Named Executive Officers, and by directors and executive officers
of Duke Energy as a group. TEPPCO Partners, L.P. is a publicly traded master
limited partnership, and Texas Eastern Products Pipeline Company, an indirect
subsidiary of Duke Energy, is its general partner. As of February 27, 2001,28, 2002, the
number of units beneficially owned by directors and executive officers of Duke
Energy as a group was less than 1% of the outstanding units. None of these
persons had the right to acquire units within 60 days after February 27, 2001.
Number of Units
Name or Identity of Group Beneficially Owned
- ------------------------- ------------------
F.J. Fowler 3,100
D.R. Hendrix 22,400
H.S. Hook 4,000
R.J. Osborne 1,000
Directors and executive officers as a group 31,400
1928, 2002.
Number of Units
Name or Identity of Group Beneficially Owned
R.J. Brown 1,500
F.J. Fowler 3,100
D.R. Hendrix 7,400
H.S. Hook 4,000
R.J. Osborne 1,000
Directors and executive officers as a group 18,100
17
Information on the Board of Directors
BOARD MEETINGS AND ATTENDANCE- --------------------------------------------------------------------------------
Board Meetings and Attendance
The Board of Directors had seventen meetings during 2000. During 2000, no2001. No director attended less
than 75% of the total of the board meetings and the meetings of the committees
upon which he or she served.
BOARD COMMITTEESBoard Committees
The Board of Directors has the five standing committees described below:
o. The Audit Committee recommends to the Board of Directors the engagement of
Duke Energy's independent auditors,auditors; provides independent oversight with
respect to financial reporting and internal controls, the internal audit
function and the independent auditors; determines whether the independent
auditors are independent and makes recommendations on audit matters and
internal controls to the Board of Directors.
o. The Compensation Committee sets the salaries and other compensation of all
executive officers of Duke Energy except the Chairman of the Board.Board and Chief
Executive Officer. This Committee makes recommendations to the Board of
Directors regarding the salary and other compensation of the Chairman of the
Board and Chief Executive Officer for consideration and action by the Board
of Directors, without the presence or participation of the Chairman of the
Board.Board and Chief Executive Officer. The Committee also makes recommendations
to the Board of Directors on compensation for outside directors.
o. The Corporate Governance Committee considers matters related to corporate
governance and formulates and periodically revises principles for board
governance, recommends to the Board of Directors the size and composition of
the Board of Directors within the limits set forth in the Articles of
Incorporation and By-Laws and recommends potential successors to the Chief
Executive Officer. This Committee considers nominees for the Board of
Directors recommended by shareholders.
o. The Corporate Performance Review Committee assesses the level of operational
risk and monitors and makes recommendations for improving Duke Energy's
overall operational performance. It also determines whether current
policiesoperating practices provide sufficient support for Duke Energy's emphasis on
continuous improvement.
o. The Finance and Risk Management Committee reviews Duke Energy's financial
and fiscal affairs and makes recommendations to the Board of Directors
regarding dividend, financing and fiscal policies. 20
BOARD COMMITTEE MEMBERSHIP ROSTERIt reviews the financial
exposure of Duke Energy together with mitigating strategies and determines
whether actions taken by management with respect to financial matters are
consistent with internal controls approved by the Audit Committee.
Board Committee Membership Roster
- ----------------------------- -------- ------------------- -------------- ----------------- ----------
Corporate Finance and
Corporate Performance Risk
Name Audit Compensation Governance Review Finance
- ----------------------------- -------- ------------------- -------------- ----------------- ----------Management
G.A. Bernhardt, Sr. [check mark]* [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X* X
R.J. Brown [check mark] [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X
W.T. Esrey [check mark] [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X
A.M. Gray [check mark] [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X
D.R. Hendrix [check mark] [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X
H.S. Hook [check mark] [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X
G.D. Johnson, Jr. [check mark] [check mark]*
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X*
M. Lennon [check mark]* [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X* X
L.E. Linbeck, Jr. [check mark] [check mark]*
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X*
J.G. Martin [check mark] [check mark]*
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X*
R.B. Priory [check mark] [check mark]
- ----------------------------- -------- ------------------- -------------- ----------------- ----------X X
J.T. Rhodes X X
Number of
meetings in 2000 82001 7 6 5 6 6
- ----------------------------- -------- ------------------- -------------- ----------------- -----------------------------------------------------------------------------------
* Chair
RESIGNATION POLICY18
Information on the Board of Directors
- --------------------------------------------------------------------------------
Resignation and Retirement Policies
We have a policy stating that members of the Board of Directors are to submit
their resignations when they change employment or have another significant
change in their professional roles and responsibilities. The normal retirement
of those individuals who were members of the Board of Directors when the policy
was adopted in 1998 is not considered a change for this purpose. The Corporate
Governance Committee will determine whether any such resignation will be
accepted. Any resignation that is accepted will likely be effective as of the
end of the term of the director tendering the resignation.
CERTAIN RELATIONSHIPS
We have had business relationshipsOur Board of Directors retirement policy states that normal retirement for each
director will occur at the annual shareholders meeting following his or her
seventieth birthday.
Compensation of Directors
Annual Retainer and engaged in certain transactions with
affiliated parties. It is our policy to engage in transactions with related
parties only on terms that are no less favorable to us than could be obtained in
transactions with unrelated parties.
COMPENSATION OF DIRECTORSFees. We pay outside directors an annual retainer of
$40,000. We also pay an outside director serving as Chairman of the Audit,
Compensation, Corporate Governance, Corporate Performance Review or Finance and
Risk Management Committee an additional $4,000 per year. Outside directors also
receive a fee of $1,000 for attendance at each meeting of the Board of
Directors, each committee meeting and other functions requiring their presence,
together with expenses of attendance.
21
A director may elect to receive 50% of his or her retainer and attendance fees
in the form of Duke Energy Common Stock or may defer that portion by having it
held in trust for the director's benefit and invested in Duke Energy Common
Stock at market price. The director may elect to receive the remaining 50% of
such compensation in cash or may elect to defer, until termination of his or
her service on the Board of Directors, that portion by having it held in trust as
shares ofand invest the deferred
amounts among several investment options, including Duke Energy Common Stock.
Stock or in an investment account that is credited
with a market rate of interest. Effective January 1, 2001, a director may elect
to invest such deferrals among several additional investment choices.Options and Stock Awards. In January and July of each year, each outside
director is credited with 100200 shares of Duke Energy Common Stock to be held in
trust. Dividends paid on this stock are reinvested in Duke Energy Common Stock.
An outside director will receive, generally upon termination of service from
the Board of Directors, the shares held in trust for his or her account on the
basis of the distribution schedule that he or she has chosen.
Outside directors receive annual non-qualified stock option grants under the
Duke Energy 1998 Long-Term Incentive Plan. Each outside director is granted an
option for 2,0004,000 shares at the same time executive officers receive annual
long-term incentive awards. The grant for 20012002 was made on December 20, 2000,19, 2001,
consistent with the grant date for 20012002 awards to executive officers.
Charitable Giving Program. After ten years on the Board of Directors, eligible
directors participate in the Directors' Charitable Giving Program. Under this
program, Duke Energy will make, upon the director's death, donations of up to
$1,000,000 to charitable organizations selected by the director. A director may
request that Duke Energy make donations under this program during the
director's lifetime, in which case the maximum donation will be reduced on a
net present value basis. We maintain life insurance policies upon eligible
directors to fund donations under the program. Eligible directors include only
those who were members of the Board of Directors on February 18, 1998, and
certain former directors who previously qualified for this benefit.
Stock Ownership Guidelines. Outside directors are subject to stock ownership
guidelines which establish a target level of ownership of Duke Energy Common
Stock (or Common Stock equivalents) of 2,0004,000 shares. Each outside director is
expected to attain this ownership level within five years from January 1, 1997,
the implementation date of the guidelines, or from the beginning of his or her
service on the Board of Directors, if after that date. The targeted ownership
level has been met by all directors whose stock ownership guideline date was
January 1, 2002.
19
Report of the Audit Committee
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors is composed entirely of
nonemployee directors, all of whom are independent. The Board of Directors has
adopted a charter for the Audit Committee, which is included as Appendix A to
this Proxy Statement. The Audit Committee's
responsibilities are described under the caption "Board Committees" under
"Information on the Board Committeesof Directors" above in this proxy statement. The
Board of Directors readopted a written charter for the Audit Committee in 2002.
The Audit Committee held eightseven meetings during 2000.2001.
The financial statements of Duke Energy are prepared by management, which is
responsible for their objectivity and integrity. With respect to the financial
statements for the calendar year ended December 31, 2000,2001, the Audit Committee
reviewed and discussed the audited financial statements and the quality of
financial reporting with management and the independent auditors.
22
It also
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees)
and received and discussed with the independent auditors the matters in the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees). The Audit Committee also
considered the compatibility of nonaudit services with the auditors'
independence.
Based upon the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors, and the Board of Directors authorized,
the inclusion of the audited financial statements in Duke Energy's Annual
Report on Form 10-K for the year ended December 31, 2000,2001, for filing with the
Securities and Exchange Commission.SEC. The Audit Committee also recommended to the Board, subject to shareholder
ratification, the selection of Duke Energy's independent auditors.
This report has been provided by the Audit Committee.
MAX LENNON, CHAIRMAN
ANNMax Lennon, Chairman
Ann M. GRAY
HAROLDGray
Harold S. HOOK
LEOHook
Leo E. LINBECK, JR.Linbeck, Jr.
James T. Rhodes
20
Report of the Compensation Committee
THE COMMITTEE'S RESPONSIBILITIES- --------------------------------------------------------------------------------
The Committee's Responsibilities
The Compensation Committee of the Board of Directors is composed entirely of
nonemployee directors. The Compensation Committee is responsible for setting
and administering policies which govern Duke Energy's executive compensation
programs. The purpose of this report is to summarize the compensation
philosophy and policies that the Compensation Committee applied in making
executive compensation decisions in 2000.
COMPENSATION PHILOSOPHY2001.
Compensation Philosophy
The Compensation Committee has approved compensation programs intended to:
o. Attract and retain talented executive officers and key employees by
providing total compensation competitive with that of other executives
employed by companies of similar size, complexity and lines of business;
o. Motivate executives and key employees to achieve strong financial and
operational performance;
o. Emphasize performance-based compensation, which balances rewards for
short-term and long-term results;
o. Reward individual performance;
23
o. Link the interests of executives with shareholders by providing a
significant portion of total pay in the form of stock-based incentives and
requiring target levels of stock ownership; and
o. Encourage long-term commitment to Duke Energy.
STOCK OWNERSHIP GUIDELINESStock Ownership Guidelines
To underscore the importance of linking executive and shareholder interests,
the Board of Directors has adopted stock ownership guidelines for executive
officers and other members of senior management. The target level of ownership
of Duke Energy Common Stock (or Common Stock equivalents) is established as a
fixed number of shares. The target level for the Chairman of the Board,
President and Chief Executive Officer is 50,000100,000 shares. The target level for
the remaining members of the Policy Committee, including Messrs. Padewer,
Coley,Brace, Fowler and Osborne, is 14,00028,000 shares. The Policy Committee consists of
eight senior executive officers and is responsible for strategic planning and
setting policy and management principles for the entire Duke Energy enterprise.
Each employee subject to the guidelines is expected to achieve the ownership
target by January
1, 2002, or within five years from the date on which the employee became subject to
the guidelines, whichever is later.with January 1, 2002 being the first of such dates. All
executive officers whose stock ownership guideline date was January 1, 2002,
have met the ownership target. Common Stock beneficially held for an
executive's Duke Energy Retirement Savings Plan account, Common Stock
equivalents earned through non-qualified deferred compensation programs and any
other beneficially owned Common Stock are included in determining compliance
with the guidelines. Shares that executives have the right to acquire through
the exercise of stock options are not included in the calculation of stock
ownership for guideline purposes.
COMPENSATION METHODOLOGYCompensation Methodology
Each year the Compensation Committee reviews data from market surveys, proxy
statements and independent consultants to assess Duke Energy's competitive
position with respect to the following three components of executive
compensation:
o. base salary;
o. annual incentives; and
o. long-term incentives.
The Compensation Committee also considers individual performance, level of
responsibility and skills and experience in making compensation decisions for
each executive.
COMPONENTS OF COMPENSATION
oComponents of Compensation
. Base Salary: Base salaries for executives are determined based upon job
responsibilities, level of experience, individual performance, comparisons
to the salaries of executives in similar positions obtained from market
surveys, and competitive data obtained from consultants and staff research.
The goal for the base pay component is to compensate executives at a level
which approximates the median salaries of individuals in comparable
positions and markets. The Compensation Committee approves all salary
increases for 24
executive officers. Base pay increases were approved,
effective January 1, 2000,2001, for Messrs. Padewer, Coley,Brace, Fowler and Osborne.
Mr. Priory's base salary increase was approved effective MarchFebruary 1, 2000.
o2001.
. Annual Incentives: Annual cash incentives are provided to executives to
promote the achievement of performance objectives of Duke Energy and the
executive's particular business unit. In 2000,2001, the Compensation Committee
administered two annual incentive plans that permitted the grantingaward of annual
cash incentives to
21
Report of the Compensation Committee
- --------------------------------------------------------------------------------
executive officers. Policy Committee members, including the Named Executive
Officers set forth in the Summary Compensation Table under "Compensation"
below, earned incentive compensation under the Duke Energy Policy Committee
Short-Term Incentive Plan, while executive officers not on the Policy
Committee earned incentive compensation under the Duke Energy Short-TermCorporation
Annual Incentive Plan.Plan, under which certain Duke Energy employees receive a
short-term incentive opportunity. Target incentive opportunities for
executives under both Plansplans are established as a percentage of base salary,
using survey data for individuals in comparable positions and markets.
Incentive amounts are intended to provide competitive incentive amounts for
individuals in comparable positions and markets when target performance is
achieved. Incentive amounts may equal up to 200% of target when outstanding
financial results are achieved.
Awards under Duke Energy's Policy Committee Short-Term Incentive Plan were
calculated based upon Duke Energy's earnings per share (EPS) results. The
Compensation Committee established minimum, target and maximum performance
levels prior to the beginning of 2000,2001, and participants could receive up to
200% of their short-term incentive targets. EPS performance for 20002001 resulted
in payments of 200% of bonus targets to the Policy Committee members,
including the Named Executive Officers.
Awards under the Duke Energy Short-TermCorporation Annual Incentive Plan, in which
executive officers other than members of the Policy Committee participate,
were determined on the basis of a combination of: (1) EPS measures, (2)
earnings before interest and income taxes (EBIT) measures and, in some
instances, other measures unique to individual business groups, (3) return on
capital employed (ROCE) measures, and (4) individual objectives. EPS
measures, the combination of EBIT (and individual business group measures, if
applicable) and ROCE measures, and individual objectives determined, on
average, 65%67%, 23%25% and 12%8%, respectively, of each executive officer's bonus.
o. Long-Term Incentive Compensation: The Compensation Committee has structured
long-term incentive compensation to provide for an appropriate balance
between rewarding performance and encouraging employee retention, and to
provide a degree of flexibility to executives in selecting the form in which
long-term incentives arecompensation is received.
Following review of competitive practice presented by an
independent compensation consultant, the Compensation Committee
approved the election byFor 2001, executives could elect to receive up to 20% of the annualized value
of their long-term incentive compensation in the form of phantom stock, with
the remainder being provided in the form of stock options. For 2002,
executives could elect to receive up to 30% of such value in the form of
phantom stock. The purpose of stock options and phantom stock is to align
compensation directly with increases in shareholder value. The number of
options granted is determined by reviewing survey data to determine the
annualized value of long-term incentive compensation made to other executives
and management employees in comparable positions and markets (target value)
and then dividing the portion of target value elected to be received by the
executive in the form of
25
stock options by an expected present value of the
option, as determined by using the Black-Scholes option pricing model. The
number of phantom stock units granted is determined by dividing the portion
of target value elected to be received by the executive in the form of
phantom stock units by the fair market value of a share of Duke Energy Common
Stock on the date of grant. In determining the number of options and phantom
stock units to be awarded, the Compensation Committee, or, in some cases, its
designee, also considers the grant recipient's qualitative and quantitative
performance, the size of stock option and other stock-based awards in the
past, and expectations of the grant recipient's future performance.
In late 2000,2001, as a component of 20012002 compensation, the Compensation Committee
approved awards of non-qualified stock options (as described under "Option
Grants in 2000"2001" below) and phantom stock (as described in the Summary
Compensation Table under "Compensation" below) to members of the Policy
Committee with the exception of Mr. Priory. Messrs. Padewer, Coley,Brace, Fowler
and Osborne each elected to receive 20%30% of the annualized value of their 20012002
long-term incentive compensation in the form of phantom stock. In late 2000,2001,
as a component of 20012002 compensation, the Compensation Committee also approved
the award of non-qualified stock options and phantom stock to executive
officers who were not members of the Policy Committee. All of the stock
option and phantom stock awards were granted under the Duke Energy 1998
Long-Term Incentive Plan.
In providing long-term incentive compensation, Duke EnergyExecutives may also seekselect to ensurereceive stock options in lieu of up to 50% of
their annual cash bonus under the retentionShort-Term Incentive Exchange Program.
Under this program, participants receive a non-qualified stock option whose
22
Report of key executives. Towards this objective, the Compensation Committee
approved- --------------------------------------------------------------------------------
present value on the grant date is two times the amount of cash bonus
exchanged. The exercise price is equal to the fair market value of Duke
Energy Common Stock on the grant date. Because executives elect to forego
cash compensation to receive options under the program, the options vest 100%
at grant.
Awards under this program for incentives earned in January 2000 the award of
performance shares2001 were made in early
2002 (as described in the Summary Compensation Table under "Long-Term Incentive Plan -
Awards in 2000""Compensation"
below) to Mr. PadewerMessrs. Brace, Fowler and Osborne, who elected to exchange 50%,
30%, and 20%, respectively, of their annual incentives for a stock option.
Awards of non-qualified stock options under this program to executive
officers who were not members of the Policy Committee were also made in early
2002. All of the stock option awards were granted under the Duke Energy 1998
Long-Term Incentive Plan.
This award has an accelerated vesting
feature which allows one thirdCompliance with Section 162(m) of the performance shares to vest upon
achievement of each of three predetermined target increases in total
shareholder return. To encourage Mr. Padewer to remain employed with
Duke Energy, the award cannot vest prior to January 2003 by reason of
such accelerated vesting. If vesting does not occur earlier, the
award will vest in January 2007. Performance shares will be forfeited
upon termination of Mr. Padewer's employment to the extent not then
vested.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODEInternal Revenue Code
Under Section 162(m) of the Internal Revenue Code, Duke Energy may not deduct
annual compensation in excess of $1 million paid to certain employees,
generally its Chief Executive Officer and its four other most highly
compensated executive officers, unless that compensation qualifies as
performance-based compensation. While the Compensation Committee intends to
structure performance-related awards in a way that will preserve the maximum
deductibility of compensation awards, the Compensation Committee may from time
to time approve awards which would vest upon the passage of time or other
compensation which would not result in qualification of those awards as
performance-based compensation. It is not anticipated that compensation
realized by any executive officer under Duke Energy plans and programs now in
effect will result in a material loss of tax deductions.
26
Please refer toCompensation of the discussion in Proposal 4 for information on the
deductibility of certain compensation payable under the Duke Energy 1998
Long-Term Incentive Plan.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICERChief Executive Officer
The Compensation Committee reviews annually the compensation of the Chief
Executive Officer and recommends any adjustments to the Board of Directors for
approval. In 2000,2001, the Compensation Committee retained the consulting firm of
FrederickFrederic W. Cook and Co. to conduct a review of the compensation of the Chief
Executive Officer. The Chief Executive Officer participates in the same
programs and receives compensation based upon the same criteria as Duke
Energy's other executive officers. However, the Chief Executive Officer's
compensation reflects the greater policy- and decision-making authority that
the Chief Executive Officer holds and the higher level of responsibility he has
with respect to the strategic direction of Duke Energy and its financial and
operating results. The components of Mr. Priory's 20002001 compensation were:
o. Base Salary: After considering Duke Energy's overall performance and
competitive practices, the Compensation Committee recommended, and the Board
of Directors approved, a 5.6%14.3% increase in Mr. Priory's base salary, to
$950,000,$1,100,000, effective MarchFebruary 1, 2000. In October 2000, the
Compensation Committee recommended, and the Board of Directors
approved, an additional adjustment to Mr. Priory's base salary,
increasing it to $962,500, retroactive to March 1, 2000. This
additional base salary increase compensated Mr. Priory for the
discontinuation of certain tax gross-ups on executive pension and
savings benefits.
o2001.
. Annual Incentives: Annual incentive compensation for Mr. Priory is based
solely upon EPS results. Based on 20002001 EPS performance, Mr. Priory received
a payment of $1,908,328,$2,177,088, representing 200% of his target incentive
opportunity.
o. Long-Term Incentives: In February 2000,2001, Mr. Priory received a stock option
award for 400,000 shares of Duke Energy Common Stock with an exercise price
at fair market value on the date of grant.grant, and an award for 24,240 phantom
stock units. The stock option has a ten-year term, and both the stock option
and phantom stock awards will vest 25% on each of the first four
anniversaries of the grant date.
The Compensation Committee conducts its annual review of Chief Executive
Officer performance and compensation in February of each year, to assure
thorough consideration of year-end results. Actions taken by the Board of
Directors in February 20012002 with respect to Mr. Priory's 20012002 compensation will
be reflected in the proxy statement for the 20022003 annual meeting, which will
include, among other things, an award to Mr. Priory of non-qualified stock
options with respect to 400,000408,400 shares and a phantom stock award for 24,24048,810
phantom stock units.
27
It is the Compensation Committee's intention that, when taken together, the
components of Mr. Priory's pay, including base salary, annual incentives
short-term incentive opportunity and
long-term incentives, will result in compensation which approximates the 50th
percentile of the market when incentive plan performance expectations are met
and in compensation as high as the 75th percentile of the market when incentive
plan performance expectations are exceeded.
This report has been provided by the Compensation Committee.
LEOLeo E. LINBECK, JR.Linbeck, Jr., CHAIRMAN
WILLIAMChairman
William T. ESREY
GEORGE DEAN JOHNSON, JR.
MAX LENNON
JAMESEsrey
George Dean Johnson, Jr.
Max Lennon
James G. MARTINMartin
23
Performance Graph
[Line Graph appears here with the following plot points.]- --------------------------------------------------------------------------------
Comparison of Five-Year Cumulative Total Return Among the Corporation, S&P 500
Index, S&P Utilities Index, and Dow JonesDJ Utilities
[CHART]
Assumes $100 invested on December 31, 1995,1996, in Duke
Energy Common Stock, S&P 500 Index, S&P Utilities
Index, and DJ Utilities. Assumes reinvestment of
dividends.
1995Duke Energy S&P 500 Index S&P
Utilities DJ Utilities
1996 100 100 100
100
1997 124 133 124
122
1998 149 171 141
145
1999 122 206 129
137
2000 Duke Energy: $100 $102 $127 $152 $124 $216
S&P 500: $100 $123 $163 $210 $253 $230
S&P Utilities: $100 $103 $127 $146 $133 $211
DJ Utilities: $100 $109 $133 $157 $148 $223
28212 188 205
205
2001 201 166 143
152
24
SUMMARY COMPENSATION TABLECompensation
- --------------------------------------------------------------------------------
Summary Compensation Table
Annual Compensation -----------------------------------Long-Term Compensation
-------------------------------------------- --------------------------------------------
Awards
-------------------------------------------- ------------------------------- -----------
Restricted Securities
Other Annual Stock Underlying LTIP
Salary ($) Bonus ($)/2/ Compensation ($) Award(s) ($)/4/ Options/SARS (#) Payouts ($)
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($)
---- ---------- -------------------- ---------------- -------------- ---------------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
R.B. Priory 2000 954,164 1,908,328 300,384
Chairman of the Board, President 1999 895,420 997,140 109,708
and Chief Executive Officer 1998 810,000 891,000 34,011
H.J. Padewer(1) 2000 500,004 750,006 91,111
Group President 1999 400,008 311,814 7,921
Energy Services
W.A. Coley 2000 450,000 585,000 39,315
Group President 1999 392,616 262,330 16,353
Duke Power 1998 380,676 159,884 16,941
F.J. Fowler 2000 450,000 585,000 70,940
Group President 1999 385,830 257,796 32,495
Energy Transmission 1998 360,000 237,600 2,131
R.J. Osborne 2000 399,996 520,195 66,867
Executive Vice President 1999 366,250 244,714 19,827
and Chief Risk Officer 1998 324,000 213,840 9,987
Long-Term Compensation
---------------------------------------------------------
Awards Payouts
---------------------- ------------------
Restricted Securities
Stock Underlying LTIP All Other
Name and Principal Position Year Award(s)($)(2) Options/SARS(#) Payouts($) Compensation($)(4)
---- ------------- ---------------- ----------- ------------------
R.B. Priory 20002001 1,088,544 2,177,088 319,150 996,991 400,000 156,596
Chairman of the Board, President 1999 148,5012000 954,164 1,908,328 300,384 400,000
and Chief Executive Officer 1998 1,000,000 1,034,2031999 895,420 997,140 109,708
H.J. Padewer(1)Padewer 2001 600,000 900,000 98,267 742,673 164,700
Group President 2000 500,004 750,006 91,111 450,388 173,600
51,331
Group President 1999 375,938(3) 693,800 94,112
Energy Services W.A. Coley 2000 258,588 100,000 66,332
Group President 1999 157,000 58,430
Duke Power 1998 400,000 221,245
F.J. Fowler 2000 270,575 104,000 44,814
Group President 1999 157,000 89,941
Energy Transmission 1998 400,000 47,056
R.J. Osborne 2000 270,575 104,000 45,363400,008 311,814 7,921 375,938/5/ 693,800
R.P. Brace/ 1/ 2001 550,000 715,000 1,126,722/3/ 1,330,759/6/ 406,200
Executive Vice President
and Chief Financial Officer
F.J. Fowler 2001 500,004 750,006 79,305 535,810 119,000
Group President 2000 450,000 585,000 70,940 270,575 104,000
Energy Transmission 1999 124,000 42,751385,830 257,796 32,495 157,000
R.J. Osborne 2001 500,004 750,006 70,960 486,072 107,800
Executive Vice President 2000 399,996 520,195 66,867 270,575 104,000
and Chief Risk Officer 1998 200,000 168,9071999 366,250 244,714 19,827 124,000
(1)
All Other
Compensation ($)/ 7/
Name and Principal Position -------------------
- -----------------------------------------------------
R.B. Priory 224,202
Chairman of the Board, President 156,596
and Chief Executive Officer 148,501
H.J. Padewer 83,622
Group President 51,331
Energy Services 94,112
R.P. Brace/ 1/ 26,498
Executive Vice President
and Chief Financial Officer
F.J. Fowler 209,961
Group President 139,812/8/
Energy Transmission 163,101/8/
R.J. Osborne 69,194
Executive Vice President 45,363
and Chief Risk Officer 42,751
/1/ Mr. PadewerBrace joined Duke Energy on January 1, 1999.
(2)2001.
/2/ Messrs. Brace, Fowler and Osborne elected to forego a portion of their
2001 cash bonus for stock options under the Short-Term Incentive Exchange
Program described in the Report of the Compensation Committee above as
follows: Mr. Brace, $357,500 for 66,800 option shares; Mr. Fowler,
$225,002 for 42,100 option shares; Mr. Osborne, $150,001 for 28,000 option
shares. The awards were granted under the Duke Energy 1998 Long-Term
Incentive Plan on January 17, 2002 at the fair market value on that date
of $38.33, as provided under the Plan. The number of option shares awarded
is calculated by dividing the foregone bonus amount by 50% of the present
value of a share of Duke Energy Common Stock on the date of grant. The
options were 100% vested at grant. These stock options will be reported in
the proxy statement for the 2003 annual meeting.
/3/ Includes a one-time payment of $983,608, including partial reimbursement
of the related tax liability, in connection with Mr. Brace's relocation
from the United Kingdom to North Carolina.
/4/ Messrs. Priory, Padewer, Coley,Brace, Fowler and Osborne elected to receive a
portion of the value of the long-term incentive - ------------------------------
29
component of their 2002
and 2001 compensation in the form of phantom stock. The awards were
granted under the Duke Energy 1998 Long-Term Incentive PlanPlan. The 2002 and
2001 awards for Messrs. Padewer, Brace, Fowler and Osborne were made on
December 19, 2001 and December 20, 2000.2000, respectively. Mr. Priory's 2001
award was made on February 27, 2001. Phantom stock is represented by units
denominated in shares of Duke Energy Common Stock. Each phantom stock unit
represents the right to receive, upon vesting, one share of Duke Energy
Common Stock. One quarter of each award vests on each of the first four
anniversaries of the grant date provided the recipient continues to be
employed by Duke Energy or his or her employment terminates on account
25
Compensation
- --------------------------------------------------------------------------------
of retirement. The awards fully vest in the event of the recipient's death
or disability or a change in control of Duke Energy as specified in the
Plan. If the recipient's employment terminates other than on account of
retirement, death or disability, any unvested shares remaining on the
termination date are forfeited. The phantom stock awards also grant an equal
number of dividend equivalents, which represent the right to receive cash
payments equivalent to the cash dividends paid on the number of shares of
Duke Energy Common Stock represented by the phantom stock units awarded,
until the related phantom stock units vest or are forfeited. R.B.Mr. Priory's
phantom stock award with respect to 20012002 compensation was awarded on
February 27, 2001,26, 2002, and, accordingly, will be reported in the proxy statement
for the 20022003 annual meeting.
The aggregate number of phantom stock units held by Messrs. Priory, Padewer,
Coley,Brace, Fowler and Osborne at December 31, 20002001 and their values on that date
are as follows:
Number of Value At
Phantom Stock Units December 31, 2000
H.J. Padewer 10,520 $448,415
W.A. Coley 6,040 257,455
F.J. Fowler 6,320 269,390
R.J. Osborne 6,320 269,390
(3)
Number of Value At
Phantom Stock Units December 31, 2001
R.B. Priory 24,240 $ 951,662
H.J. Padewer 27,600 1,083,576
R.P. Brace 12,690 498,209
F.J. Fowler 18,960 744,370
R.J. Osborne 17,640 692,546
/5/ Mr. Padewer received an award of restricted stock upon his employment with
Duke Energy. Mr. Padewer's aggregate restricted stock holdings at December
31, 2000,2001 were 11,2507,500 shares, with a value on that date of $479,531.$294,450.
Dividends are paid on such shares. One quarter of the restricted stock
award to Mr. Padewer (3,750 shares) vested on each of January 3, 2000,
January 2, 2001 and January 2, 2001.2002. The remainder is to vest in two additional
installments ofremaining 3,750 shares eachwill vest
on January 2, 2002 and2003.
/6/ Mr. Brace received an award of restricted stock upon his employment with
Duke Energy. Mr. Brace's aggregate restricted stock holdings at December
31, 2001 were 20,000 shares, with a value on that date of $785,200.
Dividends are paid on such shares. The shares will vest on January 2, 2003.
(4)1, 2004.
/7/ All Other Compensation column includes the following for 2000:2001:
a. Matching contributions under the Duke Energy Retirement Savings Plan as
follows: R.B. Priory, $10,200; H.J. Padewer, $10,200; W.A. Coley,R.P. Brace,
$10,200; F.J. Fowler, $10,200; R.J. Osborne, $9,933.$9,792.
b. Make-whole matching contribution credits under the Duke Energy Executive
Savings Plan as follows: R.B. Priory, $106,878;$169,612; H.J. Padewer, $38,509; W.A. Coley, $32,540;$70,800;
R.P. Brace, $14,550; F.J. Fowler, $32,268;$54,900; R.J. Osborne, $28,761.$51,408.
c. Above-market interest earned on account balances in the Duke Energy
Executive Savings Plan, Supplemental Account as follows: R.B. Priory,
$9,310;$11,635; H.J. Padewer, $0; W.A. Coley, $12,370;R.P. Brace, $0; F.J. Fowler, $0; R.J. Osborne,
$4,814.$6,016.
d. Economic value of life insurance coverage provided under life insurance
plans as follows:
R.B. Priory, $17,881;$18,844; H.J. Padewer, $2,622; W.A. Coley, $4,736;R.P. Brace, $1,748; F.J.
Fowler, $2,346;$4,902; R.J. Osborne, $1,855.$1,978.
e. The cost to Duke Energy of supplemental life insurance coverage under the
Duke Energy Supplemental Insurance Plan as follows: R.B. Priory, $11,524;$13,108;
H.J. Padewer, $0; W.A. Coley, $5,876;R.P. Brace, $0; F.J. Fowler, $0; R.J. Osborne, $0.
f. The economic benefit of split-dollar life insurance coverage pursuant to
the Duke Energy Estate Conservation Plan as follows: R.B. Priory, $803;
H.J. Padewer, $0; W.A. Coley, $610;R.P. Brace, $0; F.J. Fowler, $0; R.J. Osborne, $0.
- -------------------------
30
LONG-TERM INCENTIVE PLAN - AWARDS IN/8/ Adjusted to reflect EPS unit credits earned by Mr. Fowler during 1999 and
2000 Numberas a result of Shares, Performance or Other Period
Name Units or Other Rights (#)* Until Maturation or Payout
- ---- ------------------------------ ------------------------------
H.J. Padewer 80,000 January 2003 - January 2007
* The award described above isearnings per share exceeding a performance award granted under the Duke Energy
1998 Long-Term Incentive Plan and is represented by units denominated in shares
of Duke Energy Common Stock (performance shares). Each performance share
represents the right to receive, upon vesting, one share of Duke Energy Common
Stock. The award fully vests on the seventh anniversary of the date of the
award. The award also vests in the event of the death or disability of Mr.
Padewer or a change in control of Duke Energy as specified in the Plan. The
award has an accelerated vesting feature allowing one third to vest upon
achievement of an increase in total shareholder return averaging 50% or more for
twenty consecutive business days; one third to vest upon achievement of an
increase in total shareholder return averaging 90% or more for twenty
consecutive business days; and one third to vest upon achievement of an increase
in total shareholder return averaging 130% or more for twenty consecutive
business days, all calculated from apre-defined base amount
specified in those years. The credits were granted in tandem with certain stock
option awards and may be applied towards the award and
assuming dividends are reinvested. If anyexercise price of such targets are achieved before
the third anniversary of the date of the award, the relevant part of the award
will vest on the third anniversary. Vesting under the award is generally subject
to the continued employment of the grantee with Duke Energy to the time of
vesting. The performance share award also grants an equal number of dividend
equivalents, which represent the right to receive cash payments equivalent to
the cash dividends paid on the number of shares of Duke Energy Common Stock
represented by the performance shares awarded, until the related performance
shares vest or are forfeited.
Performance awards madethose stock
options.
26
Compensation
- --------------------------------------------------------------------------------
Option Grants in 1999 to the other Named Executive Officers were
reported in the proxy statement distributed in conjunction with Duke Energy's
2000 annual meeting.
OPTION GRANTS IN 20002001
This table shows options granted to the Named Executive Officers during 2000,2001,
along with the present value of the options on the date they were granted,
calculated as described in footnote 2 to the table. Grants shown in the table
with an expiration date of December 20, 2010,19, 2011 were awarded on December 20, 2000,19, 2001
and relate to compensation for 2002. The grant shown with an expiration date of
February 1, 2011 was awarded to R.P. Brace on February 1, 2001, following his
employment with Duke Energy on January 1, 2001. The grant to R. B.R.B. Priory having
an expiration date of February 23, 2010,27, 2011 was awarded on February 23, 200027, 2001 as a
component of 20002001 compensation. R.B. Priory's option grant with respect to 20012002
compensation was awarded on February 27, 2001,26, 2002 and, accordingly, will be
reported in the proxy statement for the 20022003 annual meeting.
Option/SAR Grants in Last Fiscal Year
Grant Date
Individual Grants Value
Number
of Shares % of Total Exercise
Underlying Options/SARS or Base Grant Date
Options/SARS Granted to Price Expiration Present
Name Granted(1)Granted/ 1/ (#) Employees ($/Sh) Date Value(2)Value/ 2/ ($)
- ---- ------------- --------- ------- ----------- -----------
R.B. Priory 400,000 5.8% 25.3125 02/23/2010 2,093,0005.2% 41.5000 2/27/2011 4,025,500
H.J. Padewer 173,600 2.5% 42.8125164,700 2.1% 37.6800 12/20/2010 1,802,300
W.A. Coley 100,000 1.5% 42.812519/2011 1,732,644
R.P. Brace 180,000 2.3% 36.7700 2/01/2011 1,605,011
120,000 1.6% 36.7700 2/01/2011 1,070,007
106,200 1.4% 37.6800 12/20/2010 1,038,20019/2011 1,117,224
F.J. Fowler 104,000119,000 1.5% 42.812537.6800 12/20/2010 1,079,70019/2011 1,251,880
R.J. Osborne 104,000 1.5% 42.8125107,800 1.4% 37.6800 12/20/2010 1,079,70019/2011 1,134,056
(1)/1/ Duke Energy has not granted any SARs to the Named Executive Officers or
any other persons.
(2)/2/ Based on the Black-Scholes option valuation model. The following table
lists key input variables used in valuing the options:
31
400,000 Share Option
Input Variable Grant to R. B. Priory All Other Option Grants
---------------------------------------------------------------------------
400,000 Share Option
Grant to R.B. Priory
and 180,000 and
120,000 Share Option
Input Variable Grants to R.P. Brace All Other Option Grants
Risk-free Interest Rate 6.37% 5.45% 5.23%
Dividend Yield 3.95% 3.70% 3.37%
Stock Price Volatility 18.91% 25.88% 29.71%
Option Term 10 years 10 years
With respect to Mr. Priory's 400,000 share option grant and Mr. Brace's
180,000 and 120,000 share option grants, the volatility variable reflected
weekly historical stock price trading data with respect to Duke Energy Common
Stock from June 18,November 30, 1997 (the effective date of the merger with PanEnergy
Corp) through December 31, 1999.November 30, 2000. With respect to all
other option grants listed in the table, the volatility variable reflected
historical monthly stock price trading data from November 30, 19971998 through
November 30, 2000.2001. An adjustment was made with respect to each valuation for
risk of forfeiture during the vesting period. The actual value, if any, that
a grantee may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised, so that there is no
assurance the value realized will be at or near the value estimated based
upon the Black-Scholes model.
OPTION EXERCISES AND YEAR-END VALUES27
Compensation
- --------------------------------------------------------------------------------
Option Exercises and Year-End Values
This table shows aggregate exercises of options during 20002001 by the Named
Executive Officers and the aggregate year-end value of the unexercised options
held by them. The value assigned to each unexercised "in-the-money" stock
option is based on the positive spread between the exercise price of the stock
option and the split-adjusted fair market value of Duke Energy Common Stock on
December 31, 2000,2001, which was $42.86.$39.65. The fair market value is the average of
the high and low prices of a share of Duke Energy Common Stock on that date as
reported on the New York Stock Exchange Composite Transactions Tape. The
ultimate value of a stock option will depend on the market value of the
underlying shares on a future date.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARS at Options/SARS at
FY-End *(#)FY-End* (#) FY-End ($)
------------ ----------
Shares
Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- ------------ ------------------ ------------- -------------
R.B. Priory 73,200 1,021,906 326,800/1,000,000 4,376,261/15,053,750250,000 4,162,400 376,800 / 1,100,000 4,251,906 / 8,373,730
H.J. Padewer 298,450 2,988,269 91,850 / 641,800 715,849 / 3,598,332
R.P. Brace -- -- 173,450/ 693,950 2,193,717/ 6,589,397
W.A. Coley 80,000 1,068,650 119,250/ 457,750 1,777,211/ 5,336,384-- / 406,200 -- / 1,073,214
F.J. Fowler 11,466 228,539 296,208/ 461,750 5,682,637/ 5,336,57412,436 345,354 429,022 / 435,500 5,744,608 / 3,023,260
R.J. Osborne 80,000 1,042,500 31,000/ 317,000 557,535/ 3,284,49571,000 815,723 57,000 / 327,800 458,025 / 1,942,912
* Duke Energy has not granted any SARs to the Named Executive Officers or any
other persons.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS28
Compensation
- --------------------------------------------------------------------------------
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Duke Energy entered into a severance agreement and a change-in-control
agreement with Mr.H.J. Padewer, which became effective on April 18, 2001 and
January 1, 2000.2000, respectively. The change-in-control agreement replaced Mr.
Padewer's employment agreement with certain exceptions. Duke Energy had entered
into severance agreements and change in controlchange-in-control agreements with Messrs. Coley, Fowler
and Osborne, which became effective on August 18, 1999, and with Mr. Priory,
which became effective on August 19, 1999, in each case 32
upon expiration of the
executive's employment agreement. Duke Energy entered into a change-in-control
agreement with Mr. Brace which became effective on January 1, 2001. The
severance agreements and change-in-control agreements remain in effect for a
two-year period from the effective time specified above (in each case, the
"Effective Time") or for such longer period as may be mutually agreed upon by
the parties (the "Employment Period"). The principal terms and conditions of
the severance agreements and change-in-control agreements are described below.
The severance agreements for Messrs. Priory, Coley,Padewer, Fowler and Osborne
provide for severance payments and benefits to the executive in the event of
termination of employment other than upon death or disability or for "cause"
(as defined in the severance agreements) by Duke Energy as follows: (1) a
lump-sum payment equal to two times the sum of the executive's then-current
base salary and target bonus, plus a pro rata amount of the executive's target
bonus for the year in which the termination occurs; (2) a lump sumlump-sum payment
equal to the present value of the amount Duke Energy would have contributed or
credited to the executive's pension and savings accounts during the two years
following the termination date; (3) continued medical, dental and basic life
insurance coverage for a two-year period following the termination date or
retiree medical benefits, if the executive would have become eligible for such
benefits within two years following the termination date, from the date of
eligibility; and (4) continued vesting of long-term incentive awards, including
stock options or restricted stock but excluding performance share awards, held
but not vested or exercisable on the termination date, in accordance with their
terms for two years following the termination date, with any options or similar
rights thereafter remaining exercisable for 90 days, if their term has not
expired. If Messrs. Priory, Coley,Padewer, Fowler and Osborne receive a payment under
their severance agreements, no payment will be made under the performance share
award. The severance agreements contain restrictive covenants which prohibit
Messrs. Priory, Coley,Padewer, Fowler and Osborne from competing with Duke Energy or
soliciting Duke Energy's employees or customers for one year following
termination, and from disclosing certain confidential information.
The change-in-control agreements for Messrs. Priory, Padewer, Coley,Brace, Fowler and
Osborne provide for payments and benefits to the executive in the event of
termination of employment for "good reason" by the executive or other than for
"cause" by Duke Energy within a two-year period following a "change-in-control"
(each such term as defined in the change-in-control agreements) as follows: (1)
a lump-sum payment equal to the sum of the executive's then-current base salary
and target bonus for each year of the three-year period after termination,
including a pro rata amount for any partial years in such period, plus a pro
rata amount of the executive's target bonus for the year in which the
termination occurs; (2) a lump sumlump-sum payment equal to the present value of the
amount Duke Energy would have contributed or credited to the executive's
pension and savings accounts during the three years following the termination
date; (3) continued medical, dental and basic life insurance coverage for a
three-year period following the termination, or retiree medical benefits, if
the executive would have become eligible for such benefits within two years
following the termination date, from the date of eligibility; and (4) continued
vesting of long-term incentive awards, including stock options or restricted
stock but excluding performance share awards, held but not vested or
exercisable on the termination date, in accordance with their terms for three
years following the termination date, with any options or similar rights
thereafter remaining exercisable for 90 days, if their term has not expired. If
the executive becomes eligible for normal retirement at age sixty-five within
the three-year period following termination, the three-year period mentioned
above will be reduced to the period from the termination date to the eligible
executive's normal retirement date. In the event that any of the payments or
benefits provided for in the change-in-control agreement would constitute a
33
"parachute payment" (as defined in section 280G(b)(2) of the Internal Revenue
Code), the executive is entitled to receive an additional payment such that,
after the payment of all income and excise taxes, he will be in the same
after-tax position as if no excise tax under section 4999 of the Internal
Revenue Code had been imposed.
A provision continuing from Mr. Padewer's prior employment agreement provides
that Duke Energy willwould contribute $315,000 to Mr. Padewer's opening balance in
the Duke Energy Executive Cash Balance Plan, with vesting to occur on the third
anniversary of his employment or upon his disability, death, or termination of
employment for
29
Compensation
- --------------------------------------------------------------------------------
reasons other than for cause, if any of such events occur before the third
anniversary of his employment. This amount vested on January 1, 2002, the third
anniversary of Mr. Padewer's employment. An additional continuing provision
provides that Mr. Padewer will be credited for twelve years of service for the
purpose of determining vacation benefits.
RETIREMENT PLAN INFORMATIONRetirement Plan Information
Executive officers and other eligible employees of Duke Energy participate in
the Duke Energy Retirement Cash Balance Plan, a noncontributory, qualified,
defined benefit retirement plan. In addition, selected managers are eligible to
participate in the Duke Energy Executive Cash Balance Plan, which is a
noncontributory, nonqualified, defined benefit retirement plan. A portion of
the benefits earned in the Executive Cash Balance Plan is attributable to
compensation in excess of the Internal Revenue Service annual compensation
limit ($170,000 for 2000)2001) and deferred compensation, as well as reductions
caused by maximum benefit limitations that apply to qualified plans from the
benefits that would otherwise be provided under the Retirement Cash Balance
Plan. The Retirement Benefit Equalization Plan is designed to restore benefit
reductions caused by the maximum benefit limitations that apply to qualified
plans from benefits that would otherwise be provided under the Retirement Cash
Balance Plan for eligible employees of Duke Energy who do not participate in
the Executive Cash Balance Plan. Benefits under the Retirement Cash Balance
Plan, the Executive Cash Balance Plan and the Retirement Benefit Equalization
Plan are based on eligible pay, generally consisting of base pay, short-term
incentives and lump-sum merit increases. The Retirement Cash Balance Plan and
the Retirement Benefit Equalization Plan exclude deferred compensation, other
than deferrals pursuant to Sections 401(k) and 125 of the Internal Revenue Code.
Under the benefit accrual formula used to determine benefits under the
Retirement Cash Balance Plan, an eligible employee's plan account receives a
pay credit at the end of each month in which the employee remains eligible and
receives eligible pay for services. The monthly pay credit is equal to a
percentage of the employee's monthly eligible pay. For most eligible employees,
the percentage depends on age and completed years of service at the beginning
of the year, as shown below:
Age and Service Monthly Pay Credit
Age and Service
Percentage
34 or less 4%
35 to 49 5%
50 to 64 6%
65 or more 7%
34
In addition, the employee receives an additional 4% for any portion of eligible
pay above the Social Security taxable wage base ($76,20080,400 for 2000)2001). However,
for certain eligible employees, the total percentage is a flat 3% of eligible
pay. Employee accounts also receive monthly interest credits on their balances.
The rate of the interest credit is adjusted quarterly and equals the yield on
30-year U.S. Treasury Bonds during the third week of the last month of the
previous quarter, subject to a minimum rate of 4% per year and a maximum rate
of 9% per year.
Assuming that the Named Executive Officers continue in their present positions
at their present salaries until retirement at age 65, their estimated annual
pensions in a single life annuity form under the applicable plans attributable
to such salaries would be: R.B. Priory, $770,069;$765,817; H.J. Padewer, $189,462; W.A.
Coley, $386,044;$211,932; R.P.
Brace, $144,221; F.J. Fowler, $279,754;$284,528; and R.J. Osborne, $314,507.$336,670. These
estimates are calculated assuming interest credits at an annual rate of 4% and
using a future Social Security taxable wage base equal to $76,200.
35$80,400.
30
Other Information
DISCRETIONARY VOTING AUTHORITY- --------------------------------------------------------------------------------
Discretionary Voting Authority
As of the date this proxy statement went to press, we did not anticipate that
any matter besidesother than the proposals set out in this proxy statement would be
raised at the annual meeting. If any other matters are properly presented at
the annual meeting, the persons named as proxies will have discretion to vote
on those matters according to their best judgment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) Beneficial Ownership Reporting Compliance
Based solely on information furnished to us and contained in reports filed with
the SEC, as well as any written representations that no other reports were
required, we believe that during 20002001 all SEC filings of our directors and
executive officers complied with the requirements of Section 16 of the
Securities Exchange Act, except that F. J.F.J. Fowler did not timely report an
exercise of options in February 20002001, and a sale of Duke Energy Common Stock in
August 2000, and H. S. HookJ.G. Martin did not timely report an
exercise of options in February and May 2000.2001 and a sale of 20 shares in May
2001. The failure to timely report such option exercises was due to
administrative oversight on the part of Duke Energy.
FEES PAID TO INDEPENDENT AUDITORSFees Paid to Independent Auditors
The aggregatefollowing table presents fees billedfor professional audit services rendered by
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their
respective affiliates (collectively, "Deloitte") for professional services rendered for the audit of Duke Energy's
annual financial statements for the2001, and fees billed for other services
rendered by Deloitte for fiscal year ended December 31, 2000 and for the2001:
(In millions)
Audit fees (a) $ 5.6
Financial information systems design
and implementation (b) 0
All other fees:
Tax matters (c) 21.9
Other (d) 5.7
-----
Total all other fees $27.6
- --------
(a) Audit fees include review of the financial statements includedset forth in itsDuke
Energy's Quarterly Reports on Form 10-Q for that
fiscal year were $3,373,051.
There were no fees billed by Deloitte2001.
(b) Duke Energy internal policy prohibits the engagement of the independent
auditors for professional services rendered for
information technology services relating to financial information systems design and implementation
services.
(c) Tax-related services comprise tax compliance (including U.S. federal and
international returns), tax examination assistance and tax planning.
(d) Primarily consists of fees for advice related to acquisitions and
divestitures and for the fiscal year ended December 31, 2000.
The aggregate fees billed by Deloitte for services rendered to Duke Energy,
other than the auditissuance of consents and review services referred to above, for the fiscal year
ended December 31, 2000 were $11,796,608.comfort letters in
connection with SEC filings and financing transactions.
The Audit Committee considershas considered the provisioncompatibility of non-auditnonaudit services by Deloittewith
the auditors' independence.
Online Access to be compatible with maintaining
the principal accountant's independence.
ONLINE ACCESS TO ANNUAL REPORTS AND PROXY STATEMENTSAnnual Reports and Proxy Statements
Save Duke Energy future postage and printing expense by consenting to view
future annual reports and proxy statements online on the Internet.
Most shareholders can elect to view future proxy statements and annual reports
over the Internet instead of receiving paper copies in the mail. Those
shareholders will be given the opportunity to consent to future Internet
delivery when they vote their proxy. For some shareholders, this option is only
available if you vote on the Internet.
36
If you are not given an opportunity to consent to Internet delivery when you
vote your proxy, contact the bank, broker or other holder of record through
which you hold your shares and inquire about the availability of such an option
for you.
If you consent, your account will be so noted and, when Duke Energy's annual
report for 20012002 and proxy statement for the 20022003 annual meeting become
available, you will be notified on how to access them on the Internet.
Shareholders of record may indicate their consent on this year's proxy card,
and will receive a paper proxy card for next year's annual meeting in the mail.
If you elect to receive your Duke Energy materials via the Internet, you can
still request paper copies by contacting Investor Relations at (800) 488-3853
or by e-mail at InvestDUK@duke-energy.com.
-------------------------
3731
AppendixExhibit A
CHARTER OF THE
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
DUKE ENERGY CORPORATION
(February 27, 2001)
Organization
Extract from the Articles of Incorporation of Duke Energy Corporation
showing proposed amendments to Article IV. Italics indicate additions and
brackets indicate deletions.
Article IV
The total number of authorized shares of this Corporation is 2,044,000,000
shares, divided into 12,500,000 shares of Preferred Stock of the par value of
$100 each (hereafter called Preferred Stock), 10,000,000 shares of Preferred
Stock A of the par value of $25 each (hereafter called Preferred Stock A),
20,000,000 shares of Serial Preferred Stock without par value (hereafter called
Serial Preferred Stock), 1,500,000 shares of Preference Stock of the par value
of $100 each (hereafter called Preference Stock), and 2,000,000,000 shares of
Common Stock without [nominal or] par value (hereafter called Common Stock).
The Preferred Stock and the Preferred Stock A (sometimes collectively referred
to as the Preferred Stocks) shall rank equally with no preference or priority
of the Preferred Stock over the Preferred Stock A or of the Preferred Stock A
over the Preferred Stock with respect to dividends and distribution of assets
upon liquidation, dissolution or winding up of the Corporation. The Serial
Preferred Stock shall rank junior to the Preferred Stocks and senior to the
Preference Stock with respect to dividends and distribution of assets upon
liquidation, dissolution or winding up of the Corporation.
(a) Preferred Stock and Preferred Stock A
(1)The Board of Directors is hereby empowered, subject to the provisions of
paragraph (9) of this section (a) of Article IV, to cause the authorized
and unissued shares of the Preferred Stock and of the Preferred Stock A
to be issued in one or more series from time to time, upon such
consideration (not less than the par value thereof), upon such terms,
and in such manner, and with such variations as to (i) the rates of
dividend payable thereon, (ii) the periods of time during which
dividends shall annually elect from its members who are not officersaccrue and the dates on which dividends shall become
payable on the shares of such series, (iii) the terms on which the same
may be redeemed, (iv) the terms or employeesamount of any sinking fund provided
for the purpose of redemption thereof, and (v) the terms upon which the
holders thereof may convert the same into stock of any other class or
classes, or into one or more series of the same class, or of another
class or classes, as may be determined by the Board of Directors at the
time of the creation of each series, but the amount at which said stock
may be redeemed shall in no case be less than the par value thereof.
(2)The shares of each series of the Preferred Stock and of the Preferred
Stock A shall entitle the holders thereof to receive out of the retained
earnings of the Corporation or net profits earned during the Committee consisting of threecurrent or
preceding accounting period (each said period to be not less than six
months or more persons,than one year in duration) or, if retained earnings and
net profits are not available, out of whom shall be designated as chair. The Board shall ensure that Committee
members meet at all times the independence and experience requirements of the
New York Stock Exchange (NYSE).
Meetings
The Committee will meet at least four times annuallycapital surplus, a dividend at the
discretionannual rate fixed for the particular series, but not exceeding such
rate, cumulative from and after the date of issuance thereof, payable
quarterly on the 16th day of March, June, September and December of each
year (or, if any such day shall not be a business day, on the next
succeeding business day) or at such intervals and on such dates as
otherwise are expressly set forth in the resolution of the Board of
Directors creating such series or, if such intervals and dividend
payment dates shall vary from time to time for such series, the method
by which such intervals and dates shall be determined, before any
dividend shall be set apart for or paid on the Serial Preferred Stock,
the Preference Stock or the Common Stock. Any dividends declared or paid
on the Preferred Stock or the Preferred Stock A in an amount less than
full cumulative dividends payable at such time upon all shares of the
Preferred Stock or the Preferred Stock A outstanding shall, if more than
one series be outstanding, be divided among the different series in
proportion to the aggregate amounts that would be distributable to the
Preferred Stock simultaneously declared and paid thereon at such time
without regard to the applicable dividend payment dates.
(3)All series of the Preferred Stock shall rank equally and be alike in all
respects except for the variations and differences between series herein
expressly provided for, and all series of the Preferred Stock A shall
rank equally and be alike in all respects except for the variations and
differences between series herein expressly provided for.
(4)In case of liquidation or dissolution or distribution of the assets of
the Corporation, there shall be paid (a) to the holders of the Preferred
Stock (i) in case such liquidation, dissolution or distribution shall be
voluntary, $105 per share, and (ii) in case such liquidation,
dissolution or distribution shall be involuntary, $100 per share, and
(b) to the holders of the Preferred Stock A (i) in case such
liquidation, dissolution or distribution shall be voluntary, $26.25 per
share, and (ii) in case such liquidation, dissolution or distribution
shall be involuntary, $25 per share, plus in each case the amount of
dividends (if any) accumulated and unpaid thereon, before any amount
shall be payable to the holders of the Serial Preferred Stock, the
Preference Stock or the Common Stock; the balance of the assets of the
Corporation, subject to the rights of the holders of the Serial
Preferred Stock and the holders of the Preference Stock, shall be
distributed ratably among the holders of the Common Stock.
(5)Holders of the Preferred Stock and of the Preferred Stock A shall not be
entitled to any payment by way of dividends or otherwise, or have any
rights in the property of the Corporation or in the distribution
thereof, other than specifically provided in the preceding paragraphs.
A-1
(6)The Preferred Stock or the Preferred Stock A may be called for
redemption in whole or in part on any dividend date at the calloption of the
chairBoard of Directors by mailing notice thereof to the holders of record of
the shares to be redeemed at least thirty (30) days prior to the date
fixed for redemption, and such shares may be then redeemed by paying for
each share so called all accrued and unpaid dividends thereon to the
date fixed for such redemption and such additional sum as shall have
been fixed by the Board of Directors as the redemption price of stock of
the series of which the stock so to be redeemed is a part. Whenever less
than all of the outstanding shares of the Preferred Stock or of the
Preferred Stock A of any series are to be redeemed, either (i) the
shares of such series to be redeemed shall be selected by lot in such
manner as may be prescribed by the Board of Directors, or (ii) the
redemption shall be made in such manner that each holder of the
Preferred Stock or of the Preferred Stock A of the series to be redeemed
shall participate therein in the proportion that the number of shares of
such series to be redeemed bears to the whole number of shares of stock
of that series then outstanding, provided that there shall be no
obligation to redeem less than a whole share. From and after the date of
redemption, unless default be made by the Corporation in payment of the
redemption price pursuant to such notice, all dividends on the shares
called for redemption shall cease to accrue, and all rights of the
holders thereof in respect of such stock, except the right to receive
the redemption price plus accrued and unpaid dividends to the date fixed
for such redemption, shall cease and determine.
(7)No holder of any of the Preferred Stock or of the Preferred Stock A
shall be entitled to vote at any election of directors or, except as
otherwise required by statute and except as provided in paragraphs (8),
(9), (10) and (11) of this section (a) of Article IV, on any other
matter submitted to the shareholders, provided that if and whenever
dividends on any part of the Preferred Stock or of the Preferred Stock A
shall be in arrears in an amount equivalent to the aggregate dividends
required to be paid on such Preferred Stock or such Preferred Stock A in
any period of twelve (12) calendar months the holders of the Preferred
Stock as a class shall thereafter at all elections of directors have the
exclusive right to elect such number of directors of the Corporation as
shall constitute a majority of the authorized number of directors, the
holders of the Preferred Stock A as a class shall thereafter at all
elections of directors have the exclusive right to elect two members
thereof. The Committeedirectors,
and the holders of the Common Stock of the Corporation [as a class] and
the holders of such series of the Serial Preferred Stock as are entitled
to vote generally with respect to the election of directors, voting
together, shall have the opportunityexclusive right, subject to meet privately (without
membersthe right, if any,
of management present)holders of the Serial Preferred Stock to elect directors, and separatelythe
right of the holders of the Preference Stock as a class to elect two
directors, under certain circumstances, to elect the remaining number of
directors of the Corporation which right of the holders of the Preferred
Stocks, however, shall cease when all accrued and unpaid dividends on
the Preferred Stocks shall have been paid in full. The terms of office
of all persons who may be directors of the Corporation at the time when
the right to elect directors shall accrue to the holders of the
Preferred Stocks, as herein provided, shall terminate upon the election
of their successors at the next annual meeting of the shareholders or at
an earlier special meeting of the shareholders held as hereinafter
provided. Such special meeting shall be held at any time after the
accrual of such voting power, upon notice similar to that provided in
the By-Laws for an annual meeting, which notice shall be given at the
request in writing of the holders of not less than ten (10%) percent of
the number of shares of the then outstanding Preferred Stocks, addressed
to the Secretary of the Corporation at its principal business office.
Upon the termination of such right of the holders of the Preferred
Stocks to elect directors of the Corporation, the terms of office of all
the directors of the Corporation shall terminate upon the election of
their successors at the next annual meeting of the shareholders or at an
earlier special meeting of the shareholders held as hereinafter
provided. Such special meeting shall be held at any time after the
termination of such right of the holders of the Preferred Stocks to
elect directors, upon notice similar to that provided in the By-Laws for
an annual meeting, which notice shall be given at the request in writing
of the holders of not less than ten (10%) percent of the number of the
[shares of] then outstanding [Common Stock] shares of stock of all
classes of the Corporation entitled to vote generally with respect to
the election of directors, addressed to the Secretary of the Corporation
at its principal business office.
(8)(i)So long as any of the Preferred Stock remains outstanding, the
authorization of the holders of at least two-thirds (2/3) of the
Preferred Stock then outstanding, voting as a class regardless of
series (given at a meeting called for that purpose), shall be
necessary for effecting or validating the amendment, alteration,
change or repeal of any of the express terms of the Preferred Stock,
or any series thereof, then outstanding, in a manner prejudicial to
the holders thereof; provided that if any such amendment, alteration,
change or repeal would be prejudicial to the holders of the shares of
one or more, but not all, of the series of the Preferred Stock at the
time outstanding, such authorization shall be required only of the
holders of at least two-thirds (2/3) of the total number of
outstanding shares of all series so affected.
(ii)So long as any of the Preferred Stock A remains outstanding, the
authorization of the holders of at least two-thirds (2/3) of the
Preferred Stock A then outstanding, voting as a class regardless of
series (given at a meeting called for that purpose), shall be
necessary for effecting or validating the amendment, alteration,
change or repeal of any of the express terms of the Preferred Stock
A, or any series thereof, then outstanding, in a manner prejudicial
to the holders thereof; provided that if any such amendment,
alteration, change or repeal would be prejudicial to the holders of
the shares of one or more, but not all, of the series of the
Preferred Stock A at the time outstanding, such authorization shall
be required only of the holders of at least two-thirds (2/3) of the
total number of outstanding shares of all series so affected.
(9)So long as any of the Preferred Stock or of the Preferred Stock A
remains outstanding, the affirmative vote of the holders of at least
two-thirds (2/3) of the Preferred Stock then outstanding, voting as a
class regardless of series, and the affirmative vote of the holders of
at least two-thirds (2/3) of the Preferred Stock A then outstanding,
voting as a class regardless of series, shall be necessary to enable the
Corporation to issue shares of Preferred Stock in excess of 250,000
shares or shares of Preferred Stock A in excess of 1,000,000 shares,
A-2
or any other class of stock having rights in the distribution of the
earnings or assets of the Corporation prior to or on a parity with those
of the Preferred Stock or of the Preferred Stock A, or any obligations
convertible into or evidencing the right to purchase any of such shares
of stock, unless both
(i)the net earnings of the Corporation available for dividends on the
Preferred Stock and on the Preferred Stock A, determined in
accordance with generally accepted accounting practices, for any
twelve (12) consecutive calendar months within the fifteen (15)
calendar months preceding the month within which the additional
shares shall be issued, shall have been at least twice the dividend
requirements for a twelve (12) months' period upon the entire amount
of the Preferred Stock and of the Preferred Stock A and all such
other stock ranking prior to or on a parity with the Vice PresidentPreferred Stock
and the Preferred Stock A as to dividends or other distributions to
be outstanding immediately after the proposed issue of Audit
Services, the external auditor and General Counsel when requested. The chair
shall designate a person who need not be a member thereof to act as secretary
and minutes of its proceedings shall be kept in minute books provided for that
purpose. The agenda of each meeting will be prepared by the secretary and,
whenever reasonably practicable, circulated to each member prior to each
meeting.
Specific Responsibilities
A. Financial Reporting and Internal Controls
1) Review the Corporation's annual audited financial statements prior to
filing or distribution. The review shall include: discussionshares of the
audited financial statements with management, including changes in
accounting policiesPreferred Stock or of the Preferred Stock A or such other stock, and
significant judgements that may affect (ii)the financial results, and discussion withtotal net assets of the external auditors required
by relevant auditing standards.
A-1
The Committee shall report to the Board and to the shareholders
whether, based on such review and discussions, it recommends to the
Board that the most recent year's audited financial statements be
included in the Corporation's annual report on Form 10-K to be filed
with the Securities and Exchange Commission (SEC).
2) Monitor the Corporation's news releases regarding material interim
financial results by reviewing them with management and the external
auditorsCorporation at a date not more than
ninety (90) days prior to the filingdate on which the proposed stock is to
be issued shall equal at least twice the aggregate amount payable,
upon the involuntary liquidation of the Form 10-QCorporation, to the holders
of the Preferred Stock and of the Preferred Stock A and such other
stock to be outstanding immediately after the proposed issue of such
additional shares.
(10)So long as any of the Preferred Stock or of the Preferred Stock A
remains outstanding, the affirmative vote of the holders of at least
two-thirds (2/3) of the Preferred Stock then outstanding, voting as a
class regardless of series, and the affirmative vote of the holders of
at least two-thirds (2/3) of the Preferred Stock A then outstanding,
voting as a class regardless of series, shall be necessary to authorize
the creation of, or an increase in the authorized number of shares of,
any stock having preferential rights in the distribution of earnings or
assets of the Corporation prior to or on a parity with those of the
outstanding Preferred Stock or of the outstanding Preferred Stock A.
(11)So long as any of the Preferred Stock or of the Preferred Stock A
remains outstanding, the consent or authorization of the holders of at
least two-thirds (2/3) of the Preferred Stock then outstanding, voting
as a class regardless of series (given at a meeting called for that
purpose), and the consent or authorization of the holders of at least
two-thirds (2/3) of the Preferred Stock A then outstanding, voting as a
class regardless of series (given at a meeting called for that purpose),
shall be necessary for effecting or validating (i) the sale or exchange
of all, or substantially all, of the property and assets of the
Corporation, or (ii) the merger or consolidation of the Corporation with
any other corporation or corporations (other than subsidiaries of the
Corporation); provided that the provisions of this paragraph shall not
apply to the purchase or other acquisition by the Corporation of
franchises or other assets of another corporation, or to any merger or
consolidation ordered or authorized by the Federal Power Commission or
by any succeeding regulatory authority of the United States having
jurisdiction in the premises.
(12)At any meeting at which the holders of the Preferred Stock or of the
Preferred Stock A shall have the right to vote as a class, the presence
in person or by proxy of the holders of a majority of the outstanding
shares of the Preferred Stock or of the Preferred Stock A shall be
required to constitute a quorum of such class. Whenever the holders of
the outstanding Preferred Stock or of the outstanding Preferred Stock A
shall have the right to vote, each holder thereof shall be entitled to
one vote for each share standing in his name.
(b)Serial Preferred Stock
(1)The Serial Preferred Stock may be issued from time to time as herein
provided in one or more series. The Board of Directors is hereby
expressly granted authority, subject to the provisions of this Article
IV, to issue from time to time Serial Preferred Stock in one or more
series out of the then authorized and unissued shares of Serial
Preferred Stock and with respect to each series to fix, by resolution or
resolutions providing for the issuance of such series, such
designations, preferences, limitations and relative rights of such
series as may be permitted to be fixed by the Board of Directors by the
laws of the State of North Carolina as in effect at the time the
particular series is authorized, including, without limitation,
authority so to fix any one or more of the following:
(i)the designation of such series;
(ii)the number of shares of the series
(iii)the dividend rate or rates, if any, thereof (or method of determining
such dividends), the conditions and dates upon which such dividends
shall be payable, the preference or relation of such dividends,
subject to the provisions of this Article IV, to dividends payable on
any other class or classes of capital stock of the Corporation, and
whether such dividends shall be cumulative or noncumulative;
(iv)whether the shares of such series shall be subject to redemption by
the Corporation, and, if made subject to such redemption, the times,
prices, rates, adjustments and other terms and conditions of such
redemption;
(v)the terms and amount of any sinking or similar fund provided for the
purchase or redemption of the shares of such series;
A-3
(vi)providing that the shares of such series may be convertible into or
exchangeable for shares of Common Stock or other securities of the
Corporation or of any other corporation or other entity and the
times, prices, rates, adjustments and other terms and conditions of
such conversion or exchange;
(vii)the extent, if any, to which the holders of the shares of such series
shall be entitled to vote as a series or otherwise, subject to the
provisions of this Article IV and as otherwise may be provided by
law, with respect to the election of directors or otherwise;
(viii)the restrictions and conditions, if any, upon the issue of any
additional Serial Preferred Stock ranking on a parity with or prior
to such shares as to dividends or upon dissolution;
(ix)the rights of the holders of the shares of such series upon the
liquidation, dissolution or distribution of the assets of the
Corporation, which rights may be different in case such liquidation,
dissolution or distribution shall be voluntary or involuntary; and
(x)any other preferences, limitations or relative rights of shares of
such series consistent with this Article IV and applicable law.
All shares of the Serial Preferred Stock of the same series shall be identical
in all respects. All shares of the Serial Preferred Stock, irrespective of
series, shall constitute one and the same class of stock, shall be of equal
rank and shall be identical in all respects except that to the extent not
otherwise limited in this Article IV any series may differ from any other
series with respect to any one or more of the designations, preferences,
limitations and relative rights described or referred to in subparagraphs (i)
to (x), inclusive above.
(c) Preference Stock
(1)The Preference Stock may be issued from time to time as herein provided
in one or more series. The Board of Directors of the Corporation is
hereby expressly granted authority, subject to the provisions of this
Article IV, to issue from time to time Preference Stock in one or more
series out of the then authorized and unissued shares of Preference
Stock and with respect to each series to fix, by resolution or
resolutions providing for the issuance of such series, such
designations, preferences, limitations and relative rights of such
series as may be permitted to be fixed by the Board of Directors by the
laws of the State of North Carolina as in effect at the time the
particular series is authorized by the Board of Directors, including,
without limitation, authority so to fix any one or more of the following:
(i)the distinctive designation of such series and the number of shares
which shall constitute such series;
(ii)the annual dividend rate for the shares of such series;
(iii)the terms on which shares of such series may be redeemed, including,
without limitation, the redemption price or prices for such series,
which may consist of a redemption price or scale of redemption prices
applicable only to redemption in connection with a sinking fund and
the same or a different redemption price or scale of redemption
prices applicable to any other redemption;
(iv)the terms and amount of any sinking fund provided for the purchase or
redemption of shares of such series;
(v)the amount per share payable on the shares of such series upon the
voluntary and involuntary liquidation, dissolution or winding up of
the Corporation, which amount may vary depending upon whether such
liquidation, dissolution or winding up is voluntary or involuntary;
and
(vi)the terms and conditions, if any, upon which holders of shares of
such series may convert the same into, or exchange the same for,
Common Stock, as well as provisions for adjustment of the conversion
rate in such events as the Board of Directors shall determine.
All shares of Preference Stock of the same series shall be identical in
all respects. All shares of Preference Stock, irrespective of series,
shall constitute one and the same class of stock, shall be of equal rank
and shall be identical in all respects except that to the extent not
otherwise limited in this Article IV any series may differ from any
other series with respect to any one or more of the designations,
preferences, limitations and relative rights described or referred to in
subparagraphs (i) to (vi), inclusive above.
(2)Subject to full dividends accrued on all outstanding shares of Preferred
Stocks and Serial Preferred Stock for all past dividend periods and for
the then current dividend period having been paid or declared and set
apart for payment, holders of the Preference Stock shall be entitled to
receive, but only when and as declared by the Board of Directors out of
funds legally available for the declaration and payment of dividends,
cumulative dividends in cash at the annual dividend rate per share fixed
for the particular series, and no more, payable in respect of each
quarterly dividend period, commencing on the date specified for the
first dividend payment to shareholders of record on the respective dates
fixed in advance for the purpose by the Board of Directors prior to the
payment of each such dividend, which record date for each dividend shall
be the same for all series.
A-4
Dividends on shares of each series of the Preference Stock shall be
cumulative:
(i)on shares of any series issued prior to the first dividend payment
date for such series, from the date of issuance of such shares; and
(ii)on shares of any series issued on or after such first dividend
payment date, from the quarterly dividend payment date next preceding
the date of issuance of such shares or from the date of issuance if
that be a dividend payment date.
No dividend shall be declared on any series of the Preference Stock for
any quarterly dividend period unless there shall have been paid or
declared and set apart for payment like proportionate dividends,
ratably, in proportion to the annual dividend rates fixed therefor, on
all shares at the time outstanding of all series of the Preference
Stock, in respect of the same quarterly dividend period to the extent
that such shares are entitled to receive dividends for such quarterly
dividend period.
The expression "dividends accrued," as used in this paragraph (2) and in
any resolutions providing for the issuance of series of the Preference
Stock, shall mean the sum of amounts in respect of shares of the
particular class or series then outstanding which, as to each share,
shall be an amount computed at the dividend rate per annum fixed for the
particular share from the date from which dividends on such share became
cumulative to the date with reference to which the expression is used,
irrespective of whether such amount or any part thereof shall have been
declared as dividends or there shall have existed any funds legally
available for the declaration and payment thereof, less the aggregate of
all dividends paid on such share.
No dividend shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock, nor shall any
Common Stock be purchased or otherwise acquired for any consideration by
the Corporation or any subsidiary, while any of the Preference Stock is
outstanding, unless, in each case:
(a)full dividends accrued on all outstanding shares of the Preference
Stock for all past dividend periods shall have been paid or declared
and set apart for payment; and
(b)the Corporation shall have made, or set aside for payment, all
payments, if any, then or theretofore due under the requirements of
any sinking fund for the purchase or redemption of shares of any
series of the Preference Stock.
(3)Except as otherwise provided by law, the holders of the Preference Stock
shall not have any right to vote for the election of directors or for
any other purpose except as set forth below:
(i)In the event that at any time, or from time to time:
(a)six (6) or more quarterly dividends, whether consecutive or not,
on any series of the Preference Stock shall be in arrears and
unpaid, whether or not earned or declared; or
(b)the Corporation shall not have made, or set aside for payment,
all payments, if any, then or theretofore due under the
requirements of any sinking fund for the purchase or redemption
of shares of any series of the Preference Stock;
the holders of the Preference Stock of all series then outstanding,
voting as a class without regard to series, shall have, subject to
the rights of the holders of the Preferred Stocks and the rights, if
any, of holders of the Serial Preferred Stock to elect directors
under certain circumstances, the exclusive right to elect two
directors at the next annual meeting of shareholders. In any such
event, subject to the voting rights of the Preferred Stocks and the
voting rights, if any, of the Serial Preferred Stock to elect
directors under certain circumstances, the holders of the Common
Stock and the holders of such series of the Serial Preferred Stock as
are entitled to vote generally with respect to the election of
directors, to the exclusion of the holders of the Preference Stock
entitled to elect two members of the Board pursuant to this paragraph
(3), voting together, shall be entitled to elect the balance of the
Board of Directors.
The voting rights of the holders of the Preference Stock to elect two
directors shall continue until:
(x)all dividends on the Preference Stock in arrears shall have been
paid in full and dividends on the Preference Stock for the
current dividend period shall have been paid or declared and set
aside for payment; and
(y)all payments, if any, then or theretofore due under the
requirements of any sinking fund for the purchase or redemption
of shares of any series of the Preference Stock shall have been
made or set aside for payment;
in which event the voting rights of the holders of the Preference
Stock to elect two directors shall terminate, subject to revival as
aforesaid, upon the occurrence of any of the events specified in (a)
or (b) of this clause (i) of this paragraph (3), and in the event of
the termination of such voting right, the directors who have been
elected by the holders of the Preference Stock shall continue in
office until the next annual meeting of shareholders.
A-5
(ii)The affirmative approval of the holders of at least two-thirds (2/3)
of the Preference Stock at the time outstanding, voting as a class
without regard to series, shall be required for any amendment of the
Articles of Incorporation altering materially any existing provision
of the Preference Stock or for the creation, or an increase in the
authorized amount, of any class of stock ranking, as to dividends or
assets, prior to the Preference Stock, and the affirmative approval
of the holders of at least a majority of the Preference Stock at the
time outstanding, voting as a class without regard to series, shall
be required for an increase in the authorized amount of the
Preference Stock or for the creation, or an increase in the
authorized amount, of any class of stock ranking, as to dividends or
assets, on a parity with the SEC. DiscussPreference Stock; provided, however,
that if any significant changesamendment of the Articles of Incorporation shall affect
adversely the rights or preferences of one or more, but not all, of
the series of Preference Stock at the time outstanding or shall
unequally adversely affect the rights or preferences of different
series of Preference Stock at the time outstanding, the affirmative
approval of the holders of at least two-thirds (2/3) of such shares
of each such series so adversely or unequally adversely affected
shall be required in lieu of or (if such affirmative approval is
required by law) in addition to the Corporation's accounting policies and
significant judgements that may affectaffirmative approval of the
financial results andholders of at least two-thirds (2/3) of the outstanding shares of
Preference Stock as a class.
At any itemsmeeting at which the holders of the Preference Stock shall
have the right to vote as a class, the presence in person or by proxy
of the holders of a majority of the outstanding shares of Preference
Stock shall be required to constitute a quorum of such class. Each
holder of Preference Stock entitled to vote at any particular time
shall have one vote for each share of stock held of record by him.
(4)The Preference Stock shall rank junior to the Preferred Stocks and the
Serial Preferred Stock with respect to the distribution of assets of the
Corporation. After the payment to the holders of the Preferred Stocks
and the Serial Preferred Stock of all amounts payable to them in the
event of any liquidation or dissolution or distribution of the assets
(whether voluntary or involuntary) of the Corporation, in the event of
any liquidation, dissolution or winding up (whether voluntary or
involuntary) of the Corporation, the holders of each series of the
Preference Stock at the time outstanding shall be communicatedentitled to be paid in
cash the distributive amount fixed for the particular series, which
shall include dividends accrued thereon to the date fixed for payment of
such distributive amounts, and no more, before any such distribution or
payment shall be made to the holders of Common Stock. Neither the
consolidation nor merger of the Corporation with or into any other
corporation or corporations, nor the sale or transfer by the external auditors in
accordance with relevant auditing standards. The chairCorporation
of all or any part of its assets, shall be deemed a liquidation,
dissolution or winding up of the CommitteeCorporation.
In the event of any liquidation, dissolution or winding up (whether
voluntary or involuntary) of the Corporation, no payment shall be made
to the holders of any series of the Preference Stock unless there shall
likewise be paid at the same time to the holders of all shares at the
time outstanding of each series of the Preference Stock like
proportionate distributive payments, ratably, in proportion to the full
distributive payments to which they are respectively entitled.
(5)The Corporation, at the option of the Board of Directors, may representredeem at
any time or times, and from time to time, all or any part of any one or
more series of Preference Stock outstanding upon notice duly given as
hereinafter specified, by paying for each share the entire Committeethen applicable
redemption price fixed by the Board of Directors as provided herein,
plus an amount equal to dividends accrued thereon to the date fixed for
purposesredemption; provided, however, that a notice specifying the shares to be
redeemed and the time and place of this
reviewredemption shall be mailed, addressed
to the holders of record of the Preference Stock to be redeemed at their
respective addresses as the same shall appear upon the books of the
Corporation, not less than thirty (30) days prior to the date fixed for
redemption. If less than the whole amount of any outstanding series of
Preference Stock is to be redeemed, the shares of such series to be
redeemed shall be selected by lot or pro rata in any manner determined
by resolution of the Board of Directors to be fair and relyproper. From and
after the date fixed in any such notice as the date of redemption
(unless default shall be made by the Corporation in providing moneys at
the time and place of redemption for the payment of the redemption
price) all dividends upon managementthe Preference Stock so called for determining materiality.
3) As necessary, butredemption
shall cease to accrue, and all rights of the holders of said Preference
Stock as shareholders in the Corporation, except the right to receive
the redemption price upon surrender of the certificate representing the
Preference Stock so called for redemption, duly endorsed for transfer,
if required, shall cease and determine. With respect to any shares of
Preference Stock so called for redemption, if, before the redemption
date, the Corporation shall deposit with a bank or trust company in the
Borough of Manhattan, City of New York, having a capital and surplus of
at least annually, review$5,000,000, funds necessary for such redemption, in trust, to
be applied to the effects of changes in
accounting standards that may materially affect the Corporation's
financial reporting practices.
4) In consultation with management, the external auditors and the
internal auditors consider the integrityredemption of the Corporation's
financial reporting practicesshares of Preference Stock so called
for redemption, then from and after the adequacy and effectivenessdate of internal controls. Discuss significant financial risk exposures and
the steps management has taken to monitor, control and report such exposures. Review significant findings identified by the external
auditors and the internal auditing department together with
management's responsiveness to such recommendations.
B. External Auditors
1) The external auditors are ultimately accountable to the Committee and
the Board, which have the ultimate authority to select, evaluate and,
where appropriate, replace the external auditors. The Committee shall
review the independence and performancedeposit, all rights
of the auditorsholders of such shares of Preference Stock, so called for
redemption, shall cease and annually
recommenddetermine, except the right to receive, on
and after the A-2
Boardredemption date, the appointmentredemption price upon surrender of
the external auditors or approve any
dischargecertificates representing such shares of auditors when circumstances warrant.
2) The Committee is responsiblePreference Stock, so called
for ensuring the independence of the
external auditors. On an annual basis, the Committeeredemption, duly endorsed for transfer, if required. Any interest
accrued on such funds shall receive and
evaluate a formal report from the external auditors, which discloses
all significant relationships with the Corporation that the auditors
believe may impact their independence and objectivity. Discussions
should be held with the external auditors and management on the scope
of any such disclosed relationships and their impact or potential
impact on the external auditors' independence and objectivity.
3) Review the external auditors' audit plan and areas of audit focus.
Review the fees and other significant compensation to be paid to the external auditors.
C. Internal Audit
1) ReviewCorporation from time to
time. Any funds so deposited and unclaimed at the audit plan and significant changes in planned activities;
review significant findings resultingend of six (6) years
from audits and management's
responsivenesssuch redemption date shall be released or repaid to the
findings.
2) Review Audit Services' assessmentCorporation, after which the holders of such shares of Preference Stock
so called for redemption shall look only to the Corporation for payment
of the effectiveness of, or
weaknesses in, internal control systems.
3) Evaluate the performance and independence of Audit Services based on
the review of information referred to above and discussions with the
Vice President of Audit Services.
D. Other Audit Committee Responsibilities
1) On at least an annual basis, review with the Corporation's General
Counsel any legal matters that can reasonably be expected to have a
material impact on the organization's financial position and results
of operations, the Corporation's compliance program and Code of
Business Ethics compliance and any material inquiries or reports
received from regulators or governmental agencies.
A-3
2) Annually, andredemption price.
If at any other time when the compositionCorporation shall have failed to declare and pay or
set apart for payment dividends in full upon the Preference Stock of all
series for all past dividend periods, or shall not have made, or set
aside for payment, all payments, if any, then or theretofore due under
the requirements of any sinking fund for the purchase or redemption of
shares of any series of the Committee
changes, ensure that management submitsPreference Stock, thereafter and until all
such dividends shall have been paid in full or declared and set apart
for payment and all sinking fund payments shall have
A-6
been made, or set aside for payment, the "Written Affirmation Form"
addressing the Committee compositionCorporation shall not redeem or
purchase, or permit any subsidiary to purchase, for any purpose, any
shares of Preference Stock of any series, unless all shares of
Preference Stock of all series then outstanding shall be redeemed or
purchased.
(d)Common Stock
(1)The Corporation may, from time to time, issue and chartersell any of its
authorized and unissued shares of Common Stock for such consideration,
upon such terms and in such manner as may from time to the NYSE.
3) Reviewtime be fixed and
reassess the adequacy of this Charter at least annually.
Submit the Charter to the Board for approval and adoption and have the
document published at least every three years in accordance with SEC
regulations.
4) Review and approve the Audit Committee Report that must be included in
the proxy statement.
5) Periodically report todetermined by the Board of Directors, and any and all such shares so
issued, the full consideration for which shall have been paid, shall be
conclusively deemed to be fully paid and nonassessable.
(2)Whenever the full dividends on significant
developments with respectthe Preferred Stocks, on the Serial
Preferred Stock and on the Preference Stock at the time outstanding for
all past dividend periods and for the then current dividend period shall
have been paid, or declared and a sum sufficient for the payment thereof
set apart, then, and then only, such dividends (payable in cash, stock
or otherwise) as may be determined by the Board of Directors, may be
declared and paid on the Common Stock, from time to time, out of the
remaining retained earnings or net profits of the Corporation, and the
Preferred Stocks, the Serial Preferred Stock or the Preference Stock
shall not be entitled to participate in any such dividends, whether
payable in cash, stock or otherwise.
(3)In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment in full has
been made to the foregoing activities.
Procedural Matters
Aholders of the Preferred Stocks, to the holders of the
Serial Preferred Stock and to the holders of the Preference Stock of the
amounts to which they are respectively entitled or sufficient sums have
been set apart for the payment thereof, the holders of the Common Stock
shall be entitled to receive ratably any and all assets remaining to be
paid or distributed, and neither the holders of the Preferred Stocks,
the holders of the Serial Preferred Stock nor the holders of the
Preference Stock shall be entitled to share therein.
(4)Holders of the Common Stock shall be entitled to one (1) vote for each
share of such stock held at any and all meetings of the shareholders of
the Corporation, and, except as otherwise stated in this Article IV or
as otherwise provided by law or by the resolution or resolutions fixing
the designations, preferences, limitations and relative rights of any
series of Serial Preferred Stock, the exclusive voting power for all
purposes shall be vested in the holders of the Common Stock.
A-7
Exhibit B
Extract from the Articles of Incorporation of Duke Energy Corporation showing
the proposed amendment. Italics indicate the addition.
Article VII
In addition to any requirements of the By-Laws and the North Carolina Business
Corporation Act as in effect from time to time (and notwithstanding the fact
that a lesser vote may be specified by the By-Laws or the North Carolina
Business Corporation Act), the affirmative vote of the holders of at least a
majority of the members, butcombined voting power of the then outstanding shares of stock
of all classes of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required for the
shareholders of the Corporation to adopt, amend, alter, change or repeal any
provisions contained in the By-Laws of the Corporation. The provisions of this
Article VII may not less than two, will constitutebe altered, amended or repealed in any respect, nor may any
provision inconsistent therewith be adopted, unless such alteration, amendment,
repeal or adoption is approved by the affirmative vote of the holders of at
least a
quorum. A majority of the members present at any meeting at which a quorum is
present may act on behalfcombined voting power of the Committee.then outstanding shares of
stock of all classes of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
B-1
[LOGO] Duke Energy
(R)
Duke Energy will conduct its annual shareholders meeting on April 25, 2002 at
10:00 a.m. in the O.J. Miller Auditorium, located in the Energy Center at 526
South Church Street in Charlotte, North Carolina.
DIRECTORS
1. Class II Directors: 01- G. Alex Bernhardt, Sr. 02- William A. Coley
03- Max Lennon 04- Leo E. Linbeck, Jr.
Class I Director: 05- James T. Rhodes
Directors Recommend
For ALL -
PROPOSALS
2. Ratification of appointment of auditors. For -
Amendment of articles of incorporation to:
3A. update corporate purpose clause. For -
3B. authorize serial preferred stock. For -
3C. increase shareholder vote required to change by-laws. For -
3D. decrease permissible range of size of board of directors. For -
4. Shareholder proposal regarding investments in alternative
energy sources. Against -
5. Shareholder proposal regarding role of board of directors
in long-term strategic planning. Against -
6. Shareholder proposal regarding appointment of independent
auditors who only render audit services. Against -
7. Shareholder proposal regarding study of risk and
responsibility for public harm due to nuclear program. Against -
Account As of February 28, 2002 [LOGO]
To vote, mark an "X" in the appropriate box.
1. For ALL Nominees For ALL EXCEPT the following:
(Write number[s] of nominee[s] below)
Withhold Authority
For Against Abstain
The Committee may meetBoard of Directors recommends a
2. vote "FOR" each of the nominees
listed at left, "FOR" Proposals 2,
3A, 3B, 3C, 3D and "AGAINST"
For Against Abstain Proposals 4, 5, 6 and 7.
3A.
For Against Abstain
3B.
For Against Abstain Mark this box if, in the
future, you would prefer
3C. to view the annual report
and proxy statement via
For Against Abstain the Duke Energy website
(www.duke-energy.com).
3D. You will still receive this
For Against Abstain voting form by U.S.Mail
if you mark the box.
4.
For Against Abstain
---------------
5. See reverse for
For Against Abstain telephone and
Internet voting
6. instructions.
For Against Abstain ---------------
7.
If you are voting by mail, sign here as name(s) appear(s) above.
- ----------------------------------------------------------------
Date ,2002
- ----------------------------------------------------------------
If you are voting by mail, please sign and date this proxy and return it
promptly whether or videoconferencenot you plan to attend the meeting. If signing for a
corporation or partnership or as agent, attorney or fiduciary, indicate the
capacity in which you are signing. Each joint owner should sign. If you do
attend the meeting and may take actiondecide to vote by unanimous written consent.
A-4ballot, such vote will supersede this
proxy.
DUKE ENERGY CORPORATION
Annual Meeting of Shareholders
April 26, 200125, 2002 at 10:00 a.m.
Energy Center - O.J. Miller Auditorium
526 South Church Street
Charlotte, NCNorth Carolina
PROXY SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS
The undersigned hereby appoints R.B. Priory, R.P.
Brace and R.W. Blackburn, and each of them,
proxies, with the powers the undersigned would
possess if personally present, and with full power
of substitution, to vote all shares of Common Stock of
Duke Energy Corporation of the undersigned at the
annual meeting of shareholders to be held in the
Energy Center, 526 South Church Street, Charlotte,
North Carolina, on April 26, 2001,25, 2002, and at any
adjournment thereof, upon all subjects that may
come before the meeting, including the matters
described in the proxy statement furnished herewith,
subject to any directions indicated on the reverse
side of this card. If no directions are given, the
individuals designated above will vote for the
election of all director nominees, in accord with
the directors' recommendations on the other
subjects listed on the reverse of this card and at
their discretion on any other matter that may
come before the meeting.
Your vote for the election of directors may be
indicated on the reverse. Nominees are
Ann Maynard Gray, Dennis R. HendrixG. Alex Bernhardt, Sr., William A. Coley, Max
Lennon, Leo E. Linbeck, Jr. and Harold S. Hook.James T. Rhodes.
If you are voting by mail, please sign on the
reverse and return promptly in the enclosed return
envelope. To vote by telephone or Internet, see
instructions to the right.
Investor Relations Department
526 South Church Street
PO Box 1005
Charlotte, NC 28201-1005
(704) 382-3853 Charlotte
(800) 488-3853 Toll-Free
(704) 382-3814 Fax
VOTE BY TELEPHONE OR INTERNET
q u i c k -o e a s y -o i m m e d i a t e
Your telephone or Internet vote authorizes the named right of this form.
proxies to vote your shares in the same manner as if you marked, signed and
returned your proxy card.
VOTE BY PHONE:
You will be asked to enter a control number located in the box in the lower
right of this form.form
Option A: To vote as the Board of Directors recommends for all nominees and on
all proposals: Press 1
Option B: If you choose to vote on each item separately, press 0. You will hear
these instructions:
Directors: To vote FOR ALL nominees, press 1;
To WITHHOLD FOR ALL nominees, press 9;
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and
listen to the instructions.
Proposals: To vote FOR, press 1;
To vote AGAINST, press 9;
To ABSTAIN, press 0.
The instructions are the same for all proposals to be voted.
When asked, you must confirm your vote by pressing 1.
VOTE BY INTERNET:
The Website address is www.proxyvoting.com/dukeenergy.dukeenergy
You will be asked to enter the control number located in the box in the
lower right of this form. Then follow the instructions on the screen.
TO VOTE BY PHONE ------------
Call --- Toll Free --- On a Touch-ToneTouch Tone Telephone
1-888-457-2966 Anytime
There is NO CHARGE to you for this call. ------------
Control Number - For Telephone/Internet Voting
If you vote by phone or Internet, DO NOT mail the proxy card. Thank you for
voting.
>>>> PAGE 2 begins here <<<<
Duke Energy will conduct its annual shareholders meeting on April 26, 2001 at
10:00 a.m. in the O.J. Miller Auditorium, located in the Energy Center at 526
South Church Street in Charlotte, North Carolina.
The Board of Directors recommends a vote "FOR" each of the nominees listed
below, "FOR" Proposals 2, 3 and 4 and "AGAINST" Proposals 5 and 6.
DIRECTORS
1. Class I Directors:
01- Ann Maynard Gray
02- Dennis R. Hendrix
03- Harold S. Hook
PROPOSALS
2. Ratification of appointment of auditors.
3. Increase in authorized common stock.
4. Approval of amendment to 1998 Long-Term Incentive Plan.
5. Shareholder proposal relating to contributions to political movements and
entities.
6. Shareholder proposal relating to investments in alternative energy sources.
Investor Relations Department
526 South Church Street
PO Box 1005
Charlotte, NC 28201-1005
(704) 382-3853 Charlotte
(800) 488-3853
Toll-Free
(704) 382-3814 Fax
- - Mark this box if, in the future, you would prefer to view the annual report
and proxy statement via the Duke Energy Website (www.duke-energy.com). You will
still receive this voting form by U.S. Mail if you mark the box.
- - If you are voting by mail, sign here as name(s) appear(s) above.
If you are voting by mail, please sign and date this proxy and return it
promptly whether or not you plan to attend the meeting. If signing for a
corporation or partnership or as agent, attorney or fiduciary, indicate the
capacity in which you are signing. Each joint owner should sign. If you do
attend the meeting and decide to vote by ballot, such vote will supersede this
proxy.
See reverse for telephone and Internet voting instructions.