SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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DUKE ENERGY CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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[Duke Energy Logo]
Proxy
Statement
and notice of
2001 Annual Meeting
[Duke Energy Logo]
526 South Church Street
Charlotte, NC 28202-1802
March 19, 2001
Dear Shareholder:
I am pleased to invite you to our annual meeting to be held on April 26, 2001 in
the O. J. Miller Auditorium located in our Charlotte headquarters building. We
will discuss our performance in 2000 and our goals for 2001 and respond to any
questions you may have. Enclosed with this proxy statement are your proxy card
and voting instructions and the 2000 annual report.
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. Priory
Chairman of the Board, President
and Chief Executive Officer
[Duke Energy Logo]
526 South Church Street
Charlotte, NC 28202-1802
Notice of Annual Meeting of Shareholders
April 26, 2001
March 19, 2001
We will hold the annual meeting of shareholders of Duke Energy Corporation on
Thursday, April 26, 2001 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 three nominees as Class I directors.
2. Ratification of Deloitte & Touche LLP as Duke Energy's independent
auditors for 2001.
3. A proposal to amend the Articles of Incorporation to increase the amount
of authorized Common Stock from 1,000,000,000 to 2,000,000,000 shares.
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.
7. Any other business that properly comes before the annual meeting.
Shareholders of record as of March 1, 2001 can vote at the annual meeting. This
proxy statement, proxy card and voting instructions, along with our 2000 annual
report to shareholders, are being distributed on or about March 19, 2001.
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
Richard W. Blackburn
Executive Vice President,
General Counsel and Secretary
Table of Contents
Commonly Asked Questions and Answers About the Annual Meeting 2
Proposals to be Voted Upon 5
Proposal 1: Election of Directors 5
Proposal 2: Ratification of Deloitte & Touche LLP as 5
Duke Energy's Independent Auditors for 2001
Proposal 3: Amendment to the Articles of Incorporation to Increase 5
the Amount of Authorized Common Stock
Proposal 4: Amendment to the Duke Energy 1998 Long-Term 6
Incentive Plan
Proposal 5: Shareholder Proposal Relating to Contributions to 11
Political Movements and Entities
Proposal 6: Shareholder Proposal Relating to Investments in Alternative 12
Energy Sources
The Board of Directors 15
Beneficial Ownership 19
Information on the Board of Directors 21
Report of the Audit Committee 23
Report of the Compensation Committee 24
Performance Graph 29
Compensation 30
Summary Compensation Table 30
Long-Term Incentive Plan - Awards in 2000 32
Option Grants in 2000 32
Option Exercises and Year-End Values 33
Employment Contracts and Termination of Employment and 33
Change-in-Control Arrangements
Retirement Plan Information 35
Other Information 37
Appendix A - Charter of the Audit Committee of the Board of Directors A-1
Commonly Asked
Questions and Answers
About the Annual Meeting
Q: What am I voting on?
A: o Election of three directors: the nominees are Ann Maynard Gray, Dennis
R. Hendrix and Harold S. Hook;
o Ratification of Deloitte & Touche LLP as Duke Energy's independent
auditors for 2001;
o Amendment to the Articles of Incorporation to increase the authorized
Common Stock;
o Amendment to the Duke Energy 1998 Long-Term Incentive Plan;
o A shareholder proposal relating to contributions to political movements
and entities, if properly presented at the annual meeting; and
o A shareholder proposal relating to investments in alternative energy
sources, if properly presented at the annual meeting.
Q: Who can vote?
A: Common shareholders of Duke Energy as of the close of business on the
record date, March 1, 2001 can vote at the annual meeting, either in person
or by proxy. Each share of Duke Energy Common Stock has one vote.
Q: How do I 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 five 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 directors named in
Proposal 1;
o in favor of Proposals 2, 3 and 4; and
o against Proposals 5 and 6.
Q: May I 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.
Q: Can I vote my shares by telephone or on the Internet?
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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.
If your shares are held in "street name," 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 if I do not provide my proxy?
A: No, 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 and 4 (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 do I 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.
Q: What constitutes a quorum?
A: As of the record date, March 1, 2001, ______________ 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?
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. For the election of directors,
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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?
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, 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?
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 2002 annual meeting, we must receive this
notice on or after December 27, 2001, and on or before January 26, 2002.
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.
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.
4
Proposals to be Voted Upon
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 three Class I
directors will expire at the 2001 annual meeting.
The Board of Directors has nominated the following Class I directors for
re-election: Ann Maynard Gray, Dennis R. Hendrix and Harold S. Hook.
If any director is unable to stand for re-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.
PROPOSAL 2:
Ratification of Deloitte & Touche LLP as Duke Energy's Independent Auditors for
2001
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. 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.
PROPOSAL 3:
Increase in Authorized Common Stock
The Board of Directors recommends a vote FOR this proposal.
Duke Energy completed a two-for-one split of its Common Stock in January 2001.
After giving effect to the stock split, Duke Energy had outstanding on March 1,
2001 approximately __________ shares of Common Stock out of 1,000,000,000 shares
authorized for issuance. In addition, Duke Energy will have approximately
____________ shares reserved for issuance under various stock-based plans,
assuming shareholder approval at the annual meeting of the
5
proposed increase in shares reserved for issuance under the Duke Energy 1998
Long-Term Incentive Plan. In view of this, the Board of Directors has approved
an amendment to the Articles of Incorporation to increase the number of shares
of authorized Common 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 increase the authorized number of shares of
Common Stock because there may be insufficient shares available for issuance
from time to time for purposes which the Board determines to be in Duke Energy's
interest. These purposes would include financing growth, effecting stock splits
or stock dividends, providing shares for employee benefit and dividend
reinvestment plans, possible acquisitions and other general corporate purposes
related 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.
Unless required by law or by the applicable rules of the New York Stock
Exchange, no further authorization for the issuance of Common 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:
Amendment of the Duke Energy 1998 Long-Term Incentive Plan
The Board of Directors recommends a vote FOR this proposal.
The 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.
6
The Amendment
- -------------
The Amendment seeks to increase 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 of 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 awards to outside directors and the Chairman, President and
Chief Executive Officer must be made by the Board of Directors.
Eligibility to Receive Awards. Substantially all employees of Duke Energy and
its subsidiaries and all of Duke Energy's outside directors are eligible to be
granted awards under the Plan. The number of actual grantees may vary from year
to year.
Stock Option Awards. Awards of nonqualified stock options and incentive stock
options may be granted under 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 be
subject to incentive stock options that become exercisable by any one employee
in any one year is limited 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 Stock 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.
7
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.
8
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 Equivalents 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
9
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 to 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 appreciate 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 , 2001 was $ per share.
10
1998 Long-Term Incentive Plan Benefits. The Compensation Committee has granted
stock option awards as part of 2001 compensation under the Plan as described in
the table entitled "Option Grants in 2000" in this proxy statement. The exercise
price of such option was $42.8125. Award recipients were allowed to elect to
receive a portion of the value of 2001 long-term incentive compensation in the
form of phantom stock, as further described in footnote 2 of the Summary
Compensation Table under "Compensation" below. The fair market value of one
phantom stock unit on the date of grant was $42.8125. In addition, members of
the groups named below have received option awards and phantom stock awards for
2001 as follows:
Number of
Number of Shares Phantom Stock
Identity of Group Underlying Options 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. No other
determinations have been made with respect to future awards under the Plan.
SHAREHOLDER PROPOSALS
The following two 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 Entities
The Board of Directors recommends a vote AGAINST this 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 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.
11
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) 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.
12
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
troughs 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 Directors
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 proponent 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.
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 capital investment in
biomass fueled renewable energy projects. Duke Energy will continue to
13
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 interest 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. 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 therefore recommends a vote AGAINST this shareholder
proposal.
14
The Board of Directors
Nominees for election at the annual meeting are marked with an asterisk (*).
(Photo) G. Alex Bernhardt, Sr.
Director since 1991
Chairman and CEO, Bernhardt Furniture Company, furniture
manufacturer
Age 57
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 J. Brown
Director since 1994
Chairman and CEO, B&C Associates, Inc., marketing research and
public relations firm
Age 66
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 Union Corporation, Sonoco Products Company
and AutoNation, Inc. He is a Class III director with a term
expiring in 2003.
(Photo) William A. Coley
Director since 1990
Group President, Duke Power, electric operations of Duke
Energy
Age 57
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 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.
(Photo) William T. Esrey
Director since 1985
Chairman and CEO, Sprint Corporation, a diversified
telecommunications holding company
Age 61
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.,
15
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 *
Director since 1994
Former Vice President, ABC, Inc. and Former President,
Diversified Publishing Group of ABC, Inc., television, radio
and publishing
Age 55
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 had
been a director of PanEnergy Corp since 1994. Ms. Gray is a
director of Elan Corporation, plc. as of February 1, 2001.
(Photo) Dennis R. Hendrix *
Director since 1990
Retired Chairman of the Board, PanEnergy Corp
Age 61
Mr. Hendrix was Chairman of the Board of PanEnergy Corp from
1990 to 1997; CEO from 1990 to 1995; and President from 1990
to 1993. He served as a director of Texas Eastern Transmission
Corporation from 1990 to 1997 and as President and CEO from
1990 to 1994. Mr. Hendrix is a director of Allied Waste
Industries, Inc., International Power, PLC and Newfield
Exploration Company.
(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
director of Sprint Corporation and had been a director of
PanEnergy Corp since 1978.
(Photo) George Dean Johnson, Jr.
Director since 1986
CEO, Extended Stay America, development, ownership and
management of extended-stay lodging facilities
Age 58
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. Johnson is a director of
Extended Stay America, Boca Resorts,
16
Inc., and AutoNation, Inc. He is a Class III director with a
term expiring in 2003.
(Photo) Max Lennon
Director since 1988
President, Mars Hill College, Mars Hill, NC
Age 60
Dr. Lennon assumed his present position in 1996, after serving
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., Delta Apparel, Inc. and Duck Head
Apparel, Inc. He is a Class II director with a term expiring
in 2002.
(Photo) Leo E. Linbeck, Jr.
Director since 1986
Chairman, President and CEO, Linbeck Corporation, holding
company of four construction-related firms
Age 66
Mr. Linbeck assumed his present position in 1990 after serving
as Chairman, President and CEO of Linbeck Construction
Corporation from 1975 to 1990. He served as a director of
PanEnergy Corp from 1986. Mr. Linbeck is a Class II director
with a term expiring in 2002.
(Photo) James G. Martin, Ph.D.
Director since 1994
Vice President, Carolinas HealthCare System
Age 65
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 B. Priory
Director since 1990
Chairman of the Board, President and CEO, Duke Energy
Corporation
Age 54
Mr. Priory became Chairman of the Board and CEO in 1997 upon
the merger of Duke Energy and PanEnergy Corp, and became
President in 1998. He had served as President and Chief
Operating Officer of Duke
17
Energy from 1994 until 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. Priory is a Class III
director with a term expiring in 2003.
18
Beneficial Ownership
This table indicates how much Duke Energy Common Stock was beneficially owned by
the current directors, the executive officers listed under "Summary Compensation
Table" in "Compensation" below ("Named Executive Officers") and by all current
directors and executive officers as a group as of February 27, 2001.
o The shares listed as "Beneficially Owned" include shares held as of February
27, 2001 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 Owned Owned(2) Acquired
- --------------------------------------------- ------------------- ----------------- -------------
G.A. Bernhardt, Sr. 18,479 21,079 11,600
R.J. Brown 8,729 11,329 11,600
W.A. Coley(1) 42,826 242,076 577,000
W.T. Esrey 48,017 50,617 11,600
F.J. Fowler 104,544 468,316 745,522
A.M. Gray 30,631 33,231 11,600
D.R. Hendrix 419,422 422,022 11,600
H.S. Hook 49,743 52,343 11,600
G.D. Johnson, Jr. 23,756 26,356 11,600
M. Lennon 18,483 21,083 11,600
L.E. Linbeck, Jr. 42,304 44,904 11,600
J.G. Martin 10,362 11,262 9,900
R.J. Osborne(1) 17,435 88,435 348,000
H.J. Padewer(1) 16,789 16,789 568,950
R.B. Priory(1) 27,539 654,339 1,726,800
Directors and executive officers as a
group (21) 972,476 2,709,815 5,468,489
(1) Also own Common Stock equivalents under the Duke Energy Executive Savings
Plan as of February 27, 2001 in the following amounts: R.B. Priory, 58,196;
H.J. Padewer, 1,626; W.A. Coley, 107,249; R.J. Osborne, 4,747.
(2) Includes shares that may be acquired within 60 days after February 27,
2001.
19
This table shows how many units of limited-partnership interests in TEPPCO
Partners, L.P. were beneficially owned on February 27, 2001 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, 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
20
Information on the Board of Directors
Board Meetings and Attendance
The Board of Directors had seven meetings during 2000. During 2000, 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 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, provides
independent oversight with respect to financial reporting and
internal controls, the internal audit function and the independent
auditors, and makes recommendations on audit matters 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. This Committee makes recommendations to the Board of
Directors regarding the salary and other compensation of the
Chairman of the Board for consideration and action by the Board of
Directors, without the presence or participation of the Chairman of
the Board. 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 monitors and makes
recommendations for improving Duke Energy's overall performance. It
also determines whether current policies provide sufficient support
for Duke Energy's emphasis on continuous improvement.
o The Finance Committee reviews Duke Energy's financial and fiscal
affairs and makes recommendations to the Board of Directors
regarding dividend, financing and fiscal policies.
21
Board Committee Membership Roster
Corporate
Corporate Performance
Name Audit Compensation Governance Review Finance
============================= ====== ============ ========== ====== =======
G.A. Bernhardt, Sr. X X
- ----------------------------- ------ ------------ ---------- ------ -------
R.J. Brown X X
- ----------------------------- ------ ------------ ---------- ------ -------
W.T. Esrey X X
- ----------------------------- ------ ------------ ---------- ------ -------
A.M. Gray X X
- ----------------------------- ------ ------------ ---------- ------ -------
D.R. Hendrix X X
- ----------------------------- ------ ------------ ---------- ------ -------
H.S. Hook X X
- ----------------------------- ------ ------------ ---------- ------ -------
G.D. Johnson, Jr. X X*
- ----------------------------- ------ ------------ ---------- ------ -------
M. Lennon X* X
- ----------------------------- ------ ------------ ---------- ------ -------
L.E. Linbeck, Jr. X X*
- ----------------------------- ------ ------------ ---------- ------ -------
J.G. Martin X X*
- ----------------------------- ------ ------------ ---------- ------ -------
R.B. Priory X X
- ----------------------------- ------ ------------ ---------- ------ -------
Number of 8 6 5 6 6
meetings in 2000
- ----------------------------- ------ ------------ ---------- ------ -------
* Chair
Resignation Policy
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 relationships 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 Directors
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 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.
A director may elect to receive 50% of his or her retainer and attendance fees
in the form of Duke
22
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 of Duke Energy
Common 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.
In January and July of each year, each outside director is credited with 100
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 2,000 shares at the same time executive officers receive annual
long-term incentive awards. The grant for 2001 was made on December 20, 2000,
consistent with the grant date for 2001 awards to executive officers.
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.
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 2,000 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.
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 in this proxy statement. The Audit Committee held
eight meetings during 2000.
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, the Audit Committee
reviewed and discussed the audited financial statements and the quality of
financial reporting with management and the independent auditors. It also
discussed with the independent auditors the matters required to be discussed by
Statement
23
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).
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, for filing with the
Securities and Exchange Commission. 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.
A. Max Lennon, Chairman
Ann M. Gray
Harold S. Hook
Leo E. Linbeck, Jr.
Report of the Compensation Committee
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 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;
24
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 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 50,000 shares. The target level for the remaining
members of the Policy Committee, including Messrs. Padewer, Coley, Fowler and
Osborne, is 14,000 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. 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 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
o 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 executive officers. Base
pay increases were approved, effective January 1, 2000, for Messrs.
Padewer, Coley, Fowler and Osborne. Mr. Priory's base salary
25
increase was approved effective March 1, 2000.
o 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, the Compensation
Committee administered two annual incentive plans that permitted the
granting of annual cash incentives to 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-Term Incentive Plan. Target incentive opportunities for
executives under both Plans 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, and
participants could receive up to 200% of their short-term incentive
targets. EPS performance for 2000 resulted in payments of 200% of bonus
targets to the Policy Committee members, including the Named Executive
Officers.
Awards under the Duke Energy Short-Term 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%, 23% and 12%,
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 are
received. Following review of competitive practice presented by an
independent compensation consultant, the Compensation Committee
approved the election by executives 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. 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 stock
options by an expected present value
26
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, as a component of 2001 compensation, the Compensation
Committee approved awards of non-qualified stock options (as described
under "Option Grants in 2000" 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, Fowler and Osborne each elected to receive 20% of the
annualized value of their 2001 long-term incentive compensation in the
form of phantom stock. In late 2000, as a component of 2001
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 Energy also seeks
to ensure the retention of key executives. Towards this objective, the
Compensation Committee approved in January 2000 the award of
performance shares (as described under "Long-Term Incentive Plan -
Awards in 2000" below) to Mr. Padewer under the Duke Energy 1998
Long-Term Incentive Plan. This award has an accelerated vesting feature
which allows one third 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 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.
27
Please refer to 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 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, the Compensation Committee retained the consulting firm of
Frederick 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 2000 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% increase in Mr. Priory's base
salary, to $950,000, effective March 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.
o Annual Incentives: Annual incentive compensation for Mr. Priory is
based solely upon EPS results. Based on 2000 EPS performance, Mr.
Priory received a payment of $1,908,328, representing 200% of his
target incentive opportunity.
o Long-Term Incentives: In February 2000, 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. The stock
option has a ten-year term and 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 2001 with respect to Mr. Priory's 2001 compensation will be reflected
in the proxy statement for the 2002 annual meeting, which will include, among
other things, an award to Mr. Priory of non-qualified stock options with respect
to 400,000 shares and a phantom stock award for 24,240 phantom stock units.
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.
28
This report has been provided by the Compensation Committee.
Leo E. Linbeck, Jr., Chairman
William T. Esrey
George Dean Johnson, Jr.
Max Lennon
James G. Martin
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 DJ Utilities
Assumes $100 Invested on Dec. 31, 1995 in
Duke Common Stock, S&P 500 Index, S&P
Utilities Index, and DJ Utilities. Assumes
reinvestment of dividends.
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Duke: $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 $223
29
Summary Compensation Table
Annual Compensation
------------------------------------
Other Annual
Name and Principal Position Year Salary ($) 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 2000 400,000 156,596
Chairman of the Board, President 1999 148,501
and Chief Executive Officer 1998 1,000,000 1,034,203
H.J. Padewer (1) 2000 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 45,363
Executive Vice President 1999 124,000 42,751
and Chief Risk Officer 1998 200,000 168,907
(1) Mr. Padewer joined Duke Energy on January 1, 1999.
(2) Messrs. Padewer, Coley, Fowler and Osborne elected to receive a portion of
the value of the long-term incentive
30
component of their 2001 compensation in the form of phantom stock. The awards
were granted under the Duke Energy 1998 Long-Term Incentive Plan on December 20,
2000. 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 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. Priory's phantom stock
award with respect to 2001 compensation was awarded on February 27, 2001, and,
accordingly, will be reported in the proxy statement for the 2001 annual
meeting.
The aggregate number of phantom stock units held by Messrs. Padewer, Coley,
Fowler and Osborne at December 31, 2000 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) 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, were 11,250 shares, with a value on that date of $479,531. 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 and January 2, 2001. The
remainder is to vest in two additional installments of 3,750 shares each on
January 2, 2002 and January 2, 2003.
(4) All Other Compensation column includes the following for 2000:
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, $10,200; F.J. Fowler, $10,200; R.J. Osborne, $9,933.
b. Make-whole matching contribution credits under the Duke Energy
Executive Savings Plan as follows: R.B. Priory, $106,878; H.J.
Padewer, $38,509; W.A. Coley, $32,540; F.J. Fowler, $32,268; R.J.
Osborne, $28,761.
c. Above-market interest earned on account balances in the Duke
Energy Executive Savings Plan, Supplemental Account as follows:
R.B. Priory, $9,310; H.J. Padewer, $0; W.A. Coley, $12,370; F.J.
Fowler, $0; R.J. Osborne, $4,814.
d. Economic value of life insurance coverage provided under life
insurance plans as follows: R.B. Priory, $17,881; H.J. Padewer,
$2,622; W.A. Coley, $4,736; F.J. Fowler, $2,346; R.J. Osborne,
$1,855.
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; H.J. Padewer, $0; W.A. Coley, $5,876; 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; F.J.
Fowler, $0; R.J. Osborne, $0.
31
Long-Term Incentive Plan - Awards in 2000
Number 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 is 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 a base amount specified in the award and
assuming dividends are reinvested. If any 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 made 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 2000
This table shows options granted to the Named Executive Officers during 2000,
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, were awarded on December 20, 2000,
and relate to compensation for 2001. The grant to R. B. Priory having an
expiration date of February 23, 2010, was awarded on February 23, 2000 as a
component of 2000 compensation. R.B. Priory's option grant with respect to 2001
compensation was awarded on February 27, 2001, and, accordingly, will be
reported in the proxy statement for the 2002 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)(#) Employees ($/Sh) Date Value(2)($)
- ---- ------------ --------- ------ ---------- ----------
R.B. Priory 400,000 5.8% 25.3125 02/23/2010 2,093,000
H.J. Padewer 173,600 2.5% 42.8125 12/20/2010 1,802,300
W.A. Coley 100,000 1.5% 42.8125 12/20/2010 1,038,200
F.J. Fowler 104,000 1.5% 42.8125 12/20/2010 1,079,700
R.J. Osborne 104,000 1.5% 42.8125 12/20/2010 1,079,700
(1) Duke Energy has not granted any SARs to the Named Executive Officers or any
other persons.
(2) Based on the Black-Scholes option valuation model. The following table lists
key input variables used in valuing the
32
options:
400,000 Share Option
Input Variable Grant to R. B. Priory All Other Option Grants
-------------- --------------------- -----------------------
Risk-free Interest Rate 6.37% 5.45%
Dividend Yield 3.95% 3.70%
Stock Price Volatility 18.91% 25.88%
Option Term 10 years 10 years
With respect to Mr. Priory's 400,000 share option grant, the volatility variable
reflected weekly historical stock price trading data with respect to Duke Energy
Common Stock from June 18, 1997 (the effective date of the merger with PanEnergy
Corp) through December 31, 1999. With respect to all other option grants listed
in the table, the volatility variable reflected historical monthly stock price
trading data from November 30, 1997 through November 30, 2000. 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 Values
This table shows aggregate exercises of options during 2000 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, which was $42.86. The fair market value is the average of the high and
low prices of a share of Duke Energy Common Stock on that date as reported on
the New York Stock Exchange Composite Transactions Tape. The ultimate value of a
stock option will depend on the market value of the underlying shares on a
future date.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARS at Options/SARS at
FY-End * (#) FY-End ($)
------------ -------
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 / 15,053,750
H.J. Padewer -- -- 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
F.J. Fowler 11,466 228,539 296,208 / 461,750 5,682,637 / 5,336,574
R.J. Osborne 80,000 1,042,500 31,000 / 317,000 557,535 / 3,284,495
* 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
Arrangements
Duke Energy entered into a change-in-control agreement with Mr. Padewer, which
became effective on January 1, 2000. The agreement replaced Mr. Padewer's
employment agreement with certain exceptions. Duke Energy had entered into
severance agreements and change 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
33
upon expiration of the executive's employment agreement. 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, Fowler and Osborne provide
for severance payments and benefits to the executive in the event of termination
of employment other than upon death or disability or for "cause" (as defined in
the severance agreements) by Duke Energy as follows: (1) a lump-sum payment
equal to two times the sum of the executive's then-current base salary and
target bonus, plus a pro rata amount of the executive's target bonus for the
year in which the termination occurs; (2) a lump sum payment equal to the
present value of the amount Duke Energy would have contributed or credited to
the executive's pension and savings accounts during the two years following the
termination date; (3) continued medical, dental and basic life insurance
coverage for a two-year period following the termination date or retiree medical
benefits, if the executive would have become eligible for such benefits within
two years following the termination date, from the date of eligibility; and (4)
continued vesting of long-term incentive awards, including stock options or
restricted stock but excluding performance share awards, held but not vested or
exercisable on the termination date, in accordance with their terms for two
years following the termination date, with any options or similar rights
thereafter remaining exercisable for 90 days, if their term has not expired. If
Messrs. Priory, Coley, Fowler and Osborne receive a payment under their
severance agreements, no payment will be made under the performance share award.
The severance agreements contain restrictive covenants which prohibit Messrs.
Priory, Coley, Fowler and Osborne from competing with Duke Energy or soliciting
Duke Energy's employees or customers for one year following termination, and
from disclosing certain confidential information.
The change-in-control agreements for Messrs. Priory, Padewer, Coley, Fowler and
Osborne provide for payments and benefits to the executive in the event of
termination of employment for "good reason" by the executive or other than for
"cause" by Duke Energy within a two-year period following a "change-in-control"
(each such term as defined in the change-in-control agreements) as follows: (1)
a lump-sum payment equal to the sum of the executive's then-current base salary
and target bonus, for each year of the three-year period after termination,
including a pro rata amount for any partial years in such period, plus a pro
rata amount of the executive's target bonus for the year in which the
termination occurs; (2) a lump sum payment equal to the present value of the
amount Duke Energy would have contributed or credited to the executive's pension
and savings accounts during the three years following the termination date; (3)
continued medical, dental and basic life insurance coverage for a three-year
period following the termination, or retiree medical benefits, if the executive
would have become eligible for such benefits within two years following the
termination date, from the date of eligibility; and (4) continued vesting of
long-term incentive awards, including stock options or restricted stock but
excluding performance share awards, 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
34
"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 will 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 reasons other than for cause, if any of such events occur before
the third anniversary of his 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 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) 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:
Monthly Pay Credit
Age and Service Percentage
34 or less 4%
35 to 49 5%
50 to 64 6%
65 or more 7%
35
In addition, the employee receives an additional 4% for any portion of eligible
pay above the Social Security taxable wage base ($76,200 for 2000). 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; H.J. Padewer, $189,462; W.A.
Coley, $386,044; F.J. Fowler, $279,754; R.J. Osborne, $314,507. 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.
36
Other Information
Discretionary Voting Authority
As of the date this proxy statement went to press, we did not anticipate that
any matter besides 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 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 2000 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. Fowler did not timely report an
exercise of options in February 2000 and a sale of Duke Energy Common Stock in
August 2000, and H. S. Hook did not timely report an exercise of options in May
2000. The failure to timely report such option exercises was due to
administrative oversight on the part of Duke Energy.
Fees Paid to Independent Auditors
The aggregate fees billed 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 the fiscal year ended December 31, 2000 and for the review of the
financial statements included in its Quarterly Reports on Form 10-Q for that
fiscal year were $3,373,051.
There were no fees billed by Deloitte for professional services rendered for
information technology services relating to financial information systems design
and implementation for the fiscal year ended December 31, 2000.
The aggregate fees billed by Deloitte for services rendered to Duke Energy,
other than the audit and review services referred to above, for the fiscal year
ended December 31, 2000 were $11,796,608. The Audit Committee considers the
provision of non-audit services by Deloitte to be compatible with maintaining
the principal accountant's independence.
Online Access to Annual 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.
37
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 2001 and proxy statement for the 2002 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.
38
Appendix A
CHARTER OF THE
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
DUKE ENERGY CORPORATION
(February 27, 2001)
Organization
The Board shall annually elect from its members who are not officers or
employees of the Corporation the Committee consisting of three or more persons,
one 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 annually at the discretion
of the Board of Directors or at the call of the chair or any two members
thereof. The Committee shall have the opportunity to meet privately (without
members of management present) and separately with the Vice President 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:
discussion of the audited financial statements with
management, including changes in accounting policies and
significant judgements that may affect the financial results,
and discussion with the external auditors required by relevant
auditing standards.
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 auditors prior to the filing of the Form 10-Q
with the SEC. Discuss any significant changes to the
Corporation's accounting policies and significant judgements
that may affect the financial results and any items required
to be communicated by the external auditors in accordance with
relevant auditing standards. The chair of the Committee may
represent the entire Committee for purposes of this review and
rely upon management for determining materiality.
3) As necessary, but at least annually, review 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 integrity of the Corporation's
financial reporting practices and the adequacy and
effectiveness 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
performance of the auditors and annually recommend to the
Board the appointment of the external auditors or approve any
discharge of auditors when circumstances warrant.
2) The Committee is responsible for ensuring the independence of
the external auditors. On an annual basis, the Committee 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) Review the audit plan and significant changes in planned
activities; review significant findings resulting from audits
and management's responsiveness to the findings.
2) Review Audit Services' assessment 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.
2) Annually, and at any other time when the composition of the
Committee changes, ensure that management submits the "Written
Affirmation Form" addressing the Committee composition and
charter to the NYSE.
3) Review 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 to the Board of Directors on significant
developments with respect to the foregoing activities.
Procedural Matters
A majority of the members, but not less than two, will constitute a
quorum. A majority of the members present at any meeting at which a quorum is
present may act on behalf of the Committee. The Committee may meet by telephone
or videoconference and may take action by unanimous written consent.
DUKE ENERGY CORPORATION
Annual Meeting of Shareholders
April 26, 2001 at 10:00 a.m.
Energy Center - O.J. Miller Auditorium
526 South Church Street
Charlotte, NC
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, 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. Hendrix and Harold S. Hook.
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.
VOTE BY TELEPHONE OR INTERNET
quick - easy - immediate
Your telephone or Internet vote authorizes the named 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.
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. 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-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.
[Duke Energy Logo]
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.
See reverse for telephone and internet voting instructions.
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
Recommend
DIRECTORS
1. Class I Directors: 01- Ann Maynard Gray For ALL
02- Dennis R. Hendrix
03- Harold S. Hook
Directors
Recommend
PROPOSALS
2. Ratification of appointment of auditors. For
3. Increase in authorized common stock. For
4. Approval of amendment to 1998 Long-Term Incentive Plan. For
5. Shareholder proposal relating to contributions to political
movements and entities. Against
6. Shareholder proposal relating to investments in alternative
energy sources. Against
[Duke Energy Logo]
Investor Relations Department
526 South Church Street
PO Box 1005 Charlotte, NC 28201-1005
(704) 382-3853 Charlotte
(800) 488-3853 Toll-Free Account
(704) 382-3814 Fax
As of
March 1,2001
- - 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.
Date________________,2001
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.
To vote, mark an "X" In
the appropriate box.
1. For ALL Nominees
Withold Authority
For ALL EXCEPT the following:
(Write number(s) of nominee(s) below)
For Against Abstain
|_| |_| |_|
2.
For Against Abstain
|_| |_| |_|
3.
For Against Abstain
|_| |_| |_|
4.
For Against Abstain
|_| |_| |_|
5.
For Against Abstain
|_| |_| |_|
6.