Filed Pursuant to Rule 424(b)(5)
Registration No. 333-108416
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 12, 2003)
[DUKE ENERGY LOGO]
$300,000,000 4.20% SENIOR NOTES DUE 2008
$500,000,000 FIRST AND REFUNDING MORTGAGE BONDS,
5.30% SERIES DUE 2015
---------------------
We will pay interest on the 4.20% Senior Notes due 2008, or the Notes, at a
rate of 4.20% per annum, payable semi-annually in arrears on April 1 and October
1 of each year, beginning on April 1, 2004. The Notes will mature as to
principal on October 1, 2008.
We may redeem the Notes at our option at any time and from time to time, in
whole or in part, as described in this prospectus supplement under the caption
"Description of the Notes -- Optional Redemption." The Notes do not have the
benefit of any sinking fund. The Notes are unsecured, senior obligations of Duke
Energy Corporation.
We will pay interest on the First and Refunding Mortgage Bonds, 5.30% Series
due 2015, or the Mortgage Bonds, at a rate of 5.30% per annum, payable
semi-annually in arrears on April 1 and October 1 of each year, beginning on
April 1, 2004. The Mortgage Bonds will mature as to principal on October 1,
2015.
We may redeem the Mortgage Bonds at our option at any time and from time to
time, in whole or in part, as described in this prospectus supplement under the
caption "Description of the Mortgage Bonds -- Optional Redemption." The Mortgage
Bonds will also be redeemable for the Replacement Fund or upon application of
moneys arising from a taking of any of the mortgaged property by eminent domain
or similar action at any time or from time to time at the special redemption
price of 100% of their principal amount, together with accrued and unpaid
interest to the redemption date. We have agreed not to apply any cash deposited
with the trustee pursuant to the Replacement Fund to the redemption of the
Mortgage Bonds so long as any of the First and Refunding Mortgage Bonds
presently outstanding remain outstanding. See "Description of the First and
Refunding Mortgage Bonds -- Replacement Fund" in the accompanying prospectus.
The Mortgage Bonds are secured by a continuing lien on certain properties and
franchises of Duke Energy Corporation.
The offerings of the Notes and the Mortgage Bonds are not conditioned upon
one another.
INVESTING IN THE NOTES AND THE MORTGAGE BONDS INVOLVES RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS.
UNDERWRITING PROCEEDS TO DUKE
PRICE TO PUBLIC(1) DISCOUNT(2) ENERGY CORPORATION(1)
------------------ ------------ ---------------------
Per Note............................................ 99.856% 0.600% 99.256%
Total Notes......................................... $299,568,000 $1,800,000 $297,768,000
Per Mortgage Bond................................... 99.928% 0.675% 99.253%
Total Mortgage Bonds................................ $499,640,000 $3,375,000 $496,265,000
---------------
(1) Plus accrued interest, if any, from September 23, 2003, if settlement occurs
after that date.
(2) See "Underwriting" on page S-17.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
We expect the Notes and the Mortgage Bonds will be ready for delivery only
in book-entry form through the facilities of The Depository Trust Company on or
about September 23, 2003.
---------------------
JOINT BOOK-RUNNING MANAGERS
BANC OF AMERICA SECURITIES LLC BARCLAYS CAPITAL
---------------------
CIBC WORLD MARKETS HARRIS NESBITT SCOTIA CAPITAL TD SECURITIES
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 18, 2003.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriters have not, authorized anyone to provide you with
information that is different. We are not, and the underwriters are not, making
an offer to sell these securities in any jurisdiction where the offer is not
permitted. You should not assume that the information provided by or
incorporated by reference in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date of the document
containing the information.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
About this Prospectus Supplement............................ S-1
Prospectus Supplement Summary............................... S-2
Forward-Looking Statements.................................. S-7
Ratio of Earnings to Fixed Charges.......................... S-8
Use of Proceeds............................................. S-8
Capitalization.............................................. S-9
Description of the Notes.................................... S-10
Description of the Mortgage Bonds........................... S-12
Book-Entry System........................................... S-14
Underwriting................................................ S-17
Experts..................................................... S-18
Legal Matters............................................... S-18
Where You Can Find More Information......................... S-19
PROSPECTUS
PAGE
----
About this Prospectus....................................... 1
Duke Energy Corporation..................................... 2
Risk Factors................................................ 5
Ratio of Earnings to Fixed Charges.......................... 18
Use of Proceeds............................................. 18
The Trusts.................................................. 18
Description of the Senior Notes............................. 19
Description of the Junior Subordinated Notes................ 26
Description of the First and Refunding Mortgage Bonds....... 33
Description of the Common Stock............................. 37
Description of the Stock Purchase Contracts and the Stock
Purchase Units............................................ 40
Description of the Preferred Securities..................... 41
Description of the Guarantees............................... 41
Plan of Distribution........................................ 44
Experts..................................................... 44
Validity of the Securities.................................. 45
Where You Can Find More Information......................... 45
i
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of these offerings. The second
part, the accompanying prospectus, gives more general information, some of which
may not apply to this offering.
If the description of the offerings varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
contained in or incorporated by reference into this prospectus supplement.
Unless we have indicated otherwise, or the context otherwise requires,
references in this prospectus supplement and the accompanying prospectus to
"Duke Energy," "we," "us" and "our" or similar terms are to Duke Energy
Corporation and its subsidiaries.
S-1
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
together with, the more detailed information, including "Risk Factors," in the
accompanying prospectus, and the financial statements incorporated by reference
in this prospectus supplement and the accompanying prospectus.
DUKE ENERGY CORPORATION
OVERVIEW
Duke Energy, together with its subsidiaries, an integrated provider of
energy and energy services, offers physical delivery and management of both
electricity and natural gas throughout the United States and abroad. Duke
Energy, together with its subsidiaries, provides these and other services
through six business units:
- Franchised Electric
- Natural Gas Transmission
- Field Services
- Duke Energy North America
- International Energy
- Other Operations
A substantial amount of our business is conducted through our subsidiaries,
none of which are obligors or guarantors on the Notes and Mortgage Bonds. For
the six months ended June 30, 2003, Duke Energy subsidiaries had operating
revenues of approximately $9.2 billion and as of June 30, 2003, Duke Energy
subsidiaries had assets of approximately $49.4 billion.
FRANCHISED ELECTRIC generates, transmits, distributes and sells electricity
in central and western North Carolina and western South Carolina. It conducts
operations through Duke Power. These electric operations are subject to the
rules and regulations of the Federal Energy Regulatory Commission, or FERC, the
North Carolina Utilities Commission, or NCUC, and the Public Service Commission
of South Carolina, or PSCSC.
NATURAL GAS TRANSMISSION provides transportation and storage of natural gas
for customers throughout the east coast and southern portion of the United
States and in Canada. Natural Gas Transmission also provides gas sales and
distribution service to retail customers in Ontario and Western Canada, and gas
gathering and processing services to customers in Western Canada. Natural Gas
Transmission does business primarily through Duke Energy Gas Transmission
Corporation. Duke Energy Gas Transmission's natural gas transmission and storage
operations in the United States are subject to the FERC's, the Texas Railroad
Commission's and the Department of Transportation's rules and regulations, while
natural gas gathering, processing, transmission, distribution and storage
operations in Canada are subject to the rules and regulations of the National
Energy Board, the Ontario Energy Board and the British Columbia Utilities
Commission.
FIELD SERVICES gathers, compresses, treats, processes, transports, trades
and markets, and stores natural gas; and produces, transports, trades and
markets and stores natural gas liquids. It conducts operations primarily through
Duke Energy Field Services, LLC, which is approximately 30% owned by
ConocoPhillips and approximately 70% owned by Duke Energy. Field Services
gathers natural gas from production wellheads in Western Canada and 11
contiguous states in the United States. Those systems serve major natural
gas-producing regions in the Western Canadian Sedimentary Basin, Rocky Mountain,
Permian Basin, Mid-Continent and East Texas-Austin Chalk-North Louisiana areas,
as well as onshore and offshore Gulf Coast areas.
DUKE ENERGY NORTH AMERICA develops, operates and manages merchant power
generation facilities and engages in commodity sales and services related to
natural gas and electric power. Duke Energy North
S-2
America conducts business throughout the United States and Canada through Duke
Energy North America, LLC and Duke Energy Trading and Marketing, LLC. Duke
Energy Trading and Marketing is approximately 40% owned by ExxonMobil
Corporation and approximately 60% owned by Duke Energy. On April 11, 2003, Duke
Energy announced that it is exiting proprietary trading at Duke Energy North
America.
INTERNATIONAL ENERGY develops, operates and manages natural gas
transportation and power generation facilities, and engages in sales and
marketing of natural gas and electric power outside the United States and
Canada. It conducts operations primarily through Duke Energy International, LLC
and its activities target power generation in Latin America, power generation
and natural gas transmission in the Asia-Pacific, and natural gas marketing in
Northwest Europe. International Energy initiated exiting proprietary trading
during the quarter ended June 30, 2003.
OTHER OPERATIONS is composed of diverse businesses, operating through
Crescent Resources, LLC, DukeNet Communications, LLC, Duke Capital Partners,
LLC, Duke Energy Merchant, LLC, Duke/ Fluor Daniel and Energy Delivery Services.
Beginning in 2003, the business segments formerly known as Other Energy Services
and Duke Ventures were combined into Other Operations. Crescent Resources
develops high-quality commercial, residential and multi-family real estate
projects and manages land holdings primarily in the Southeastern and
Southwestern United States. DukeNet develops and manages fiber optic
communications systems for wireless, local and long distance communications
companies; and for selected educational, governmental, financial and health care
entities. Duke Capital Partners, a wholly owned merchant finance company,
provides debt and equity capital and financial advisory services primarily to
the energy industry. In March 2003, Duke Energy announced that it will exit the
merchant finance business at Duke Capital Partners in an orderly manner. Duke
Energy Merchants engages in refined products marketing; on April 11, 2003, Duke
Energy announced that it is exiting proprietary trading at Duke Energy
Merchants. Duke/Fluor Daniel provides comprehensive engineering, procurement,
construction, commissioning and operating plant services for fossil-fueled
electric power generating facilities worldwide. Duke/Fluor Daniel is a 50/50
partnership between Duke Energy and a subsidiary of Fluor Corporation. On July
9, 2003, Duke Energy and Fluor Corporation announced that the Duke/Fluor Daniel
partnership between subsidiaries of the two companies will be dissolved, at the
request of Fluor Corporation. The partners of Duke/Fluor Daniel have adopted a
plan for an orderly wind-down of the business of Duke/Fluor Daniel over the next
two years. Energy Delivery Services is an engineering, construction, maintenance
and technical services firm specializing in electric transmission and
distribution lines and substation projects.
The foregoing information about Duke Energy and its business units is only
a general summary and is not intended to be comprehensive. For additional
information about Duke Energy and its business units, you should refer to the
information described under the caption "Where You Can Find More Information" in
this prospectus supplement.
RECENT DEVELOPMENTS
In connection with regulatory proceedings arising out of the electricity
supply situation in California during 2000 and 2001, in August 2003, the FERC
cleared Duke Energy of withholding power during the California power crisis.
In August 2003, Duke Energy completed the sale of its interest in Foothills
Pipe Lines Ltd. for $181 million. Cash proceeds from the transaction, net of
unconsolidated debt, totaled $75 million.
On August 18, 2003, Cornerstone Propane Partners, L.P., on behalf of itself
and others who bought and sold natural gas futures and options contracts on the
New York Mercantile Exchange during the years 2000 through 2002, filed a class
action lawsuit in the U.S. District Court for the Southern District of New York
against numerous defendants, including Duke Energy Corporation, seeking damages
for alleged violations of the Commodities Exchange Act and aiding and abetting
such violations. Plaintiffs seek class action certification, actual damages in
unspecified amounts, costs, attorneys' fees and other appropriate relief.
S-3
In August 2003, Duke Energy Field Services announced a sale of certain of
its assets in West Texas for approximately $60 million, expected to close in the
third quarter of 2003.
On September 5, 2003, we completed a securitization of certain of our
accounts receivable utilizing a newly formed, "bankruptcy remote," wholly-owned
special purpose subsidiary. On the closing date, Duke Energy Corporation sold,
and will continue to sell on a daily basis to the special purpose subsidiary,
certain accounts receivable and related property arising from the sale of
electricity and/or related services as part of our electric business. We
anticipate that the proceeds from the sale of the receivables to the special
purpose subsidiary will be used for general corporate purposes, which may
include the repayment of outstanding commercial paper of Duke Energy
Corporation. In order to fund its purchases of receivables, the special purpose
subsidiary entered into a two-year, $300 million senior facility that was drawn
in full on September 5, 2003. The credit facility is secured by the receivables
and related collateral. The obligations of the special purpose subsidiary under
the credit facility are non-recourse to Duke Energy Corporation.
On September 9, 2003, the PSCSC announced its decision to require Duke
Energy Corporation to implement a one-time rate reduction for its customers in
South Carolina totaling $30 million for 12 months beginning in October 2003. The
PSCSC also allowed a write-off of $16 million in costs relating to debt
refinancings. The PSCSC's decision was due to Duke Energy Corporation earning a
higher than established return on equity for the 12 months ended March 31, 2003.
On September 12, 2003, Fitch Ratings lowered the senior unsecured debt
ratings of Duke Energy Corporation to BBB+ from A-. Fitch Ratings also lowered
its long-term ratings of our subsidiaries, Duke Capital Corporation, PanEnergy
Corp, Texas Eastern Transmission, LP and Duke Energy Australia Pty Ltd. one
ratings level and lowered its short-term ratings of Duke Capital Corporation one
ratings level. Our Fitch ratings remain on negative outlook. Please refer to the
disclosure described in the accompanying prospectus under the heading "Risk
Factors -- Risks Related to Our Business Generally and Our Industry -- Financing
and Liquidity Risk -- A downgrade in our credit rating could negatively affect
our ability to access capital and/or to operate our power and gas trading
businesses."
On September 17, 2003, Duke Energy Trading and Marketing and the Commodity
Futures Trading Commission, or the CFTC, reached a settlement on a matter
related to previous reporting of natural gas trading information to publications
that compile and report index prices, with the CFTC filing and approving an
order settling an administrative action against Duke Energy Trading and
Marketing. Duke Energy Trading and Marketing agreed to pay a civil penalty of
$28 million without admitting or denying the CFTC's findings. Duke Energy
Corporation recorded a $17 million charge, net of minority interest, in the
third quarter of 2003 to reflect the settlement.
We are incorporated in North Carolina and the address of our principal
executive offices is 526 South Church Street, Charlotte, North Carolina 28202.
Our telephone number is (704) 594-6200.
S-4
THE OFFERINGS
THE NOTES
Issuer........................ Duke Energy Corporation
Securities offered............ $300,000,000 aggregate principal amount of
4.20% Senior Notes due 2008, or the Notes.
Maturity...................... The Notes will mature on October 1, 2008.
Interest Payment Dates........ Interest on the Notes shall be payable
semi-annually in arrears on April 1 and October
1 of each year, beginning on April 1, 2004.
Redemption.................... The Notes are redeemable at the option of Duke
Energy Corporation at any time and from time to
time, in whole or in part, at a redemption
price equal to the greater of (1) 100% of the
principal amount of the Notes being redeemed
and (2) the sum of the present values of the
remaining scheduled payments of principal and
interest on the Notes being redeemed,
discounted to the redemption date on a
semi-annual basis at the Treasury Rate plus 20
basis points, plus, in either case, accrued and
unpaid interest on the Notes being redeemed to
the redemption date. See "Description of the
Notes -- Optional Redemption" for a description
of how the redemption price is calculated. The
Notes do not have the benefit of a sinking
fund.
Ranking....................... The Notes will be direct, unsecured and
unsubordinated obligations of Duke Energy
Corporation and will rank equal in priority
with all of our existing and future unsecured
and unsubordinated indebtedness and senior in
right of payment to all of our existing and
future subordinated indebtedness.
Certain Covenants............. The indenture governing the Notes contains
certain covenants that, among other things,
limit our ability and the ability of certain of
our subsidiaries to create liens on our assets.
See "Description of the Senior Notes" in the
accompanying prospectus.
THE MORTGAGE BONDS
Issuer........................ Duke Energy Corporation
Securities offered............ $500,000,000 aggregate principal amount of
First and Refunding Mortgage Bonds, 5.30%
Series due 2015, or the Mortgage Bonds.
Maturity...................... The Mortgage Bonds will mature on October 1,
2015.
Interest Payment Dates........ Interest on the Mortgage Bonds shall be payable
semi-annually in arrears on April 1 and October
1 of each year, beginning on April 1, 2004.
Redemption.................... The Mortgage Bonds are redeemable at the option
of Duke Energy Corporation at any time and from
time to time, in whole or in part, at a
redemption price equal to the greater of (1)
100% of the principal amount of the Mortgage
Bonds being redeemed and (2) the sum of the
present values of the
S-5
remaining scheduled payments of principal and
interest on the Mortgage Bonds being redeemed,
discounted to the redemption date on a
semi-annual basis at the Treasury Rate plus 20
basis points, plus, in either case, accrued and
unpaid interest on the Mortgage Bonds being
redeemed to the redemption date. The Mortgage
Bonds will also be redeemable for the
Replacement Fund or upon application of moneys
arising from a taking of any of the mortgaged
property by eminent domain or similar action at
any time or from time to time at the special
redemption price of 100% of their principal
amount, together with accrued and unpaid
interest to the redemption date. We have agreed
not to apply any cash deposited with the
trustee pursuant to the Replacement Fund to the
redemption of the Mortgage Bonds so long as any
of the Bonds presently outstanding remain
outstanding. See "Description of the First and
Refunding Mortgage Bonds -- Replacement Fund"
in the accompanying prospectus.
Ranking....................... The Mortgage Bonds are a series of First and
Refunding Mortgage Bonds of Duke Energy
Corporation. All of the outstanding First and
Refunding Mortgage Bonds are equally and
ratably secured without preference, priority or
distinction.
Certain Covenants............. The Mortgage governing the Mortgage Bonds
contains certain covenants that, among other
things, limit our ability and the ability of
certain of our subsidiaries to create liens on
our assets. See "Description of the Mortgage
Bonds" in this prospectus supplement and
"Description of the First and Refunding
Mortgage Bonds" in the accompanying prospectus.
S-6
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contain or
incorporate by reference statements that do not directly or exclusively relate
to historical facts. Such statements are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. You can
typically identify forward-looking statements by the use of forward-looking
words, such as "may," "will," "could," "project," "believe," "anticipate,"
"expect," "estimate," "continue," "potential," "plan," "forecast" and other
similar words. Those statements represent our intentions, plans, expectations,
assumptions and beliefs about future events and are subject to risks,
uncertainties and other factors. Many of those factors are outside our control
and could cause actual results to differ materially from the results expressed
or implied by those forward-looking statements. Those factors include:
- state, federal and foreign legislative and regulatory initiatives that
affect cost and investment recovery, have an impact on rate structures,
and affect the speed at and degree to which competition enters the
electric and natural gas industries;
- the outcomes of litigation and regulatory investigations, proceedings or
inquiries;
- industrial, commercial and residential growth in our service territories;
- the weather and other natural phenomena;
- the timing and extent of changes in commodity prices, interest rates and
foreign currency exchange rates;
- general economic conditions, including any potential effects arising from
terrorist attacks, the situation in Iraq and any consequential
hostilities or other hostilities;
- changes in environmental and other laws and regulations to which we and
our subsidiaries are subject or other external factors over which we have
no control;
- the results of financing efforts, including our ability to obtain
financing on favorable terms, which can be affected by various factors,
including our credit ratings and general economic conditions;
- lack of improvement or further declines in the market prices of equity
securities and resultant cash funding requirements for our defined
benefit pension plans;
- the level of creditworthiness of counterparties to our transactions;
- the amount of collateral required to be posted from time to time in our
transactions;
- growth in opportunities for our business units, including the timing and
success of efforts to develop domestic and international power, pipeline,
gathering, processing and other infrastructure projects;
- the performance of electric generation, pipeline and gas processing
facilities;
- the extent of success in connecting natural gas supplies to gathering and
processing systems and in connecting and expanding gas and electric
markets; and
- the effect of accounting pronouncements issued periodically by accounting
standard-setting bodies.
In light of these risks, uncertainties and assumptions, the forward-looking
events referred to in this prospectus supplement and the accompanying prospectus
might not occur or might occur to a different extent or at a different time than
we have described. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
S-7
RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, SIX MONTHS
-------------------------------- ENDED
1998 1999 2000 2001 2002 JUNE 30, 2003
---- ---- ---- ---- ---- -------------
Ratio of Earnings to Fixed Charges............... 4.5 2.7 3.6 3.8 2.1 2.6
For purposes of this ratio (a) earnings consist of income from continuing
operations before income taxes and fixed charges, and (b) fixed charges consist
of all interest deductions, the interest component of rentals and preference
security dividends of consolidated subsidiaries.
USE OF PROCEEDS
The aggregate net proceeds from the sale of the Notes and the Mortgage
Bonds will be approximately $795 million, after deducting the respective
underwriting discounts and related offering expenses. The offerings of the Notes
and the Mortgage Bonds are not conditioned upon one another.
The net proceeds from the sale of the Mortgage Bonds together with cash on
hand will be used to pay upon redemption (i) at 102% of their aggregate
principal amount, $200 million of a series of 6 7/8% First and Refunding
Mortgage Bonds due on August 1, 2023, (ii) at 101.785% of their aggregate
principal amount, $150 million of a series of 6 3/4% First and Refunding
Mortgage Bonds due on August 1, 2025 and (iii) at 102.35% of their aggregate
principal amount, $150 million of a series of 7% First and Refunding Mortgage
Bonds due on July 1, 2033. The net proceeds from the sale of the Notes will be
used for general corporate purposes, which may include the repayment of
outstanding commercial paper of Duke Energy Corporation. At June 30, 2003, Duke
Energy Corporation had approximately $324 million of commercial paper
outstanding classified as short-term debt, which had a weighted average interest
rate of 1.35%, had weighted average days to maturity of approximately 16 days
and was incurred for general corporate purposes.
S-8
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2003:
- on an actual basis; and
- on an as adjusted basis to give effect to (i) the closing of the
securitization transaction relating to certain of our accounts receivable
on September 5, 2003 described under "Prospectus Supplement
Summary -- Duke Energy Corporation -- Recent Developments," (ii) the
issuance of the Notes offered hereby, (iii) the issuance of the Mortgage
Bonds offered hereby and (iv) the application of the net proceeds from
such transactions.
You should read the information in this table together with our
consolidated financial statements and the related notes incorporated by
reference in this prospectus supplement and the accompanying prospectus. The
offerings of the Notes and the Mortgage Bonds are not conditioned upon one
another.
AS OF JUNE 30, 2003
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN MILLIONS)
Short-term notes payable and commercial paper............... $ 737 $ 439(1)
------- -------
Long-term debt, including current maturities:
First and Refunding Mortgage Bonds(2)..................... 1,462 962
Mortgage Bonds offered hereby............................. -- 500
Notes offered hereby...................................... -- 300
Other long-term debt...................................... 4,105 4,105
Long-term debt of subsidiaries............................ 16,464 16,764(3)
------- -------
Total long-term debt................................... 22,031 22,631
------- -------
Guaranteed preferred beneficial interests in subordinated
notes of Duke Energy or subsidiaries...................... 1,166 1,166
------- -------
Minority interests.......................................... 1,884 1,884
------- -------
Preferred and preference stock, including current sinking
fund obligations:
With sinking fund requirements............................ 23 23
Without sinking fund requirements......................... 134 134
------- -------
Total preferred stock, including current sinking fund
obligations.......................................... 157 157
------- -------
Common stockholders' equity:
Common stock, no par; 2 billion shares authorized; 904
million shares outstanding............................. 9,389 9,389
Retained earnings......................................... 6,314 6,314
Accumulated other comprehensive income.................... 5 5
------- -------
Total common stockholders' equity...................... 15,708 15,708
------- -------
Total capitalization................................. $41,683 $41,985
======= =======
---------------
(1) Assumes the repayment of Duke Energy commercial paper with all of the net
proceeds of the Notes offered hereby.
(2) Includes Duke Energy pollution control bond indebtedness, a portion of which
is secured by an obligation to issue First and Refunding Mortgage Bonds.
(3) Reflects the incurrence of $300 million in indebtedness under the senior
facility by the wholly-owned special purpose subsidiary in connection with
the securitization transaction. The obligations of the special purpose
subsidiary under the credit facility are non-recourse to Duke Energy
Corporation.
S-9
DESCRIPTION OF THE NOTES
GENERAL
The following description of the terms of the Notes summarizes certain
general terms that will apply to the Notes. The Notes will be issued under a
Senior Indenture between us and JPMorgan Chase Bank (formerly known as The Chase
Manhattan Bank), as trustee, dated as of September 1, 1998, as supplemented from
time to time, including by the Thirteenth Supplemental Indenture, to be dated as
of September 23, 2003, collectively referred to as the Senior Indenture. This
description is not complete, and we refer you to the accompanying prospectus and
the Senior Indenture. Defined terms have the meanings assigned to them in the
Senior Indenture.
The Notes are issuable in denominations of $1,000 or any integral multiple
of $1,000 in excess thereof. The Notes will be issued in an aggregate principal
amount of $300,000,000.
We may from time to time, without the consent of existing holders, create
and issue further Notes having the same terms and conditions as the Notes being
offered hereby in all respects, except for issue date, issue price and, if
applicable, the first payment of interest thereon. Additional Notes issued in
this manner will be consolidated with and will form a single series with the
previously outstanding Notes of like tenor.
As used in this prospectus supplement, "business day" means, with respect
to the Notes, any day, other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which commercial banks are authorized or required by law,
regulation or executive order to close in The City of New York.
RANKING
The Notes will be our direct, unsecured and unsubordinated obligations. The
Notes will rank equal in priority with all of our existing and future unsecured
and unsubordinated indebtedness and senior in right of payment to all of our
existing and future subordinated debt. All of the First and Refunding Mortgage
Bonds are effectively senior to the Notes to the extent of the value of the
properties securing them. As of June 30, 2003, there were approximately $1,462
million aggregate principal amount of all series of First and Refunding Mortgage
Bonds outstanding including approximately $172 million of Duke Energy pollution
control bond indebtedness, of which $117 million is secured by an obligation to
issue First and Refunding Mortgage Bonds (and after giving effect to the
offering of the Mortgage Bonds and the redemption of the First and Refunding
Mortgage Bonds with the use of proceeds thereof, there would continue to be
approximately $1,462 million aggregate principal amount of the First and
Refunding Mortgage Bonds outstanding). Our Senior Indenture contains no
restrictions on the amount of additional indebtedness that we may issue under
it.
INTEREST
The Notes will mature on October 1, 2008 and will bear interest at a rate
of 4.20% per annum. Interest shall be payable semi-annually in arrears on April
1 and October 1 of each year, commencing April 1, 2004. If an interest payment
date falls on a day that is not a business day, interest will be payable on the
next succeeding business day with the same force and effect as if made on such
interest payment date. Interest will be paid to the person in whose name each
Note is registered at the close of business on the fifteenth calendar day next
preceding each semi-annual interest payment date (whether or not a business
day). Interest will be calculated on the basis of a 360-day year, consisting of
twelve 30-day months, and will accrue from September 23, 2003 or from the most
recent interest payment date to which interest has been paid or duly provided
for.
OPTIONAL REDEMPTION
We will have the right to redeem the Notes, in whole or in part at any time
and from time to time, at a redemption price equal to the greater of (1) 100% of
the principal amount of the Notes to be redeemed and (2) the sum of the present
values of the remaining scheduled payments of principal and interest on such
Notes (exclusive of interest accrued to the redemption date) discounted to the
redemption date on a
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semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate plus 20 basis points, plus, in either case, accrued and unpaid
interest on the principal amount being redeemed to such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term of the Notes to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of such Notes.
"Comparable Treasury Price" means with respect to any redemption date for
Notes, the average of two Reference Treasury Dealer Quotations for such
redemption date.
"Quotation Agent" means a Reference Treasury Dealer appointed by us.
"Reference Treasury Dealer" means each of Banc of America Securities LLC
and Barclays Capital Inc., and their respective successors; provided, however,
that if any of the foregoing shall cease to be a primary U.S. Government
securities dealer in the United States (a "Primary Treasury Dealer"), we will
substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, (1) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15 (519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the maturity date of the Notes to be redeemed, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue
shall be determined, and the Treasury Rate shall be interpolated or extrapolated
from such yields on a straight-line basis, rounding to the nearest month) or (2)
if such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per
year equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, calculated using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date. The Treasury Rate will be calculated on
the third business day preceding the redemption date.
REDEMPTION PROCEDURES
We will provide not less than 30 nor more than 60 days' notice mailed to
each registered holder of the Notes to be redeemed. If the redemption notice is
given and funds deposited as required, then interest will cease to accrue on and
after the redemption date on the Notes or portions of such Notes called for
redemption. In the event that any redemption date is not a business day, we will
pay the redemption price on the next business day without any interest or other
payment due to the delay.
SINKING FUND
There is no provision for a sinking fund applicable to the Notes.
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DESCRIPTION OF THE MORTGAGE BONDS
We will issue the First and Refunding Mortgage Bonds, 5.30% Series due 2015
as a series of First and Refunding Mortgage Bonds, or the Bonds, under its First
and Refunding Mortgage, dated as of December 1, 1927, to JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank), as Trustee, as supplemented and
amended, including by the Eighty-Third Supplemental Indenture, to be dated as of
September 23, 2003. The First and Refunding Mortgage is sometimes called the
"Mortgage" and the First and Refunding Mortgage Bonds, 5.30% Series due 2015,
are sometimes called the "Mortgage Bonds" in this prospectus supplement. The
trustee under the Mortgage is sometimes called the "Bond Trustee" in this
prospectus supplement. The following description of the Bonds is only a summary
and is not intended to be comprehensive. For additional information you should
refer to the accompanying prospectus and Mortgage.
GENERAL
The Mortgage Bonds will be issued as a new series of Bonds under the
Mortgage. The Mortgage Bonds being offered hereby will be issued in the
aggregate principal amount of $500,000,000. The amount of Bonds that we may
issue under the Mortgage is unlimited subject to the provisions stated in the
accompanying prospectus under "Description of the First and Refunding Mortgage
Bonds -- Issuance of Additional Bonds."
We will issue the Mortgage Bonds only in fully registered form without
coupons and there will be no service charge for any transfers and exchanges of
the Mortgage Bonds. We may, however, require payment to cover any stamp tax or
other governmental charge payable in connection with any transfer or exchange.
Transfers and exchanges of the Mortgage Bonds may be made at JPMorgan Chase
Bank, Institutional Trust Services, 4 New York Plaza, 15th Floor, New York, New
York 10004 or at any other office maintained by us for such purpose.
The Mortgage Bonds will be issuable in denominations of $1,000 and
multiples of $1,000.
INTEREST
The Mortgage Bonds will mature on October 1, 2015. Interest on the Mortgage
Bonds will accrue at the rate of 5.30% per annum from September 23, 2003 or from
the most recent interest payment date to which interest on the Mortgage Bonds
has been paid or provided for. We will make each interest payment semi-annually
in arrears on April 1 and October 1 of each year, commencing April 1, 2004, to
the holder of record at the close of business on the March 15 and September 15
preceding the applicable interest payment date until the relevant principal
amount has been paid or made available for payment. Interest on the Mortgage
Bonds will be computed on the basis of a 360-day year consisting of twelve
30-day months.
OPTIONAL REDEMPTION
We will have the right to redeem the Mortgage Bonds, in whole or in part at
any time and from time to time, at a redemption price equal to the greater of
(1) 100% of the principal amount of the Mortgage Bonds to be redeemed and (2)
the sum of the present values of the remaining scheduled payments of principal
and interest on such Mortgage Bonds (exclusive of interest accrued to the
redemption date) discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 20 basis points, plus, in either case, accrued and unpaid interest on
the principal amount being redeemed to such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term of the Mortgage Bonds to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of such Mortgage Bonds.
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"Comparable Treasury Price" means with respect to any redemption date for
Mortgage Bonds, the average of two Reference Treasury Dealer Quotations for such
redemption date.
"Quotation Agent" means a Reference Treasury Dealer appointed by us.
"Reference Treasury Dealers" means each of Banc of America Securities LLC
and Barclays Capital Inc., and their respective successors; provided, however,
that if any of the foregoing shall cease to be a primary U.S. Government
securities dealer in the United States (a "Primary Treasury Dealer"), we will
substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Bond Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Bond Trustee by such Reference Treasury Dealer at 5:00 p.m., New
York City time, on the third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, (1) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15 (519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the maturity date of the Mortgage Bonds to be redeemed, yields for the
two published maturities most closely corresponding to the Comparable Treasury
Issue shall be determined, and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the nearest
month) or (2) if such release (or any successor release) is not published during
the week preceding the calculation date or does not contain such yields, the
rate per year equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date. The Treasury Rate will be
calculated on the third business day preceding the redemption date.
REDEMPTION PROCEDURES
We will provide not less than 30 nor more than 60 days' notice mailed to
each registered holder of the Mortgage Bonds to be redeemed. If the redemption
notice is given and funds deposited as required, then interest will cease to
accrue on and after the redemption date on the Mortgage Bonds or portions of
such Mortgage Bonds called for redemption. In the event that any redemption date
is not a business day, we will pay the redemption price on the next business day
without any interest or other payment due to the delay.
SECURITY
The Mortgage creates a continuing lien to secure the payment of principal
and interest on the Bonds. All the Bonds are equally and ratably secured without
preference, priority or distinction. With some exceptions, the lien of the
Mortgage covers substantially all of Duke Energy Corporation's properties, real,
personal and mixed, and Duke Energy Corporation's franchises, including
properties acquired after the date of the Mortgage and the date hereof. Those
exceptions include cash, accounts receivable, inventories of materials and
supplies, merchandise held for sale, securities that Duke Energy Corporation
holds, after-acquired property not useful in Duke Energy Corporation's electric
business, after-acquired franchises and after-acquired non-electric properties.
We have not made any appraisal of the value of the properties subject to
the lien. The value of the properties in the event of liquidation will depend on
market and economic conditions, the availability of buyers and other factors. In
the event of liquidation, if the proceeds were not sufficient to repay amounts
under all of the Bonds then outstanding, then holders of the Bonds, to the
extent not repaid from the
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proceeds of the sale of the collateral, would only have an unsecured claim
against our remaining assets. As of June 30, 2003, Duke Energy Corporation had
total senior secured indebtedness of approximately $1,462 million and total
senior unsecured indebtedness of approximately $4,427 million.
The lien of the Mortgage is subject to certain permitted liens and to liens
that exist upon properties that Duke Energy Corporation acquired after it
entered into the Mortgage to the extent of the amounts of prior lien bonds
secured by those properties (not, however, exceeding 75% of the cost or value of
those properties) and additions to those properties. "Prior lien bonds" are
bonds or other indebtedness that are secured at the time of acquisition by a
lien upon property that Duke Energy Corporation acquires after the date of the
Mortgage that becomes subject to the lien of the Mortgage.
BOOK-ENTRY SYSTEM
We have obtained the information in this section concerning The Depository
Trust Company, or DTC, and its book-entry system and procedures from sources
that we believe to be reliable, but we take no responsibility for the accuracy
of this information.
The Notes and the Mortgage Bonds initially will be represented by one or
more fully registered global securities, respectively. Each global security will
be deposited with, or on behalf of, DTC or any successor thereto and registered
in the name of Cede & Co., DTC's nominee.
You may hold your interests in a global security in the United States
through DTC, either as a participant in such system or indirectly through
organizations which are participants in such system. So long as DTC or its
nominee is the registered owner of the global securities representing the Notes
and the Mortgage Bonds, DTC or such nominee will be considered the sole owner
and holder of (i) the Notes for all purposes of the Notes and the Senior
Indenture and (ii) the Mortgage Bonds for all purposes under the Mortgage and
the Mortgage Bonds. Except as provided below, owners of beneficial interests in
the Notes and the Mortgage Bonds will not be entitled to have the Notes or the
Mortgage Bonds registered in their names, will not receive or be entitled to
receive physical delivery of the Notes or the Mortgage Bonds in definitive form
and will not be considered the owners or holders of the Notes under the Senior
Indenture and the Mortgage Bonds under the Mortgage, including for purposes of
receiving any reports that we or (i) the trustee deliver pursuant to the Senior
Indenture and (ii) the Bond Trustee deliver pursuant to the Mortgage.
Accordingly, each person owning a beneficial interest in a Note or Mortgage Bond
must rely on the procedures of DTC or its nominee and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, in order to exercise any rights of a holder of Notes or Mortgage
Bonds, respectively.
Unless and until we issue the Notes or the Mortgage Bonds in fully
certificated form under the limited circumstances described below under the
heading "-- Certificated Notes and Mortgage Bonds":
- you will not be entitled to receive physical delivery of a certificate
representing your interest in the Notes or the Mortgage Bonds;
- all references in this prospectus supplement or in the accompanying
prospectus to actions by holders will refer to actions taken by DTC upon
instructions from its direct participants; and
- all references in this prospectus supplement or the accompanying
prospectus to payments and notices to holders will refer to payments and
notices to DTC or Cede & Co., as the registered holder of the Notes or
the Mortgage Bonds, for distribution to you in accordance with DTC
procedures.
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THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the Notes and the Mortgage Bonds.
The Notes and the Mortgage Bonds will be issued as fully registered securities
registered in the name of Cede & Co. DTC is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" under the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" under the New York Uniform Commercial Code; and
- a "clearing agency" registered under the provision of Section 17A of the
Securities Exchange Act of 1934.
DTC holds securities that its direct participants deposit with DTC. DTC
also facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in direct participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers
(including underwriters), banks, trust companies, clearing corporations, and
certain other organizations. DTC is owned by a number of its direct participants
and by The New York Stock Exchange, Inc., the American Stock Exchange, Inc. and
the National Association of Securities Dealers, Inc. Indirect participants of
DTC, such as securities brokers and dealers, banks and trust companies, can also
access the DTC system if they maintain a custodial relationship with a direct
participant.
If you are not a direct participant or an indirect participant and you wish
to purchase, sell or otherwise transfer ownership of, or other interests in, the
Notes or the Mortgage Bonds, you must do so through a direct participant or an
indirect participant. DTC agrees with and represents to DTC participants that it
will administer its book-entry system in accordance with its rules and by-laws
and requirements of law. The SEC has on file a set of the rules applicable to
DTC and its direct participants.
Purchases of the Notes or the Mortgage Bonds under DTC's system must be
made by or through direct participants, which will receive a credit for the
Notes and/or the Mortgage Bonds on DTC's records. The ownership interest of each
beneficial owner is in turn to be recorded on the records of direct participants
and indirect participants. Beneficial owners will not receive written
confirmation from DTC of their purchase, but beneficial owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct or indirect participants
through which such beneficial owners entered into the transaction. Transfers of
ownership interests in the Notes or the Mortgage Bonds are to be accomplished by
entries made on the books of direct and indirect participants acting on behalf
of beneficial owners. Beneficial owners will not receive physical delivery of
certificates representing their ownership interests in the Notes and the
Mortgage Bonds, except as provided below in "-- Certificated Notes and Mortgage
Bonds."
To facilitate subsequent transfers, all Notes and Mortgage Bonds deposited
with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of
Notes and Mortgage Bonds with DTC and their registration in the name of Cede &
Co. has no effect on beneficial ownership. DTC has no knowledge of the actual
beneficial owners of the Notes and the Mortgage Bonds. DTC's records reflect
only the identity of the direct participants to whose accounts such Notes and
Mortgage Bonds are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
S-15
BOOK-ENTRY FORMAT
Under the book-entry format, the Trustee and the Bond Trustee,
respectively, will pay interest or principal payments to Cede & Co., as nominee
of DTC. DTC will forward the payment to the direct participants, who will then
forward the payment to the indirect participants or to the beneficial owners.
You may experience some delay in receiving your payments under this system.
DTC is required to make book-entry transfers on behalf of its direct
participants and is required to receive and transmit payments of principal,
premium, if any, and interest on the Notes or the Mortgage Bonds. Any direct
participant or indirect participant with which you have an account is similarly
required to make book-entry transfers and to receive and transmit payments with
respect to Notes or Mortgage Bonds on your behalf. We, the Trustee and the Bond
Trustee have no responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Notes or the Mortgage Bonds or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Trustee and the Bond Trustee will not recognize you as a holder of any
Notes under the Senior Indenture or any Mortgage Bonds under the Mortgage, and
you can only exercise the rights of a holder indirectly through DTC and its
direct participants. DTC has advised us that it will only take action regarding
a Note or Mortgage Bond if one or more of the direct participants to whom the
Note or the Mortgage Bond is credited direct DTC to take such action. DTC can
only act on behalf of its direct participants. Your ability to pledge Notes or
Mortgage Bonds to indirect participants, and to take other actions, may be
limited because you will not possess a physical certificate that represents your
Notes or Mortgage Bonds.
CERTIFICATED NOTES AND MORTGAGE BONDS
Unless and until they are exchanged, in whole or in part, for Notes or
Mortgage Bonds in definitive form in accordance with the terms of the Notes or
Mortgage Bonds, the Notes or the Mortgage Bonds may not be transferred except as
a whole by DTC to a nominee of DTC; as a whole by a nominee of DTC to DTC or
another nominee of DTC; or as a whole by DTC or nominee of DTC to a successor of
DTC or a nominee of such successor.
We will issue Notes and/or Mortgage Bonds to you or your nominees, in fully
certificated registered form, rather than to DTC or its nominees, only if:
- we advise the Trustee or the Bond Trustee in writing that DTC is no
longer willing or able to discharge its responsibilities properly or that
DTC is no longer a registered clearing agency under the Securities
Exchange Act, and the Trustee, the Bond Trustee or we are unable to
locate a qualified successor within 90 days;
- an event of default has occurred and is continuing under the Senior
Indenture or the Mortgage; or
- we, at our option, elect to terminate use of the book-entry system
through DTC.
If any of the above events occurs, DTC is required to notify all direct
participants that Notes and Mortgage Bonds in fully certificated registered form
are available through DTC. DTC will then surrender the global security
representing the Notes and Mortgage Bonds along with instructions for
re-registration. The Trustee will re-issue the Notes and Bond Trustee will
re-issue the Mortgage Bonds in full certificated registered form and will
recognize the registered holders of the certificated Notes and/or Mortgage Bonds
as holders under the Senior Indenture and the Mortgage, respectively.
S-16
UNDERWRITING
We have entered into underwriting agreements with respect to each of the
Notes and the Mortgage Bonds with the underwriters listed below. Subject to
certain conditions, each of the underwriters has severally agreed to purchase
the principal amount of Notes and Mortgage Bonds indicated in the following
tables:
PRINCIPAL AMOUNT
NAME OF NOTES
---- ----------------
Banc of America Securities LLC.............................. $105,000,000
Barclays Capital Inc. ...................................... 105,000,000
CIBC World Markets Corp. ................................... 22,500,000
Harris Nesbitt Corp. ....................................... 22,500,000
Scotia Capital (USA) Inc. .................................. 22,500,000
TD Securities (USA) Inc. ................................... 22,500,000
------------
Total.................................................. $300,000,000
============
PRINCIPAL AMOUNT OF
NAME MORTGAGE BONDS
---- -------------------
Banc of America Securities LLC.............................. $175,000,000
Barclays Capital Inc. ...................................... 175,000,000
CIBC World Markets Corp. ................................... 37,500,000
Harris Nesbitt Corp. ....................................... 37,500,000
Scotia Capital (USA) Inc. .................................. 37,500,000
TD Securities (USA) Inc. ................................... 37,500,000
------------
Total.................................................. $500,000,000
============
Each underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the Notes and the Mortgage Bonds,
respectively, are subject to certain conditions, including the receipt of legal
opinions relating to certain matters. The underwriters are committed to take and
pay for all of the Notes and the Mortgage Bonds being offered hereby,
respectively, if any are taken. The offerings of the Notes and the Mortgage
Bonds are not conditioned upon one another.
The Notes and the Mortgage Bonds sold by the underwriters to the public
will initially be offered at the initial public offering prices set forth on the
cover of this prospectus supplement and to certain dealers at those prices less
a concession not in excess of 0.200% of the aggregate principal amount of the
Notes and 0.300% of the aggregate principal amount of the Mortgage Bonds. The
underwriters may allow, and those dealers may reallow, a discount not in excess
of 0.150% of the aggregate principal amount of the Notes and 0.250% of the
aggregate principal amount of the Mortgage Bonds to certain other dealers. If
all the Notes and the Mortgage Bonds are not sold at the initial offering
prices, the underwriters may change the offering prices and the other selling
terms.
The Notes and the Mortgage Bonds are each new issues of securities with no
established trading market. We have been advised by the underwriters that the
underwriters intend to make a market in the Notes and the Mortgage Bonds, but
they are not obligated to do so and may discontinue market making at any time
without notice. No assurance can be given as to the liquidity of any trading
market for the Notes or the Mortgage Bonds.
In connection with the offerings, the underwriters may engage in
transactions that stabilize, maintain, or otherwise affect the prices of the
Notes and the Mortgage Bonds. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater aggregate
principal amount of Notes or Mortgage Bonds than they are required to purchase
in the offerings. Stabilizing transactions consist of certain bids or purchases
made for the purpose of preventing or retarding a decline in the market price of
the Notes or the Mortgage Bonds while the offerings are in process.
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These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Notes or the Mortgage Bonds. As a result, the
price of the Notes or the Mortgage Bonds may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued by the underwriters at any time. These transactions may
be effected in the over-the-counter market or otherwise.
The expenses of the offerings, not including the underwriting discount, are
estimated to be approximately $500,000. The underwriters have agreed to
reimburse us $750,000 with respect to the Note offering and $875,000 with
respect to the Mortgage Bond offering. We have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 as amended, or to contribute to payments the underwriters
may be required to make in respect of any of these liabilities.
In the ordinary course of their respective businesses, some of the
underwriters and/or their affiliates have in the past and may in the future
provide us with financial advisory and other services for which they have and in
the future will receive customary fees.
The underwriters will make the Notes and the Mortgage Bonds available for
distribution on the Internet through a proprietary Web site and/or a third-party
system operated by Market Axess Inc., an Internet-based communications
technology provider. Market Axess Inc. is providing the system as a conduit for
communications between the underwriters and their customers and is not a party
to any transactions. Market Axess Inc., a registered broker-dealer, will receive
compensation from the underwriters based on transactions the underwriters
conduct through the system. The underwriters will make the Notes and the
Mortgage Bonds available to their customers through the Internet distributions,
whether made through a proprietary or third-party system, on the same terms as
distributions made through other channels.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus supplement by reference from Duke
Energy's Annual Report on Form 10-K as of and for the year ended December 31,
2002 have been audited by Deloitte & Touche LLP, independent auditors, as set
forth in their report (which report expresses an unqualified opinion and
included an explanatory paragraph relating to the adoption of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" on January 1, 2001 and the adoption of the Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
on January 1, 2002), which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the offering of the Notes will be
passed on for us by Robert T. Lucas III, Esq. who is Duke Energy's Associate
General Counsel and Assistant Secretary, and by Simpson Thacher & Bartlett LLP,
New York, New York, and for the underwriters by Sidley Austin Brown & Wood LLP,
New York, New York. In rendering their opinions, Simpson Thacher & Bartlett LLP
and Sidley Austin Brown & Wood LLP will rely upon Mr. Lucas as to all matters of
North Carolina law.
The validity of the Mortgage Bonds will be passed upon for Duke Energy by
Robert T. Lucas III, Esq., who is Duke Energy's Associate General Counsel and
Assistant Secretary, and Karol P. Mack, Esq., who is Duke Energy's Assistant
General Counsel. Certain legal matters with respect to the offering of the
Mortgage Bonds will be passed upon for Duke Energy by Simpson Thacher & Bartlett
LLP, New York, New York, and for the underwriters by Sidley Austin Brown & Wood
LLP, New York, New York. In rendering their opinions, Simpson Thacher & Bartlett
LLP and Sidley Austin Brown & Wood LLP will rely upon Mr. Lucas as to all
matters of North Carolina law and Ms. Mack as to all matters of South Carolina
law.
S-18
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and, in accordance therewith, file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission, or the SEC. Such reports and other information can be inspected and
copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may also obtain copies of these documents at prescribed rates
from the Public Reference Section of the SEC at its Washington address. Please
call the SEC at 1-800-SEC-0330 for further information. Our filings are also
available to the public through:
- our web site at http://www.duke-energy.com;
- the SEC web site at http://www.sec.gov; and
- The New York Stock Exchange
20 Broad Street
New York, New York 10005.
Additional information about us is also available on our web site at
http://www.duke-energy.com. Such web site is not a part of this prospectus
supplement.
The SEC allows Duke Energy to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus supplement, and information that Duke
Energy files later with the SEC will automatically update and supersede this
information. Duke Energy incorporates by reference the documents listed below
and any future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 until Duke Energy completes its offering
of the securities:
- Duke Energy's annual report on Form 10-K for the year ended December 31,
2002;
- Duke Energy's quarterly reports on Form 10-Q for the quarters ended March
31, 2003 and June 30, 2003; and
- Duke Energy's current reports on Form 8-K filed on February 18, 2003 and
May 8, 2003.
We will provide without charge a copy of these filings, other than any
exhibits unless the exhibits are specifically incorporated by reference into
this prospectus supplement. You may request your copy by writing us at the
following address or telephoning one of the following numbers:
Investor Relations Department
Duke Energy Corporation
P.O. Box 1005
Charlotte, North Carolina 28201
(704) 382-3853 or (800) 488-3853 (toll-free)
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PROSPECTUS
$2,000,000,000
DUKE ENERGY CORPORATION
Senior Notes
Junior Subordinated Notes
First and Refunding Mortgage Bonds
Common Stock
Stock Purchase Contracts
Stock Purchase Units
---------------------
DUKE ENERGY CAPITAL TRUST III
DUKE ENERGY CAPITAL TRUST IV
DUKE ENERGY CAPITAL TRUST V
Trust Preferred Securities
Guaranteed, to the extent described herein, by
DUKE ENERGY CORPORATION
---------------------
This prospectus contains summaries of the general terms of these
securities. You will find the specific terms of these securities, and the manner
in which they are being offered, in supplements to this prospectus. You should
read this prospectus and the applicable prospectus supplement carefully before
you invest.
The Common Stock of Duke Energy is listed on the New York Stock Exchange
under the symbol "DUK."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus is dated September 12, 2003.
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different. We are not making an offer to sell these
securities in any jurisdiction where the offer is not permitted. You should not
assume that the information provided by or incorporated by reference in this
prospectus is accurate as of any date other than the date of the document
containing the information.
TABLE OF CONTENTS
PROSPECTUS
PAGE
About this Prospectus....................................... 1
Duke Energy Corporation..................................... 2
Risk Factors................................................ 5
Ratio of Earnings to Fixed Charges.......................... 18
Use of Proceeds............................................. 18
The Trusts.................................................. 18
Description of the Senior Notes............................. 19
Description of the Junior Subordinated Notes................ 26
Description of the First and Refunding Mortgage Bonds....... 33
Description of the Common Stock............................. 37
Description of the Stock Purchase Contracts and the Stock
Purchase Units............................................ 40
Description of the Preferred Securities..................... 41
Description of the Guarantees............................... 41
Plan of Distribution........................................ 44
Experts..................................................... 44
Validity of the Securities.................................. 45
Where You Can Find More Information......................... 45
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that Duke Energy, Duke
Energy Capital Trust III, Duke Energy Capital Trust IV and Duke Energy Capital
Trust V filed with the SEC utilizing a "shelf" registration process. Under the
shelf registration process, Duke Energy may issue Senior Notes, Junior
Subordinated Notes, First and Refunding Mortgage Bonds, Common Stock, Stock
Purchase Contracts and Stock Purchase Units and the Trusts may issue Preferred
Securities in one or more offerings up to a total dollar amount of
$2,000,000,000.
This prospectus provides general descriptions of the securities Duke Energy
and the Trusts may offer. Each time securities are sold, a prospectus supplement
will provide specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. The registration statement filed with the SEC includes exhibits
that provide more details about the matters discussed in this prospectus. You
should read this prospectus, the related exhibits filed with the SEC and any
prospectus supplement, together with the additional information described under
the caption "Where You Can Find More Information."
Unless we have indicated otherwise, or the context otherwise requires,
references in this prospectus to "Duke Energy," "we," "us" and "our" or similar
terms are to Duke Energy Corporation and its subsidiaries.
1
DUKE ENERGY CORPORATION
Duke Energy, together with its subsidiaries, an integrated provider of
energy and energy services, offers physical delivery and management of both
electricity and natural gas throughout the United States and abroad. Duke
Energy, together with its subsidiaries, provides these and other services
through six business units:
o Franchised Electric
o Natural Gas Transmission
o Field Services
o Duke Energy North America
o International Energy
o Other Operations
A substantial amount of our business is conducted through our subsidiaries,
none of which are obligors or guarantors on the Senior Notes, Junior
Subordinated Notes and First and Refunding Mortgage Bonds. For the year ended
December 31, 2002, Duke Energy subsidiaries had operating revenues of
approximately $10.8 billion and as of December 31, 2002, Duke Energy
subsidiaries had assets of approximately $47.5 billion.
FRANCHISED ELECTRIC generates, transmits, distributes and sells electricity
in central and western North Carolina and western South Carolina. It conducts
operations through Duke Power. These electric operations are subject to the
rules and regulations of the Federal Energy Regulatory Commission, or FERC, the
North Carolina Utilities Commission, or NCUC, and the Public Service Commission
of South Carolina, or PSCSC.
NATURAL GAS TRANSMISSION provides transportation and storage of natural gas
for customers throughout the east coast and southern portion of the United
States and in Canada. Natural Gas Transmission also provides gas sale and
distribution service to retail customers in Ontario and Western Canada, and gas
gathering and processing services to customers in Western Canada. Natural Gas
Transmission does business primarily through Duke Energy Gas Transmission
Corporation. Duke Energy Gas Transmission's natural gas transmission and storage
operations in the United States are subject to the FERC's, the Texas Railroad
Commission's, and the Department of Transportation's rules and regulations,
while natural gas gathering, processing, transmission, distribution and storage
operations in Canada are subject to the rules and regulations of the National
Energy Board, the Ontario Energy Board and the British Columbia Utilities
Commission.
FIELD SERVICES gathers, compresses, treats, processes, transports, trades
and markets, and stores natural gas; and produces, transports, trades and
markets, and stores natural gas liquids. It conducts operations primarily
through Duke Energy Field Services, LLC, which is approximately 30% owned by
ConocoPhillips and approximately 70% owned by Duke Energy. Field Services
gathers natural gas from production wellheads in Western Canada and 11
contiguous states in the United States. Those systems serve major natural gas-
producing regions in the Western Canadian Sedimentary Basin, Rocky Mountain,
Permian Basin, Mid-Continent and East Texas-Austin Chalk-North Louisiana areas,
as well as onshore and offshore Gulf Coast areas.
DUKE ENERGY NORTH AMERICA develops, operates and manages merchant power
generation facilities and engages in commodity sales and services related to
natural gas and electric power. Duke Energy North America conducts business
throughout the United States and Canada through Duke Energy North America, LLC
and Duke Energy Trading and Marketing, LLC. Duke Energy Trading and Marketing is
approximately 40% owned by ExxonMobil Corporation and approximately 60% owned by
Duke Energy. On April 11, 2003, Duke Energy announced that it is exiting
proprietary trading at Duke Energy North America.
INTERNATIONAL ENERGY develops, operates and manages natural gas
transportation and power generation facilities, and engages in sales and
marketing of natural gas and electric power outside the United States and
Canada. It conducts operations primarily through Duke Energy International, LLC
and its activities target power generation in Latin America, power generation
and natural gas transmission in Asia-Pacific, and natural
2
gas marketing in Northwest Europe. International Energy initiated exiting
proprietary trading during the quarter ended June 30, 2003.
OTHER OPERATIONS is composed of diverse businesses, operating through
Crescent Resources, LLC, DukeNet Communications, LLC, Duke Capital Partners,
LLC, Duke Energy Merchants, LLC, Duke/Fluor Daniel and Energy Delivery Services.
Beginning in 2003, the business segments formerly known as Other Energy Services
and Duke Ventures were combined into Other Operations. Crescent Resources
develops high-quality commercial, residential and multi-family real estate
projects and manages land holdings primarily in the Southeastern and
Southwestern United States DukeNet develops and manages fiber optic
communications systems for wireless, local and long distance communications
companies; and for selected educational, governmental, financial and health care
entities. Duke Capital Partners, a wholly owned merchant finance company,
provides debt and equity capital and financial advisory services primarily to
the energy industry. In March 2003, Duke Energy announced that it will exit the
merchant finance business at Duke Capital Partners in an orderly manner. Duke
Energy Merchants engages in refined products marketing; on April 11, 2003, Duke
Energy announced that it is exiting proprietary trading at Duke Energy
Merchants. Duke/Fluor Daniel provides comprehensive engineering, procurement,
construction, commissioning and operating plant services for fossil-fueled
electric power generating facilities worldwide. Duke/Fluor Daniel is a 50/50
partnership between Duke Energy and a subsidiary of Fluor Corporation. On July
9, 2003, Duke Energy and Fluor Corporation announced that the Duke/Fluor Daniel
partnership between subsidiaries of the two companies will be dissolved, at the
request of Fluor Corporation. The partners of Duke/Fluor Daniel have adopted a
plan for an orderly wind-down of the business of Duke/Fluor Daniel over the next
two years. Energy Delivery Services is an engineering, construction, maintenance
and technical services firm specializing in electric transmission and
distribution lines and substation projects.
The foregoing information about Duke Energy and its business units is only
a general summary and is not intended to be comprehensive. For additional
information about Duke Energy and its business units, you should refer to the
information described under the caption "Where You Can Find More Information."
3
RECONCILIATION OF CERTAIN FINANCIAL INFORMATION
The following tables reconcile EBIT to net income for the four quarters for
the year ended 2002 and 2001, respectively, and should be read in conjunction
with Duke Energy's annual report on Form 10-K for the year ended December 31,
2002.
RECONCILIATION OF EBIT TO NET INCOME (IN MILLIONS)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
2002 2002 2002 2002 2002
----------- ----------- ----------- ----------- ------
EBIT.................................... $761 $1,047 $668 $393 $2,869
Interest expense........................ 189 264 316 341 1,110
Minority interest expense (benefit)..... 32 62 14 (1) 107
---- ------ ---- ---- ------
Earnings before income taxes............ 540 721 338 53 1,652
Income taxes............................ 158 247 108 105 618
---- ------ ---- ---- ------
Income (loss) before cumulative effect
of change in accounting principle..... 382 474 230 (52) 1,034
Cumulative effect of change in
accounting principle, net of tax...... -- -- -- -- --
---- ------ ---- ---- ------
Net income (loss)....................... $382 $ 474 $230 $(52) $1,034
==== ====== ==== ==== ======
RECONCILIATION OF EBIT TO NET INCOME (IN MILLIONS)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
2001 2001 2001 2001 2001
----------- ----------- ----------- ----------- ------
EBIT.................................... $1,254 $902 $1,529 $571 $4,256
Interest expense........................ 213 202 191 179 785
Minority interest expense............... 160 45 62 60 327
------ ---- ------ ---- ------
Earnings before income taxes............ 881 655 1,276 332 3,144
Income taxes............................ 327 236 480 107 1,150
------ ---- ------ ---- ------
Income before cumulative effect of
change in accounting principle........ 554 419 796 225 1,994
Cumulative effect of change in
accounting principle, net of tax...... (96) -- -- -- (96)
------ ---- ------ ---- ------
Net income.............................. $ 458 $419 $ 796 $225 $1,898
====== ==== ====== ==== ======
---------------------
We are incorporated in North Carolina and the address of our principal
executive offices is 526 South Church Street, Charlotte, North Carolina 28202.
Our telephone number is (704) 594-6200.
4
RISK FACTORS
Before purchasing any securities we offer, you should carefully consider
the following risk factors as well as the other information contained in this
prospectus, any prospectus supplement and the information incorporated by
reference herein in order to evaluate an investment in our securities.
RISKS RELATED TO THE MARKET CYCLE OF OUR INDUSTRY
OUR RESULTS OF OPERATIONS MAY BE NEGATIVELY AFFECTED BY SUSTAINED DOWNTURNS OR
SLUGGISHNESS IN THE ECONOMY, INCLUDING LOW LEVELS IN THE MARKET PRICES OF
COMMODITIES, ALL OF WHICH ARE BEYOND OUR CONTROL.
Sustained downturns or sluggishness in the economy generally affect the
markets in which we operate and negatively influence our regulated and
unregulated energy operations. Declines in demand for electricity as a result of
economic downturns in our Franchised Electric service territories will reduce
overall electricity sales and lessen our cash flows, especially as our
industrial customers reduce production and, thus, consumption of electricity.
Our Natural Gas Transmission and Field Services businesses may experience a
decline in the volume of natural gas shipped through their pipelines and
transport systems or gathered and processed at their plants, resulting in lower
revenue and cash flows, as lower economic output reduces energy demand. Although
our Franchised Electric business is subject to regulated allowable rates of
return and recovery of fuel costs under a fuel adjustment clause, and our gas
transmission is subject to mandated tariff rates, overall declines in
electricity sold or the volume of gas shipped as a result of economic downturn
or recession could reduce our revenues and cash flows, thus diminishing our
results of operations.
Our Duke Energy North America business sells power from primarily gas-fired
generation facilities into the spot market or other competitive power markets on
a contractual basis and enters into contracts to purchase and sell electricity,
natural gas and NGLs as part of our power marketing and energy trading
operations. With respect to such transactions, we are not guaranteed any rate of
return on our capital investments through mandated rates, and our revenues and
results of operations are likely to depend, in large part, upon prevailing
market prices for power, natural gas and NGLs in our regional markets and other
competitive markets. These market prices may fluctuate substantially over
relatively short periods of time. These factors could reduce our revenues and
margins and therefore diminish our results of operations.
Lower demand for the electricity we sell, for the natural gas we gather,
process and transport and in the market prices for electricity, natural gas and
NGLs result from multiple factors that affect our service territories and the
end markets where we sell electricity or ship natural gas, including:
- weather conditions, to the extent that abnormally mild winter or summer
weather causes lower energy usage for heating or cooling purposes,
respectively;
- supply of and demand for energy commodities, including any decreases in
the production of natural gas due to depressed prices for natural gas
which could negatively affect our gas transmission business due to lower
throughput and our energy trading business through lower prices;
- illiquid markets including reductions in trading volumes which result in
lower revenues and earnings;
- general economic conditions, including downturns in the U.S. or other
economies which impact energy consumption particularly in which sales to
industrial or large commercial customers comprise a significant portion
of total sales;
- transmission or transportation constraints or inefficiencies which impact
our merchant energy operations;
- availability of competitively priced alternative energy sources, which
are preferred by some customers over energy produced from coal, nuclear
or gas plants;
- natural gas, crude oil, refined products and coal production levels;
- electric generation capacity surpluses of which cause our merchant energy
plants to generate and sell less electricity at lower prices and may
cause some plants to become non-economical to operate;
- capacity and transmission service into, or out of, our markets;
- natural disasters, wars, embargoes and other catastrophic events to the
extent they affect our markets; and
- federal, state and foreign energy and environmental regulation and
legislation.
5
These market factors have led to industry-wide downturns that have resulted
in the slowing down or stopping of new construction of power plants and
announcements by us and other energy suppliers and gas pipeline companies of
plans to sell non-core assets in order to boost liquidity or strengthen balance
sheets. Proposed sales by other energy suppliers and gas pipeline companies
could increase the supply of the type of assets we are attempting to sell which
could lead to our failing to execute such asset sales or obtaining lower prices
on completed asset sales.
OUR RISK MANAGEMENT PROCEDURES MAY NOT PREVENT LOSSES IN OUR ENERGY TRADING
BUSINESS.
We actively manage the risk inherent in our energy positions. Although we
have sophisticated risk management systems in place that use advanced
methodologies to quantify risk, these systems may not always be followed or may
not always work as planned. In particular, risk in our energy trading is
measured and monitored utilizing Value-at-Risk models to determine the potential
one-day favorable or unfavorable value risks. These estimates are based on
historical price volatility and assume a normal distribution of price changes
thus if prices significantly deviate from historical prices or the actual
distribution is not normal, our risk management systems, including assumptions
supporting the risk limits, may not protect us from significant losses. In
addition, adverse changes in energy prices may result in economic losses in our
earnings and cash flows and our balance sheet under applicable accounting rules.
Although we devote a considerable amount of management effort to our trading and
risk management systems, their effectiveness remains uncertain.
OUR RISK MANAGEMENT PROCEDURES MAY NOT PREVENT LOSSES IN OUR DEBT AND FOREIGN
CURRENCY POSITIONS.
We also actively manage the risk inherent in our debt and foreign currency
positions. We manage interest rate exposure in our debt positions by limiting
our variable-rate and fixed-rate exposures to percentages of total
capitalization and by monitoring the effects of market changes in interest
rates. We also enter into financial derivative instruments to manage and
mitigate interest rate exposure. Our primary foreign currency rate exposures are
the Canadian dollar, the Brazilian real, the Peruvian neuvo sol, the Australian
dollar, the El Salvadoran colon, the European euro and the Argentine peso. To
mitigate risks associated with foreign currency fluctuations, we hedge
investments through debt denominated or issued in the foreign currency and use
foreign currency derivatives. In addition we denominate in or index contracts to
the U.S. dollar and/or local inflation rates, where possible. To monitor the
foreign currency risk, we use sensitivity analysis, which measures the impact of
devaluation of the foreign currency to which we have exposure. To the extent we
have unhedged positions or our hedging and other risk management procedures do
not work as planned, these practices may not protect us from significant losses
in our earnings and cash flows and our balance sheet under applicable accounting
rules. Although we devote a considerable amount of management effort to our risk
management systems, their effectiveness remains uncertain.
OUR HEDGING PROCEDURES MAY NOT PROTECT OUR SALES AND NET INCOME FROM
VOLATILITY.
To lower our financial exposure related to commodity price fluctuations,
primarily with respect to power, natural gas and NGLs, our corporate marketing,
trading and risk management operations routinely enter into contracts to hedge
the value of our assets and operations. As part of this strategy, our Duke
Energy North America and Field Services business units routinely utilize
fixed-price, forward, physical purchase and sales contracts, futures, financial
swaps and option contracts traded in the over-the-counter markets or on
exchanges. Duke Energy North America hedges a substantial portion of its
expected power output and its natural gas fuel requirements. Field Services
hedges a portion of its expected commodity exposure. However, we do not cover
the entire exposure of our assets or our positions to market price volatility
and the coverage will vary over time. To the extent we have unhedged positions
or our hedging procedures do not work as planned, fluctuating commodity prices
could cause our sales and net income to be volatile.
OUR OPERATING RESULTS MAY FLUCTUATE ON A SEASONAL AND QUARTERLY BASIS.
Electric power generation and gas distribution are generally seasonal
businesses. In most parts of the U.S. and world in which we operate, demand for
power peaks during the hot summer months, with market prices also peaking at
that time. In other areas, demand for power peaks during the winter. In
addition, demand for gas and other fuels peaks during the winter, especially for
our natural gas businesses in Canada. Further, extreme weather conditions such
as heat waves or winter storms could cause these seasonal fluctuations to be
6
more pronounced. As a result, in the future the overall operating results of
Franchised Electric, Duke Energy North America and Union Gas, which is a
component of our natural gas transmission segment, may fluctuate substantially
on a seasonal basis and thus make period comparison less relevant.
RECENT DEVELOPMENTS AFFECTING THE WHOLESALE POWER AND ENERGY TRADING MARKETS
HAVE REDUCED MARKET ACTIVITY AND LIQUIDITY AND MAY CONTINUE TO ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
As a result of the energy crisis in California, the filing of bankruptcy by
Enron Corporation, and investigations by governmental authorities into energy
trading activities and increased litigation related to these matters, companies
in the regulated and unregulated utility businesses have been generally impacted
negatively. In addition, certain participants have chosen to or have been forced
to exit from the energy trading markets, leading to a reduction in the number of
trading partners and lower trading revenues. Depressed spot and forward
wholesale power prices have resulted in substantially reduced revenues in our
merchant energy business and may continue to affect our earnings.
OUR PROFITABILITY MAY DECLINE IF THE COUNTERPARTIES TO OUR TRANSACTIONS FAIL TO
PERFORM IN ACCORDANCE WITH OUR AGREEMENTS WITH THEM.
Our marketing, trading and risk management operations are exposed to the
risk that counterparties to our transactions will not perform their obligations.
Should the counterparties to these arrangements fail to perform, we might be
forced to acquire alternative hedging arrangements, honor the underlying
commitment at then-current market prices or return a significant portion of the
consideration received for unused electricity or gas under a long-term contract.
In such event, we might incur additional losses to the extent of amounts, if
any, already paid to, or received from, counterparties. This risk is most
significant in our natural gas marketing and transportation services business as
we have concentrations of receivables from natural gas and electric utilities
and their affiliates, as well as industrial customers and marketers throughout
the U.S., Canada, Asia Pacific, Europe and Latin America. These concentrations
of customers may negatively impact the credit quality of the entire sector,
which would have a more significant impact on our profitability due to our level
of exposure in the sector. In addition, in our marketing and trading activities,
we often extend credit to our trading counterparties. Despite performing credit
analysis prior to extending credit and the use of master collateral agreements
to mitigate these credit risks, we are exposed to the risk that we may not be
able to collect amounts owed to us. If the counterparty to such a financing
transaction fails to perform and any collateral we have secured is inadequate,
we will incur losses.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THE RISKS ASSOCIATED WITH SELLING AND
MARKETING PRODUCTS IN THE WHOLESALE POWER MARKETS.
We purchase and sell power at the wholesale level under market-based
tariffs subject to FERC'S jurisdiction throughout the United States and also
enter into short-term agreements to market available energy and capacity from
our generation assets with the expectation of profiting from market price
fluctuations. If we are unable to deliver firm capacity and energy under these
agreements, then we could be required to pay damages. These damages would be
based on the difference between the market price to acquire replacement capacity
or energy and the contract price of the undelivered capacity or energy.
Depending on price volatility in the wholesale energy markets, such damages
could be significant.
In the absence or upon expiration of power sales agreements, we must sell
all or a portion of the energy, capacity and other products from our facilities
into the competitive wholesale power markets. Unlike most other commodities,
electricity cannot be stored and must be produced concurrently with its use. As
a result, the wholesale power markets are subject to significant price
fluctuations over relatively short periods of time and can be unpredictable. In
addition, the price we can obtain for power sales may not change at the same
rate as changes in fuel costs. Given the volatility and potential for material
differences between actual power prices and fuel costs, if we are unable to
secure long-term purchase agreements for our power generation facilities, our
revenues would be subject to increased volatility and our financial results may
be materially adversely affected.
7
COMPETITION IN THE WHOLESALE POWER AND ENERGY TRADING MARKETS MAY ADVERSELY
AFFECT THE GROWTH AND PROFITABILITY OF OUR BUSINESS.
While companies in the regulated and unregulated utility business have been
generally negatively affected by recent events in the energy markets, it is
possible that in the future we may be vulnerable to competition from new
competitors that have greater financial resources than we do, seeking attractive
opportunities to acquire or develop energy assets or energy trading operations
both in the United States and abroad. These new competitors may include
sophisticated financial institutions, some of which are already entering the
energy trading and marketing sector, and international energy players, which may
enter regulated or unregulated utility businesses. This competition may
adversely affect our ability to make investments or acquisitions.
We may not be able to respond in a timely or effective manner to the many
changes intended to increase competition in the electricity industry. To the
extent competitive pressures increase and the pricing and sale of electricity
assume more characteristics of a commodity business, the economics of our
business may come under long-term pressure.
In addition, regulatory changes have also been proposed to increase access
to electricity transmission grids by utility and non-utility purchasers and
sellers of electricity. We believe that these changes could continue the
disaggregation of many vertically-integrated utilities into separate generation,
transmission, distribution and retail businesses. As a result, a significant
number of additional competitors could become active in the wholesale power
generation segment of our industry.
WE ARE EXPOSED TO MARKET RISK AND MAY INCUR LOSSES FROM OUR MARKETING AND
TRADING OPERATIONS.
Our trading portfolios consist of contracts to buy and sell commodities,
including contracts for electricity, natural gas, NGLs and other commodities
that are settled by the delivery of the commodity or cash. If the values of
these contracts change in a direction or manner that we do not anticipate, we
could realize material losses from our trading activities. We have marketing and
trading operations which target the U.S., Canadian, Latin American, Asia-Pacific
and European regions. We incur trading risks and market exposures in these
markets. If our trading volumes in these regions increase, we will be exposed to
increased market risks.
RISKS RELATED TO LEGAL PROCEEDINGS AND REGULATORY INVESTIGATIONS
In part due to the California electricity supply situation and the failure
of Enron Corporation, public and regulatory scrutiny of the energy industry and
of the capital markets have resulted in increased regulatory investigations, new
regulations being either proposed or implemented and an increase in litigation
in the industry. During this time, we have experienced a significant increase in
regulatory investigations and litigation related to our operations, primarily
with respect to the California situation, pricing information provided to index
publications and so-called "roundtrip" trades, each as described in greater
detail below. Future developments in these and other government investigations,
including the subpoena we have received from a North Carolina grand jury related
to the audit by the NCUC and PSCSC of Duke Power's regulatory reporting from
1998 to 2000, and litigation impacting the energy industry and us, including
litigation regarding performance, contracts and other matters arising in the
ordinary course of our business and personal injury claims alleged to have
arisen from the exposure to asbestos in our plants, could be materially adverse
to us by affecting our operations and diverting our attention and resources to
addressing such actions. Furthermore, future declines in the availability, or
increases in the cost, of our insurance policies and charges to our self-
insurance reserves with respect to such litigation could cause material
liabilities and costs, which could have a material adverse effect on our results
of operations or financial position in the future.
WE MAY BE ADVERSELY AFFECTED BY LEGAL PROCEEDINGS ARISING OUT OF THE
ELECTRICITY SUPPLY SITUATION IN CALIFORNIA AND OTHER WESTERN STATES.
Litigation and administrative proceedings arising out of the electricity
supply situation in California and other western states are ongoing before the
FERC and in California and other courts against sellers of energy in California
and other western states. Duke Energy and some of its subsidiaries are named as
defendants in a number of lawsuits brought by or on behalf of electricity and
natural gas purchasers in California and other western states. In addition to
lawsuits, several investigations and regulatory proceedings at the state and
federal levels are looking into the causes of high wholesale electricity prices
in the western United States. We
8
cannot predict the outcome of any such lawsuits and other ongoing proceedings or
whether the ultimate impact on us of the effects of the historical electricity
supply situation in California and other western states will be material due to
any future developments.
WE MAY BE ADVERSELY AFFECTED BY REGULATORY INVESTIGATIONS RELATED TO PRICING
INFORMATION THAT WE PROVIDED TO MARKET PUBLICATIONS.
The FERC, the Commodity Futures Trading Commission, or CFTC, and the San
Francisco office of the U.S. Attorney, have requested information from us
regarding pricing information that we provided to publications that produce
price indices. We have been responding to these government agencies, but we
cannot predict the outcome of these investigations or whether these
investigations will lead to additional legal proceedings against us, civil or
criminal fines or penalties, or other regulatory action, including legislation,
which may be materially adverse to the operation of our trading business and our
trading revenues and net income or increase our operating costs in other ways.
WE MAY BE ADVERSELY AFFECTED BY REGULATORY INVESTIGATIONS AND ANY RELATED LEGAL
PROCEEDINGS RELATED TO THE ALLEGED CONDUCTING OF "ROUNDTRIP" TRADES BY OUR
ENERGY TRADING BUSINESS.
The activities of Enron Corporation and other energy traders in allegedly
using "roundtrip" trades which involve the prearrangement of simultaneously
executed and offsetting buy and sell trades for the purpose of increasing
reported revenues or trading volumes, or influencing prices and which lack a
legitimate business purpose, has resulted in increased public and regulatory
scrutiny. Various governmental and regulatory inquiries are ongoing and continue
to adversely affect the energy trading business as a whole. We may see these
adverse effects continue as a result of the uncertainty of these ongoing
inquiries or additional inquiries by other federal or state regulatory agencies.
To date, we have been investigated by, or responded to requests from, the SEC,
the FERC, the Houston office of the U.S. Attorney and the CFTC concerning these
alleged "roundtrip" trades and other trading activity. In addition, we cannot
predict the outcome of any of these inquiries, or whether these inquiries will
lead to additional legal proceedings against us, civil or criminal fines or
penalties, or other regulatory action, including legislation, which may be
materially adverse to the operation of our trading business and our trading
revenues and net income or increase our operating costs in other ways.
Also, a number of class action lawsuits have been filed against us, and
others may be filed, claiming that investors suffered damages as a result of the
alleged "roundtrip" trades inflating our revenue and earnings. While a number of
the lawsuits have been dismissed at a preliminary stage, further developments in
such lawsuits could lead to settlements, civil damages or other litigation costs
that could adversely affect our business.
RISKS RELATED TO THE REGULATION OF OUR BUSINESSES
ELECTRIC
OUR BUSINESSES IN NORTH AMERICA ARE SUBJECT TO COMPLEX GOVERNMENT
REGULATIONS. THE ECONOMICS, INCLUDING THE COSTS, OF OPERATING OUR GENERATING
FACILITIES MAY BE ADVERSELY AFFECTED BY CHANGES IN THESE REGULATIONS OR IN THEIR
INTERPRETATION OR IMPLEMENTATION.
The regulatory environment applicable to the electric power industry has
recently undergone substantial changes, both on a federal and a state level,
which have had a significant impact on the nature of the industry and the manner
in which its participants conduct their businesses. These changes are ongoing
and we cannot predict the future course of changes in this regulatory
environment or the ultimate effect that this changing regulatory environment
will have on our business.
The Public Utility Holding Company Act, or PUHCA, and the Federal Power
Act, or FPA, regulate public utility holding companies and their subsidiaries
and place constraints on the conduct of their business, although we are exempt
from most of the provisions of PUHCA, as discussed below. The rates charged in
our Franchised Electric business are approved by the FERC, the NCUC and/or the
PSCSC. The NCUC and the PSCSC regulate many aspects of our utility operations
including siting and construction of facilities, customer service and the rates
that we can charge customers. The FERC regulates wholesale electricity
operations and transmission rates and the state commissions regulate retail
electricity operations and rates. The Public Utility Regulatory Policies Act of
1978, or PURPA, provides qualifying facilities with exemptions from some federal
and state laws and regulations, including PUHCA and most provisions of the FPA.
The Energy Policy
9
Act of 1992, or the Energy Act, also provides relief from regulation under PUHCA
to "exempt wholesale generators." Maintaining the status of our facilities as
qualifying facilities or exempt wholesale generators is conditioned on those
facilities continuing to meet statutory criteria. Under current law, we are not
and will not be subject to regulation as a registered holding company under
PUHCA as long as the domestic power plants we own through subsidiaries (such as
in Duke Energy North America's business) are qualifying facilities under PURPA
or are exempt wholesale generators. If we were subject to these regulations, the
economics and operations of our generating facilities could be negatively
affected by the increased costs associated with upgrading our facilities and
taking other actions to comply with these regulations. While we are currently
exempt from registration under PUHCA, we may lose that exemption if we fail to
comply with our exemptive order from the SEC. If we were to lose our exemption,
we would have the alternatives of registering as a holding company which would
subject us to more extensive regulation, or divesting or changing the nature of
some of our foreign utility holdings, including some facilities acquired in our
Westcoast Energy purchase.
Existing regulations may be revised or reinterpreted, new laws and
regulations may be adopted or become applicable to us or our facilities, and
future changes in laws and regulations may have a detrimental effect on our
business. Some of the restructured markets have recently experienced supply
problems and price volatility. These supply problems and volatility have been
the subject of a significant amount of press coverage, much of which has been
critical of the restructuring initiatives. In some of these markets, including
California, proposals have been made by governmental agencies and other
interested parties to re-regulate areas of these markets which have previously
been deregulated. We cannot assure you that other proposals to re-regulate will
not be made or that legislative or other attention to the electric power
restructuring process will not cause the deregulation process to be delayed or
reversed.
The FERC has proposed to broaden its regulations that restrict relations
between jurisdictional electric and natural gas companies, or "jurisdictional
companies," and marketing affiliates. The proposal could materially affect our
business and results of operations. The originally proposed standards would
require segregation of an electric utility's retail merchant function from its
transmission function, as the wholesale merchant function is currently separated
from the transmission function. State law in North Carolina and South Carolina
(as well as many other states) requires that utilities provide safe and reliable
bundled electric service (including generation, transmission and distribution
services) at the lowest reasonable cost. Separation of the bundled retail sales
function from the transmission function in states that have not adopted retail
electric competition would hinder communications and require redundant functions
in different departments, making it significantly more expensive and difficult
for us to deliver a bundled electric product to retail customers and decrease
revenues form our retail markets and our overall revenues. In addition, the
proposals are expected to have significant adverse impacts on the ability of
Duke Energy's officers and directors to oversee the corporate activities of Duke
Energy and its subsidiaries. We expect that under the proposed rules,
communication of transmission information with our subsidiaries would be
substantially restricted as they would be defined as "energy affiliates" and the
officers and directors would be imputed as serving the company's marketing
function and further barred from such communications with these entities. The
rulemaking is pending at the FERC and the precise scope and effect of the rule
is unclear. If adopted as proposed, the rule could adversely affect our ability
to coordinate and manage our energy activities.
OUR SALES MAY DECREASE IF WE ARE UNABLE TO GAIN ADEQUATE, RELIABLE AND
AFFORDABLE ACCESS TO TRANSMISSION AND DISTRIBUTION ASSETS.
We depend on transmission and distribution facilities owned and operated by
utilities and other energy companies to deliver the electricity and natural gas
we sell to the wholesale market, as well as the natural gas we purchase to
supply some of our electric generation facilities. If transmission is disrupted,
or if capacity is inadequate, our ability to sell and deliver products may be
hindered. The FERC's proposed restrictions upon relations between jurisdictional
companies and marketing affiliates, as described above, may also inhibit access
to energy transmission and distribution assets controlled by us.
In Order 888 and related orders, FERC issued power transmission regulations
that require wholesale electric transmission services to be offered on an
open-access, non-discriminatory basis. Although these regulations are designed
to encourage competition in wholesale market transactions for electricity, some
companies have failed to provide fair and equal access to their transmission
systems or have not provided sufficient transmission capacity to enable other
companies to transmit electric power. We cannot predict
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whether and to what extent the industry will comply with these initiatives, or
whether the regulations will fully accomplish their objectives.
In addition, the independent system operators who oversee the transmission
systems in regional power markets, such as California, have in the past been
authorized to impose, and may continue to impose, price limitations and other
mechanisms to address volatility in the power markets. These types of price
limitations and other mechanisms may adversely impact the profitability of our
wholesale power marketing and trading. Given the extreme volatility and lack of
meaningful long-term price history in many of these markets and the imposition
of price limitations by regulators, independent system operators or other market
operators, we can offer no assurance that we will be able to operate profitably
in all wholesale power markets.
IN THE FUTURE, WE MAY NOT BE ABLE TO SECURE LONG-TERM PURCHASE AGREEMENTS
FOR OUR POWER GENERATION FACILITIES OR OUR EXISTING POWER PURCHASE AGREEMENTS
MAY NOT BE ENFORCEABLE, EITHER OF WHICH WOULD SUBJECT OUR SALES TO INCREASED
VOLATILITY.
Historically, power from merchant generation facilities has been sold under
long-term power purchase agreements pursuant to which all energy and capacity
was generally sold to a single party at fixed prices. Because of changes in the
industry, the percentage of facilities with these types of long-term power
purchase agreements has decreased, and it is likely that most of our facilities
will operate without these agreements. Without the benefit of long-term power
purchase agreements, we cannot assure you that we will be able to sell the power
generated by our facilities or that our facilities will be able to operate
profitably.
Recently, some entities have brought litigation or regulatory proceedings
aimed at forcing the renegotiation or termination of power purchase agreements
requiring payments to owners of generating facilities that are qualifying
facilities under PURPA. Many qualifying facilities sell their electric output to
utilities and other entities pursuant to long-term contracts at prices that are
based upon the incremental cost that, at the time of contracting, it was
estimated that it would cost the utility or entity to generate or purchase the
power from another source. In some cases, these prices are now substantially in
excess of market prices. As of June 30, 2003, the value in excess of market
prices of these physical forward power sales from our energy generation
portfolio was $513 million. In addition, in the future, utilities and other
entities, with the approval of federal or state regulatory authorities, could
seek to abrogate their existing power purchase agreements with qualifying
facilities or with other power generators. Some of our power purchase agreements
for power generated from our independent power projects and generation assets
could be subject to similar efforts by the entities who contract to purchase
power from our facilities. If those efforts were to be successful, our sales
could decrease or be subject to increased volatility.
THE DIFFERENT REGIONAL POWER MARKETS IN WHICH WE COMPETE OR WILL COMPETE IN
THE FUTURE HAVE CHANGING REGULATORY STRUCTURES, WHICH COULD AFFECT OUR GROWTH
AND PERFORMANCE IN THESE REGIONS.
Our wholesale power and franchised electric results are likely to be
affected by differences in the market and transmission regulatory structures in
various regional power markets. Because it remains unclear which companies will
be participating in the various regional power markets, or how and when regional
transmission organizations, or RTOs, will develop or what regions they will
cover, we are unable to assess fully the impact that these power markets may
have on our business.
OUR FRANCHISED ELECTRIC REVENUES, EARNINGS AND RESULTS ARE DEPENDENT ON
STATE ELECTRIC REGULATORY LEGISLATION, INCLUDING THE CURRENT RATE FREEZE IN
NORTH CAROLINA WHICH LIMITS OUR ABILITY TO PASS ON TO OUR CUSTOMERS OUR COST OF
PRODUCING ELECTRICITY.
In 2002, the State of North Carolina passed clean air legislation that,
with limited exceptions, freezes base electric utility rates through 2007, in
order for North Carolina electric utilities, including us, to make significant
reductions in emissions of sulfur dioxide and nitrogen oxides from the state's
coal-fired power plants over the next ten years. We estimate the cost of
achieving the proposed emission reductions to be approximately $1.5 billion.
While we expect to recover 70% of the total estimated costs of plant
improvements through the five-year rate freeze period, there is no guarantee
that we will recover such amount. As a result of the rate freeze, we will be
limited in the amount of revenue our North Carolina utility generates in
relation to operational costs and the amount of recovery for our costs of
emission reductions. In addition, as the NCUC will determine how any remaining
costs will be recovered after the rate freeze period, the manner of such
recovery is unclear at this time.
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In our Franchised Electric business, we are regulated on a
cost-of-service/rate-of-return basis subject to the North Carolina rate freeze
discussed above, during periods in which our Franchised Electric earnings exceed
the returns established by our state regulatory commissions, our retail electric
rates may be subject to review by the commissions and possible reduction, which
may decrease our future earnings.
GAS
OUR GAS TRANSMISSION AND STORAGE OPERATIONS ARE SUBJECT TO GOVERNMENT
REGULATIONS AND RATE PROCEEDINGS THAT COULD HAVE AN ADVERSE IMPACT ON OUR
ABILITY TO RECOVER THE COSTS OF OPERATING OUR PIPELINE FACILITIES.
Our U.S. interstate gas transmission and storage operations are subject to
the FERC's regulatory authority, which extends to:
- transportation of natural gas;
- rates and charges;
- construction;
- acquisition, extension or abandonment of services or facilities;
- accounts and records;
- depreciation and amortization policies; and
- operating terms and conditions of service.
The FERC has taken actions to strengthen market forces in the natural gas
pipeline industry which has led to increased competition throughout the
industry. In a number of key markets, interstate pipelines are now facing
competitive pressure from other major pipeline systems, enabling local
distribution companies and end users to choose a supplier or switch suppliers
based on the short-term price of gas and the cost of transportation.
Given the extent of the FERC's regulatory power, we cannot give any
assurance regarding the likely regulations under which we will operate our
natural gas transmission and storage business in the future or the effect of
regulation on our financial position and results of operations. In addition, the
FERC has proposed to broaden its regulations on jurisdictional companies to
limit communications between a jurisdictional company and all our affiliates
engaged in energy activities. If adopted as proposed, the rule could adversely
affect our ability to manage our energy activities.
Some of our interstate gas transmission operations from time to time have
in effect rate settlements approved by FERC which prevent those companies or
third parties from modifying rates, except for allowed adjustments. These
settlements do not preclude the FERC from taking action on its own to modify the
rates. Upon expiration of the settlements, the companies or third parties may
institute actions at the FERC to modify the companies' rates. It is not possible
to determine at this time whether any such actions would be instituted or what
the outcome would be but such proceedings could result in rate adjustments.
Recent decisions could result in the imposition of regulatory operating
terms and conditions of service on our interstate gas transmission operations
that limit our management discretion and could also increase operational risks.
In September 2002, a FERC administrative law judge ruled that El Paso Gas
Transmission Company, an interstate natural gas pipeline company, was in
violation of the Natural Gas Act for not delivering sufficient gas to its
California markets during 2000 and 2001 because it had operated its interstate
gas pipeline system at less than the maximum allowable pressure for which the
system is rated, engaged in inappropriate system maintenance and delivered gas
to other markets. If this ruling stands after review by the FERC, it could be
interpreted to increase the delivery obligations and reduce the operational
discretion of interstate gas pipelines, including those we operate, and, as a
result, increase operational, contractual and litigation risks for our natural
gas pipelines.
POSSIBLE CHANGES AND DEVELOPMENTS IN THE CANADIAN REGULATORY ENVIRONMENT
COULD RESULT IN A NEGATIVE IMPACT ON WESTCOAST ENERGY'S BUSINESS AND OPERATIONS.
The majority of our Canadian natural gas assets are subject to various
degrees of federal or provincial regulation. Changes in such regulation may
impact our capacity to conduct this business effectively and sustain or increase
profitability. Furthermore, as the regulatory environment within which Westcoast
Energy conducts its business and operates its facilities continues to evolve
from a traditional cost recovery model to a
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more competitive, market-based approach, there is increasing competition among
pipeline companies. We cannot predict the timing or scope of these changes and
developments in the regulatory environment or the impact they may ultimately
have on Westcoast Energy's business and operations.
Aboriginal groups have claimed aboriginal and treaty rights over a
substantial portion of the lands on which our facilities in British Columbia and
Alberta and the gas supply areas served by those facilities are located. The
existence of these claims, which range from the assertion of rights of limited
use up to aboriginal title, has given rise to some uncertainty regarding access
to public lands for future development purposes.
RISKS RELATED TO OUR BUSINESS GENERALLY AND OUR INDUSTRY
FINANCING AND LIQUIDITY RISKS
WE HAVE NOT APPRAISED THE VALUE OF THE COLLATERAL UPON WHICH THE MORTGAGE
LIEN EXISTS AND, IF THERE IS A DEFAULT OR A FORECLOSURE SALE, THE VALUE OF THE
COLLATERAL MAY NOT BE SUFFICIENT TO REPAY THE HOLDERS OF THE BONDS.
No appraisal of the value of the collateral upon which the mortgage lien
exists has been made in connection with any offerings or issuances of Bonds. The
value of the collateral in the event of liquidation will depend on market and
economic conditions, the availability of buyers and other factors. Although we
believe the value of the collateral substantially exceeds the indebtedness under
the Bonds, we cannot assure you that the proceeds from the sale or sales of all
of such collateral would be sufficient to satisfy the amounts outstanding under
the Bonds and other obligations secured by the same collateral. If the proceeds
were not sufficient to repay amounts outstanding under the Bonds, then holders
of the Bonds, to the extent not repaid from the proceeds of the sale of the
collateral, would only have an unsecured claim against our remaining assets.
OUR BUSINESS IS DEPENDENT ON OUR ABILITY TO SUCCESSFULLY ACCESS CAPITAL
MARKETS. OUR INABILITY TO ACCESS CAPITAL MAY LIMIT OUR ABILITY TO EXECUTE OUR
BUSINESS PLAN OR PURSUE IMPROVEMENTS.
We rely on access to both short-term money markets and longer-term capital
markets as a source of liquidity for capital requirements not satisfied by the
cash flow from our operations. If we are not able to access capital at
competitive rates, our ability to implement our strategy will be adversely
affected. Market disruptions or a downgrade of our credit rating may increase
our cost of borrowing or adversely affect our ability to access one or more
financial markets. Such disruptions could include:
- further economic downturns;
- the bankruptcy of an unrelated energy company;
- capital market conditions generally;
- market prices for electricity and gas;
- terrorist attacks or threatened attacks on our facilities or unrelated
energy companies; or
- the overall health of the utility industry.
Restrictions on our ability to access financial markets may affect our
ability to execute our business plan as scheduled. An inability to access
capital may limit our ability to pursue improvements or acquisitions that we may
otherwise rely on for future growth.
INCREASES IN OUR LEVERAGE COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION,
BUSINESS PLANNING AND FLEXIBILITY, FINANCIAL CONDITION, ABILITY TO SERVICE OUR
DEBT OBLIGATIONS AND TO PAY DIVIDENDS ON OUR COMMON STOCK, AND ABILITY TO ACCESS
CAPITAL ON FAVORABLE TERMS.
Our cash requirements arise primarily from the capital intensive nature of
our electric utilities, as well as the expansion of our diversified businesses.
In addition to operating cash flows, we rely heavily on our commercial paper and
long-term debt. Our credit lines impose various limitations that could impact
our liquidity and result in a material adverse impact on our business strategy
and our ongoing financing needs. Changes in economic conditions could result in
higher interest rates, which would increase our interest expense on our floating
rate debt and reduce funds available to us for our current plans. Additionally,
an increase in our leverage could adversely affect us by:
- increasing the cost of future debt financing;
- prohibiting the payment of dividends on our common stock or adversely
impacting our ability to pay such dividends at the current rate;
- making it more difficult for us to satisfy our existing financial
obligations;
13
- limiting our ability to obtain additional financing, if we need it, for
working capital, acquisitions, debt service requirements or other
purposes;
- increasing our vulnerability to adverse economic and industry conditions;
- requiring us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, which would reduce funds available to
us for operations, future business opportunities or other purposes; and
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete.
Specifically, as stipulated in the revolving credit facilities, some
entities within Duke Energy must maintain total debt to total capitalization
ratios below specified target levels to be permitted to issue commercial paper
and/or borrow under those facilities. These include limits of 65% at Duke
Energy, Duke Capital, Duke Energy Australia and Westcoast Energy, 75% at Union
Gas and 53% at Duke Energy Field Services.
As of the end of the second quarter 2003, Duke Energy had approximately
$3.2 billion (net of cash investments) of floating rate debt, representing about
8% of our total capitalization.
A BREACH IN THE FINANCIAL COVENANTS SPECIFIED WITHIN OUR REVOLVING CREDIT
AGREEMENTS COULD ADVERSELY AFFECT OUR ABILITY TO BORROW SHORT-TERM FUNDS AND
COULD TRIGGER ACCELERATION OF BANK FACILITY INDEBTEDNESS AT OTHER SPECIFIC DUKE
ENERGY ENTITIES.
Duke Energy and its affiliates maintain revolving credit facilities to
provide back-up for commercial paper programs and/or letters of credit at
various entities. These facilities typically include financial covenants which
limit the amount of debt that can be outstanding as a percentage of the total
capital for the specific entity. Some also include targeted EBITDA interest
coverage ratios. Failure to maintain these covenants at a particular Duke Energy
entity could preclude that entity from issuing commercial paper or letters of
credit, borrowing under the revolving credit facility and could require other
Duke Energy affiliates to immediately pay down any outstanding drawn amounts
under other revolving credit agreements.
A DOWNGRADE IN OUR CREDIT RATING COULD NEGATIVELY AFFECT OUR ABILITY TO
ACCESS CAPITAL AND/OR TO OPERATE OUR POWER AND GAS TRADING BUSINESSES.
Standard & Poor's, Moody's and Fitch rate our senior, unsecured debt at
BBB+, Baa1 and A-, respectively. Our Standard & Poor's and Fitch ratings are
both on negative outlook. If Standard & Poor's, Moody's or Fitch were to
downgrade our long-term rating, particularly below investment grade, our
borrowing costs would increase which would diminish our financial results. In
addition, we would likely be required to pay a higher interest rate in future
financings, and our potential pool of investors and funding sources would likely
decrease. Further, if our short-term rating were to fall, it may significantly
limit our access to the commercial paper market.
In addition, some of our subsidiaries access debt and other capital from
various sources and carry their own credit ratings. Any downgrade or other event
negatively affecting the credit ratings of these subsidiaries could make their
costs of borrowing higher or access to funding sources more limited, which in
turn could increase the need of Duke Energy to provide liquidity in the form of
capital contributions or loans to such subsidiaries, thus reducing the liquidity
and borrowing availability of the consolidated group.
Our ratings may be dependent on, among other things, our earnings outlook
for future periods and the success of our business plan. If, as a result of
market conditions or other factors affecting our business, we are unable to
achieve our earnings outlook or we lower our earnings outlook, our ratings could
be adversely affected. The failure to meet the goals set forth in our business
plan from time to time could cause our ratings to be lowered.
Our power and gas trading businesses rely on our investment grade ratings.
Most of our counterparties require the creditworthiness of an investment grade
entity to stand behind transactions. If our ratings were to decline below
investment grade, our ability to profitably operate our power and gas trading
businesses would be diminished because we would likely have to deposit
additional collateral of cash or cash related instruments which would reduce our
liquidity and profitability.
POOR INVESTMENT PERFORMANCE OF PENSION PLAN EQUITY HOLDINGS AND OTHER
FACTORS IMPACTING PENSION PLAN COSTS COULD UNFAVORABLY IMPACT OUR LIQUIDITY AND
RESULTS OF OPERATIONS.
14
Our costs of providing non-contributory defined benefit pension plans are
dependent upon a number of factors, such as the rates of return on plan assets,
discount rates, the level of interest rates used to measure the required minimum
funding levels of the plans, future government regulation and our required or
voluntary contributions made to the plans. The market value of Duke Energy's
defined benefit pension plan assets has been affected by declines in the equity
markets since the third quarter of 2000. As a result, at our most recent
measurement date of September 30, 2002, our pension plan obligation exceeded the
value of plan assets by $439 million. Without a substantial recovery in the
equity markets over time to increase the value of our plan assets and depending
upon the other factors impacting our costs as listed above, we could be required
to fund our plans with significant amounts of cash. Such cash funding
obligations could have a material impact on our liquidity by reducing our cash
flows and negatively effect our results of operations.
WE COULD ENTER INTO VARIOUS TRANSACTIONS THAT COULD INCREASE THE AMOUNT OF
OUR OUTSTANDING DEBT, OR ADVERSELY AFFECT OUR CAPITAL STRUCTURE OR CREDIT
RATINGS, OR OTHERWISE ADVERSELY AFFECT HOLDERS OF THE SENIOR NOTES, JUNIOR
SUBORDINATED NOTES AND BONDS.
The terms of the Senior Notes, Junior Subordinated Notes and Bonds do not
prevent us from entering into a variety of acquisition, change of control,
refinancing, recapitalization or other highly leveraged transactions. As a
result, we could enter into any transaction even though the transaction could
increase the total amount of our outstanding indebtedness, adversely affect our
capital structure or credit ratings or otherwise adversely affect the holders of
the Senior Notes, Junior Subordinated Notes and Bonds.
ENVIRONMENTAL REGULATION AND LIABILITY
OUR BUSINESS WILL BE SUBJECT TO ENVIRONMENTAL LEGISLATION IN ALL
JURISDICTIONS IN WHICH IT OPERATES AND ANY CHANGES IN SUCH LEGISLATION COULD
NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.
Our operations are subject to extensive environmental regulation pursuant
to a variety of U.S., Canadian, and other federal, provincial, state and
municipal laws and regulations. Such environmental legislation imposes, among
other things, restrictions, liabilities and obligations in connection with the
generation, handling, use, storage, transportation, treatment and disposal of
hazardous substances and waste and in connection with spills, releases and
emissions of various substances into the environment. Environmental legislation
also requires that our facilities, sites and other properties associated with
our operations be operated, maintained, abandoned and reclaimed to the
satisfaction of applicable regulatory authorities.
Existing environmental regulations could also be revised or reinterpreted,
new laws and regulations could be adopted or become applicable to us or our
facilities, and future changes in environmental laws and regulations could
occur. The federal government and several states recently have proposed
increased environmental regulation of many industrial activities, including
increased regulation of air quality, water quality and solid waste management.
In addition, Canada and some of the countries in which we operate may move
forward on the process of adopting the greenhouse gas emissions principles of
the Kyoto Accords. With the trend toward stricter standards, greater regulation,
more extensive permit requirements and an increase in the number and types of
assets operated by us subject to environmental regulation, we expect our
environmental expenditures to continue to be substantial in the future.
Compliance with environmental legislation can require significant
expenditures, including expenditures for clean up costs and damages arising out
of contaminated properties, and failure to comply with environmental legislation
may result in the imposition of fines and penalties. The steps we take to bring
our facilities into compliance could be prohibitively expensive, and we may be
required to shut down or alter the operation of our facilities, which may cause
us to incur losses. Further, our regulatory rate structure and our contracts
with clients may not necessarily allow us to recover capital costs we incur to
comply with new environmental regulations such as the rate freeze being imposed
by the North Carolina clean air legislation. Also, we may not be able to obtain
or maintain from time to time all required environmental regulatory approvals
for our development projects. If there is a delay in obtaining any required
environmental regulatory approvals or if we fail to obtain and comply with them,
the operation of our facilities could be prevented or become subject to
additional costs. Should we fail to comply with all applicable environmental
laws, we may be subject to penalties and fines imposed against us by regulatory
authorities. Although it is not expected that the costs of complying with
current environmental legislation will have a material adverse effect on our
15
financial condition or results of operations, no assurance can be made that the
costs of complying with environmental legislation in the future will not have
such an effect.
WE COULD INCUR MATERIAL LOSSES IF WE ARE HELD LIABLE FOR THE ENVIRONMENTAL
CONDITION OF ANY OF OUR ASSETS.
We are generally responsible for all on-site liabilities associated with
the environmental condition of our power generation facilities and natural gas
assets which we have acquired or developed, regardless of when the liabilities
arose and whether they are known or unknown. In addition, in connection with
some acquisitions and sales of assets, we may obtain, or be required to provide,
indemnification against some environmental liabilities. If we incur a material
liability, or the other party to a transaction fails to meet its indemnification
obligations to us, we could suffer material losses.
OPERATIONAL RISKS
OUR INVESTMENTS AND PROJECTS LOCATED OUTSIDE OF THE UNITED STATES EXPOSE US
TO RISKS RELATED TO LAWS OF OTHER COUNTRIES, TAXES, ECONOMIC CONDITIONS,
FLUCTUATIONS IN CURRENCY RATES, POLITICAL CONDITIONS AND POLICIES OF FOREIGN
GOVERNMENTS. THESE RISKS MAY DELAY OR REDUCE OUR REALIZATION OF VALUE FROM OUR
INTERNATIONAL PROJECTS.
We currently own and may acquire and/or dispose of material energy-related
investments and projects outside the United States. The economic, regulatory,
market and political conditions in some of the countries where we have interests
or in which we may explore development, acquisition or investment opportunities
present risks of delays in construction and interruption of business, as well as
risks of war, expropriation, nationalization, renegotiation, trade sanctions or
nullification of existing contracts and changes in law, regulations, market
rules or tax policy, that are greater than in the United States. In particular,
certain countries in Latin America, such as Brazil and El Salvador, are
implementing changes in their market rules and regulations which could
materially and adversely impact our ability to recognize anticipated value from
our investments in that region.
The uncertainty of the legal environment in some foreign countries in which
we develop or acquire projects or make investments could make it more difficult
to obtain non-recourse project or other financing on suitable terms, could
adversely affect the ability of our customers to honor their obligations with
respect to such projects or investments and could impair our ability to enforce
our rights under agreements relating to such projects or investments.
Operations in foreign countries also can present currency exchange rate and
convertibility, inflation and repatriation risk. Economic and monetary
conditions and other factors could affect our ability to convert our earnings
denominated in foreign currencies. In addition, risk from fluctuations in
currency exchange rates can arise when our foreign subsidiaries expend or borrow
funds in one type of currency but receive revenue in another. In such cases, an
adverse change in exchange rates can reduce our ability to meet expenses,
including debt service obligations. Foreign currency risk can also arise when
the revenues received by our foreign subsidiaries are not in U.S. dollars. In
such cases, a strengthening of the U.S. dollar could reduce the amount of cash
and income we receive from these foreign subsidiaries. While we believe we have
hedges and contracts in place to mitigate our most significant short-term
foreign currency exchange risks, our hedges may not be sufficient or we may have
some exposures that are not hedged which could result in losses or volatility in
our revenues.
THE LONG-TERM FINANCIAL CONDITION OF OUR U.S. AND CANADIAN NATURAL GAS
TRANSMISSION BUSINESSES ARE DEPENDENT ON THE CONTINUED AVAILABILITY OF NATURAL
GAS RESERVES.
The development of additional natural gas reserves requires significant
capital expenditures by others for exploration and development drilling and the
installation of production, gathering, storage, transportation and other
facilities and permit natural gas to be produced and delivered to our pipeline
systems. Low prices for natural gas, regulatory limitations, or the lack of
available capital for these projects could adversely affect the development of
additional reserves and production, gathering, storage and pipeline transmission
and import and export of natural gas supplies. Additional natural gas reserves
may not be developed in commercial quantities and in sufficient amounts to fill
the capacities of our pipeline systems.
GATHERING, PROCESSING AND TRANSPORTING ACTIVITIES INVOLVE NUMEROUS RISKS
THAT MAY RESULT IN ACCIDENTS AND OTHER OPERATING RISKS AND COSTS.
16
There are inherent in our gas gathering, processing and transporting
properties a variety of hazards and operating risks, such as leaks, explosions
and mechanical problems, that could cause substantial financial losses. In
addition, these risks could result in loss of human life, significant damage to
property, environmental pollution, impairment of our operations and substantial
losses to us. In accordance with customary industry practice, we maintain
insurance against some, but not all, of these risks and losses. The occurrence
of any of these events not fully covered by insurance could have a material
adverse effect on our financial position and results of operations. For our
pipelines located near populated areas, including residential areas, commercial
business centers, industrial sites and other public gathering areas, the level
of damages resulting from these risks is greater.
WE ARE SUBJECT TO THE RISKS OF NUCLEAR GENERATION.
Our three nuclear stations, Oconee, Catawba and McGuire, subject us to the
risks of nuclear generation, which include:
- the potential harmful effects on the environment and human health
resulting from the operation of nuclear facilities and the storage,
handling and disposal of radioactive materials;
- limitations on the amounts and types of insurance commercially available
to cover losses that might arise in connection with nuclear operations;
and
- uncertainties with respect to the technological and financial aspects of
decommissioning nuclear plants at the end of their licensed lives.
The Nuclear Regulatory Commission has broad authority under federal law to
impose licensing and safety-related requirements for the operation of nuclear
generation facilities. In the event of non-compliance, the Nuclear Regulatory
Commission has the authority to impose fines or shut down a unit, or both,
depending upon its assessment of the severity of the situation, until compliance
is achieved. Revised safety requirements promulgated by the Nuclear Regulatory
Commission could necessitate substantial capital expenditures at our nuclear
plants. In addition, although we have no reason to anticipate a serious nuclear
incident, if an incident did occur, it could have a material adverse effect on
our results of operations or financial condition. Furthermore, the
non-compliance of other nuclear facilities operators with applicable regulations
or the occurrence of a serious nuclear incident at other facilities could result
in increased regulation of the industry as a whole, which could then increase
our compliance costs and impact the results of operations of our facilities.
POTENTIAL TERRORIST ACTIVITIES OR MILITARY OR OTHER ACTIONS, INCLUDING THE
SITUATION IN IRAQ, COULD ADVERSELY AFFECT OUR BUSINESS.
The current situation in Iraq, the continued threat of terrorism and the
impact of retaliatory military and other action by the United States and its
allies may lead to increased political, economic and financial market
instability and volatility in prices for natural gas which could affect the
market for our gas operations and may materially adversely affect us in ways we
cannot predict at this time. In addition, future acts of terrorism and any
possible reprisals as a consequence of action by the United States and its
allies could be directed against companies operating in the United States. In
particular, nuclear generation facilities such as our nuclear plants could be
potential targets of terrorist activities. The potential for terrorism has
subjected our operations to increased risks and could have a material adverse
effect on our business. In particular, we may experience increased capital or
operating costs to implement increased security for our plants, including our
nuclear power plants under the Nuclear Regulatory Commission's design basis
threat requirements, such as additional physical plant security and additional
security personnel.
The insurance industry has also been disrupted by these events. As a
result, the availability of insurance covering risks we and our competitors
typically insure against may decrease. In addition, the insurance we are able to
obtain may have higher deductibles, higher premiums and more restrictive policy
terms.
17
RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------- JUNE 30,
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----------
Ratio of Earnings to Fixed Charges......... 4.5 2.7 3.6 3.8 2.1 2.6
For purposes of this ratio (a) earnings consist of income from continuing
operations before income taxes and fixed charges, and (b) fixed charges consist
of all interest deductions, the interest component of rentals and preference
security dividends of consolidated subsidiaries.
USE OF PROCEEDS
Unless Duke Energy states otherwise in the applicable prospectus
supplement, Duke Energy intends to use the net proceeds from the sale of any
offered securities:
o to redeem or purchase from time to time presently outstanding securities
when it anticipates those transactions will result in an overall cost
savings;
o to repay maturing securities;
o to finance its ongoing construction program; or
o for general corporate purposes.
The proceeds from the sale of Preferred Securities by a Trust will be
invested in Junior Subordinated Notes issued by Duke Energy. Except as Duke
Energy may otherwise describe in the applicable prospectus supplement, Duke
Energy expects to use the net proceeds from the sale of such Junior Subordinated
Notes to the applicable Trust for the above purposes.
THE TRUSTS
Duke Energy formed each Trust as a statutory business trust under Delaware
law. Each Trust's business is defined in a trust agreement executed by Duke
Energy, as depositor, and Chase Manhattan Bank USA, National Association
(formerly known as Chase Manhattan Bank Delaware). Each trust agreement will be
amended when Preferred Securities are issued under it and will be in
substantially the form filed as an exhibit to the registration statement, of
which this prospectus is a part. An amended trust agreement is called a "Trust
Agreement" in this prospectus.
The Preferred Securities and the Common Securities of each Trust represent
undivided beneficial interests in the assets of that Trust. The Preferred
Securities and the Common Securities together are sometimes called the "Trust
Securities" in this prospectus.
The trustees of each Trust will conduct that Trust's business and affairs.
Duke Energy, as the holder of the Common Securities of each Trust, will appoint
the trustees of that Trust. The trustees of each Trust will consist of:
o two officers of Duke Energy as Administrative Trustees;
o JPMorgan Chase Bank as Property Trustee; and
o Chase Manhattan Bank USA, National Association as Delaware Trustee.
The prospectus supplement relating to the Preferred Securities of a Trust
will provide further information concerning that Trust.
No separate financial statements of any Trust are included in this
prospectus. Duke Energy considers that such statements would not be material to
holders of the Preferred Securities because no Trust has any independent
operations and the sole purpose of each Trust is investing the proceeds of the
sale of its Trust Securities in Junior Subordinated Notes. Duke Energy does not
expect that any of the Trusts will be filing annual, quarterly or special
reports with the SEC.
18
The principal place of business of each Trust will be c/o Duke Energy
Corporation, 526 South Church Street, Charlotte, North Carolina 28202, telephone
(704) 594-6200.
Accounting Treatment
As a result of the implementation of FIN 46 effective July 1, 2003, each
Trust will be deconsolidated from Duke Energy since Duke Energy would not be the
primary beneficiary of these Trusts. This deconsolidation will result in Duke
Energy reflecting a liability for any notes payable to the Trusts, which under
the prior accounting treatment would have been eliminated in consolidation. As a
result, any amortization of debt discount and interest payments associated with
any notes payable will be classified on the consolidated statements of income as
interest expense rather than minority interest expense.
DESCRIPTION OF THE SENIOR NOTES
Duke Energy will issue the Senior Notes in one or more series under its
Senior Indenture dated as of September 1, 1998 between Duke Energy and JPMorgan
Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee, as
supplemented from time to time. The Senior Indenture is an exhibit to the
registration statement, of which this prospectus is a part.
The Senior Notes are unsecured and unsubordinated obligations and will rank
equally with all of Duke Energy's other unsecured and unsubordinated
indebtedness. The First and Refunding Mortgage Bonds are effectively senior to
the Senior Notes to the extent of the value of the properties securing them. As
of June 30, 2003, there were approximately $1,462,000,000 in aggregate principal
amount of First and Refunding Mortgage Bonds outstanding, including
approximately $172,000,000 of Duke Energy pollution control bond indebtedness,
of which $117,000,000 is secured by an obligation to issue First and Refunding
Mortgage Bonds.
Duke Energy conducts its non-electric operations, and certain of its
electric operations outside its service area in the Carolinas, through
subsidiaries. Accordingly, its ability to meet its obligations under the Senior
Notes is partly dependent on the earnings and cash flows of those subsidiaries
and the ability of those subsidiaries to pay dividends or to advance or repay
funds to Duke Energy. In addition, the rights that Duke Energy and its creditors
would have to participate in the assets of any such subsidiary upon the
subsidiary's liquidation or recapitalization will be subject to the prior claims
of the subsidiary's creditors. Certain of Duke Energy's subsidiaries have
incurred substantial amounts of debt in the expansion of their businesses, and
Duke Energy anticipates that certain of its subsidiaries will do so in the
future.
The following description of the Senior Notes is only a summary and is not
intended to be comprehensive. For additional information you should refer to the
Senior Indenture.
General
The Senior Indenture does not limit the amount of Senior Notes that Duke
Energy may issue under it. Duke Energy may issue Senior Notes from time to time
under the Senior Indenture in one or more series by entering into supplemental
indentures or by its Board of Directors or a duly authorized committee
authorizing the issuance. The form of supplemental indenture to the Senior
Indenture is an exhibit to the registration statement, of which this prospectus
is a part.
The Senior Notes of a series need not be issued at the same time, bear
interest at the same rate or mature on the same date.
The Senior Indenture does not protect the holders of Senior Notes if Duke
Energy engages in a highly leveraged transaction.
Provisions Applicable to Particular Series
The prospectus supplement for a particular series of Senior Notes being
offered will disclose the specific terms related to the offering, including the
price or prices at which the Senior Notes to be offered will be issued. Those
terms may include some or all of the following:
o the title of the series;
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o the total principal amount of the Senior Notes of the series;
o the date or dates on which principal is payable or the method for
determining the date or dates, and any right that Duke Energy has to
change the date on which principal is payable;
o the interest rate or rates, if any, or the method for determining the
rate or rates, and the date or dates from which interest will accrue;
o any interest payment dates and the regular record date for the interest
payable on each interest payment date, if any;
o whether Duke Energy may extend the interest payment periods and, if so,
the terms of the extension;
o the place or places where payments will be made;
o whether Duke Energy has the option to redeem the Senior Notes and, if so,
the terms of its redemption option;
o any obligation that Duke Energy has to redeem the Senior Notes through a
sinking fund or to purchase the Senior Notes through a purchase fund or
at the option of the holder;
o whether the provisions described under "Defeasance and Covenant
Defeasance" will not apply to the Senior Notes;
o the currency in which payments will be made if other than U.S. dollars,
and the manner of determining the equivalent of those amounts in U.S.
dollars;
o if payments may be made, at Duke Energy's election or at the holder's
election, in a currency other than that in which the Senior Notes are
stated to be payable, then the currency in which those payments may be
made, the terms and conditions of the election and the manner of
determining those amounts;
o the portion of the principal payable upon acceleration of maturity, if
other than the entire principal;
o whether the Senior Notes will be issuable as global securities and, if
so, the securities depositary;
o any changes in the events of default or covenants with respect to the
Senior Notes;
o any index or formula used for determining principal, premium or interest;
o if the principal payable on the maturity date will not be determinable on
one or more dates prior to the maturity date, the amount which will be
deemed to be such principal amount or the manner of determining it;
o the date or dates after which holder may convert the Senior Notes into
shares of Duke Energy common stock and the terms for that conversion;
o the date or dates upon which the Senior Notes will be mandatorily
converted into shares of Duke Energy common stock and the terms for that
conversion;
o the terms for the attachment to Senior Notes of rights to purchase or
sell common stock or other securities of Duke Energy; and
o any other terms.
Unless Duke Energy states otherwise in the applicable prospectus
supplement, Duke Energy will issue the Senior Notes only in fully registered
form without coupons, and there will be no service charge for any registration
of transfer or exchange of the Senior Notes. Duke Energy may, however, require
payment to cover any tax or other governmental charge payable in connection with
any transfer or exchange. Subject to the terms of the Senior Indenture and the
limitations applicable to global securities, transfers and exchanges of the
Senior Notes may be made at JPMorgan Chase Bank, Institutional Trust Services, 4
New York Plaza, 15th Floor, New York, New York 10004 or at any other office or
agency maintained by Duke Energy for such purpose.
The Senior Notes will be issuable in denominations of $1,000 and any
integral multiples of $1,000, unless Duke Energy states otherwise in the
applicable prospectus supplement.
Duke Energy may offer and sell the Senior Notes, including original issue
discount Senior Notes, at a substantial discount below their principal amount.
The applicable prospectus supplement will describe special United States federal
income tax and any other considerations applicable to those securities. In
addition, the applicable prospectus supplement may describe certain special
United States federal income tax or other
20
considerations, if any, applicable to any Senior Notes that are denominated in a
currency other than U.S. dollars.
Global Securities
Duke Energy may issue some or all of the Senior Notes as book-entry
securities. Any such book-entry securities will be represented by one or more
fully registered global securities. Duke Energy will register each global
security with or on behalf of a securities depositary identified in the
applicable prospectus supplement. Each global security will be deposited with
the securities depositary or its nominee or a custodian for the securities
depositary.
As long as the securities depositary or its nominee is the registered
holder of a global security representing Senior Notes, that person will be
considered the sole owner and holder of the global security and the Senior Notes
it represents for all purposes. Except in limited circumstances, owners of
beneficial interests in a global security:
o may not have the global security or any Senior Notes it represents
registered in their names;
o may not receive or be entitled to receive physical delivery of
certificated Senior Notes in exchange for the global security; and
o will not be considered the owners or holders of the global security or
any Senior Notes it represents for any purposes under the Senior Notes or
the Senior Indenture.
Duke Energy will make all payments of principal and any premium and
interest on a global security to the securities depositary or its nominee as the
holder of the global security. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of securities in
definitive form. These laws may impair the ability to transfer beneficial
interests in a global security.
Ownership of beneficial interests in a global security will be limited to
institutions having accounts with the securities depositary or its nominee,
which are called "participants" in this discussion, and to persons that hold
beneficial interests through participants. When a global security representing
Senior Notes is issued, the securities depositary will credit on its book entry,
registration and transfer system the principal amounts of Senior Notes the
global security represents to the accounts of its participants. Ownership of
beneficial interests in a global security will be shown only on, and the
transfer of those ownership interests will be effected only through, records
maintained by:
o the securities depositary, with respect to participants' interests; and
o any participant, with respect to interests the participant holds on
behalf of other persons.
Payments participants make to owners of beneficial interests held through
those participants will be the responsibility of those participants. The
securities depositary may from time to time adopt various policies and
procedures governing payments, transfers, exchanges and other matters relating
to beneficial interests in a global security. None of the following will have
any responsibility or liability for any aspect of the securities depositary's or
any participant's records relating to beneficial interests in a global security
representing Senior Notes, for payments made on account of those beneficial
interests or for maintaining, supervising or reviewing any records relating to
those beneficial interests:
o Duke Energy;
o the Senior Indenture Trustee; or
o an agent of either of them.
Redemption
Provisions relating to the redemption of Senior Notes will be set forth in
the applicable prospectus supplement. Unless Duke Energy states otherwise in the
applicable prospectus supplement, Duke Energy may redeem Senior Notes only upon
notice mailed at least 30 but not more than 60 days before the date fixed for
redemption. Unless Duke Energy states otherwise in the applicable prospectus
supplement, that notice may state that the redemption will be conditional upon
the Senior Indenture Trustee, or the applicable paying agent, receiving
sufficient funds to pay the principal, premium and interest on those Senior
Notes on the date fixed for redemption and that if the Senior Indenture Trustee
or the applicable paying agent does not receive
21
those funds, the redemption notice will not apply, and Duke Energy will not be
required to redeem those Senior Notes.
Duke Energy will not be required to:
o issue, register the transfer of, or exchange any Senior Notes of a series
during the period beginning 15 days before the date the notice is mailed
identifying the Senior Notes of that series that have been selected for
redemption; or
o register the transfer of or exchange any Senior Note of that series
selected for redemption except the unredeemed portion of a Senior Note
being partially redeemed.
Consolidation, Merger, Conveyance or Transfer
The Senior Indenture provides that Duke Energy may consolidate or merge
with or into, or convey or transfer all or substantially all of its properties
and assets to, another corporation or other entity. Any successor must, however,
assume Duke Energy's obligations under the Senior Indenture and the Senior Notes
issued under it, and Duke Energy must deliver to the Senior Indenture Trustee a
statement by certain of its officers and an opinion of counsel that affirm
compliance with all conditions in the Senior Indenture relating to the
transaction. When those conditions are satisfied, the successor will succeed to
and be substituted for Duke Energy under the Senior Indenture, and Duke Energy
will be relieved of its obligations under the Senior Indenture and the Senior
Notes.
Modification; Waiver
Duke Energy may modify the Senior Indenture with the consent of the holders
of a majority in principal amount of the outstanding Senior Notes of all series
of Senior Notes that are affected by the modification, voting as one class. The
consent of the holder of each outstanding Senior Note affected is, however,
required to:
o change the maturity date of the principal or any installment of principal
or interest on that Senior Note;
o reduce the principal amount, the interest rate or any premium payable
upon redemption on that Senior Note;
o reduce the amount of principal due and payable upon acceleration of
maturity;
o change the currency of payment of principal, premium or interest on that
Senior Note;
o impair the right to institute suit to enforce any such payment on or
after the maturity date or redemption date;
o reduce the percentage in principal amount of Senior Notes of any series
required to modify the Senior Indenture, waive compliance with certain
restrictive provisions of the Senior Indenture or waive certain defaults;
or
o with certain exceptions, modify the provisions of the Senior Indenture
governing modifications of the Senior Indenture or governing waiver of
covenants or past defaults.
In addition, Duke Energy may modify the Senior Indenture for certain other
purposes, without the consent of any holders of Senior Notes.
The holders of a majority in principal amount of the outstanding Senior
Notes of any series may waive, for that series, Duke Energy's compliance with
certain restrictive provisions of the Senior Indenture, including the covenant
described under "Negative Pledge." The holders of a majority in principal amount
of the outstanding Senior Notes of all series under the Senior Indenture with
respect to which a default has occurred and is continuing, voting as one class,
may waive that default for all those series, except a default in the payment of
principal or any premium or interest on any Senior Note or a default with
respect to a covenant or provision which cannot be modified without the consent
of the holder of each outstanding Senior Note of the series affected.
22
Events of Default
The following are events of default under the Senior Indenture with respect
to any series of Senior Notes, unless Duke Energy states otherwise in the
applicable prospectus supplement:
o failure to pay principal of or any premium on any Senior Note of that
series when due;
o failure to pay when due any interest on any Senior Note of that series
that continues for 60 days; for this purpose, the date on which interest
is due is the date on which Duke Energy is required to make payment
following any deferral of interest payments by it under the terms of
Senior Notes that permit such deferrals;
o failure to make any sinking fund payment when required for any Senior
Note of that series that continues for 60 days;
o failure to perform any covenant in the Senior Indenture (other than a
covenant expressly included solely for the benefit of other series) that
continues for 90 days after the Senior Indenture Trustee or the holders
of at least 33% of the outstanding Senior Notes of that series give Duke
Energy written notice of the default; and
o certain bankruptcy, insolvency or reorganization events with respect to
Duke Energy.
In the case of the fourth event of default listed above, the Senior Indenture
Trustee may extend the grace period. In addition, if holders of a particular
series have given a notice of default, then holders of at least the same
percentage of Senior Notes of that series, together with the Senior Indenture
Trustee, may also extend the grace period. The grace period will be
automatically extended if Duke Energy has initiated and is diligently pursuing
corrective action.
Duke Energy may establish additional events of default for a particular
series and, if established, any such events of default will be described in the
applicable prospectus supplement.
If an event of default with respect to Senior Notes of a series occurs and
is continuing, then the Senior Indenture Trustee or the holders of at least 33%
in principal amount of the outstanding Senior Notes of that series may declare
the principal amount of all Senior Notes of that series to be immediately due
and payable. However, that event of default will be considered waived at any
time after the declaration but before a judgment for payment of the money due
has been obtained if:
o Duke Energy has paid or deposited with the Senior Indenture Trustee all
overdue interest, the principal and any premium due otherwise than by the
declaration and any interest on such amounts, and any interest on overdue
interest, to the extent legally permitted, in each case with respect to
that series, and all amounts due to the Senior Indenture Trustee; and
o all events of default with respect to that series, other than the
nonpayment of the principal that became due solely by virtue of the
declaration, have been cured or waived.
The Senior Indenture Trustee is under no obligation to exercise any of its
rights or powers at the request or direction of any holders of Senior Notes
unless those holders have offered the Senior Indenture Trustee security or
indemnity against the costs, expenses and liabilities which it might incur as a
result. The holders of a majority in principal amount of the outstanding Senior
Notes of any series have, with certain exceptions, the right to direct the time,
method and place of conducting any proceedings for any remedy available to the
Senior Indenture Trustee or the exercise of any power of the Senior Indenture
Trustee with respect to those Senior Notes. The Senior Indenture Trustee may
withhold notice of any default, except a default in the payment of principal or
interest, from the holders of any series if the Senior Indenture Trustee in good
faith considers it in the interest of the holders to do so.
The holder of any Senior Note will have an absolute and unconditional right
to receive payment of the principal, any premium and, within certain
limitations, any interest on that Senior Note on its maturity date or redemption
date and to enforce those payments.
Duke Energy is required to furnish each year to the Senior Indenture
Trustee a statement by certain of its officers to the effect that it is not in
default under the Senior Indenture or, if there has been a default, specifying
the default and its status.
23
Payments; Paying Agent
The paying agent will pay the principal of any Senior Notes only if those
Senior Notes are surrendered to it. The paying agent will pay interest on Senior
Notes issued as global securities by wire transfer to the holder of those global
securities. Unless Duke Energy states otherwise in the applicable prospectus
supplement, the paying agent will pay interest on Senior Notes that are not in
global form at its office or, at Duke Energy's option:
o by wire transfer to an account at a banking institution in the United
States that is designated in writing to the Senior Indenture Trustee at
least 16 days prior to the date of payment by the person entitled to that
interest; or
o by check mailed to the address of the person entitled to that interest as
that address appears in the security register for those Senior Notes.
Unless Duke Energy states otherwise in the applicable prospectus
supplement, the Senior Indenture Trustee will act as paying agent for that
series of Senior Notes, and the principal corporate trust office of the Senior
Indenture Trustee will be the office through which the paying agent acts. Duke
Energy may, however, change or add paying agents or approve a change in the
office through which a paying agent acts.
Any money that Duke Energy has paid to a paying agent for principal or
interest on any Senior Notes which remains unclaimed at the end of two years
after that principal or interest has become due will be repaid to Duke Energy at
its request. After repayment to Duke Energy, holders should look only to Duke
Energy for those payments.
Negative Pledge
While any of the Senior Notes remain outstanding, Duke Energy will not
create, or permit to be created or to exist, any mortgage, lien, pledge,
security interest or other encumbrance upon any of its property, whether owned
on or acquired after the date of the Senior Indenture, to secure any
indebtedness for borrowed money of Duke Energy, unless the Senior Notes then
outstanding are equally and ratably secured for so long as any such indebtedness
is so secured.
The foregoing restriction does not apply with respect to, among other
things:
o purchase money mortgages, or other purchase money liens, pledges,
security interests or encumbrances upon property that Duke Energy
acquired after the date of the Senior Indenture;
o mortgages, liens, pledges, security interests or other encumbrances
existing on any property at the time Duke Energy acquired it, including
those which exist on any property of an entity with which Duke Energy is
consolidated or merged or which transfers or leases all or substantially
all of its properties to Duke Energy;
o mortgages, liens, pledges, security interests or other encumbrances upon
any property of Duke Energy that existed on the date of the initial
issuance of the Senior Notes;
o pledges or deposits to secure performance in connection with bids,
tenders, contracts (other than contracts for the payment of money) or
leases to which Duke Energy is a party;
o liens created by or resulting from any litigation or proceeding which at
the time is being contested in good faith by appropriate proceedings;
o liens incurred in connection with the issuance of bankers' acceptances
and lines of credit, bankers' liens or rights of offset and any security
given in the ordinary course of business to banks or others to secure any
indebtedness payable on demand or maturing within 12 months of the date
that such indebtedness is originally incurred;
o liens incurred in connection with repurchase, swap or other similar
agreements (including commodity price, currency exchange and interest
rate protection agreements);
o liens securing industrial revenue or pollution control bonds;
o liens, pledges, security interests or other encumbrances on any property
arising in connection with any defeasance, covenant defeasance or
in-substance defeasance of indebtedness of Duke Energy;
24
o liens created in connection with, and created to secure, a non-recourse
obligation;
o Bonds issued or to be issued from time to time under Duke Energy's First
and Refunding Mortgage, and the "permitted liens" specified in Duke
Energy's First and Refunding Mortgage;
o indebtedness which Duke Energy may issue in connection with its
consolidation or merger with or into any other entity, which may be its
affiliate, in exchange for or otherwise in substitution for secured
indebtedness of that entity, or Third Party Debt, which by its terms (1)
is secured by a mortgage on all or a portion of the property of that
entity, (2) prohibits that entity from incurring secured indebtedness,
unless the Third Party Debt is secured equally and ratably with such
secured indebtedness or (3) prohibits that entity from incurring secured
indebtedness;
o indebtedness of any entity which Duke Energy is required to assume in
connection with a consolidation or merger of that entity, with respect to
which any property of Duke Energy is subjected to a mortgage, lien,
pledge, security interest or other encumbrance;
o mortgages, liens, pledges, security interests or other encumbrances upon
any property that Duke Energy acquired, constructed, developed or
improved after the date of the Senior Indenture which are created before,
at the time of, or within 18 months after such acquisition -- or in the
case of property constructed, developed or improved, after the completion
of the construction, development or improvement and commencement of full
commercial operation of that property, whichever is later -- to secure or
provide for the payment of any part of its purchase price or cost;
provided that, in the case of such construction, development or
improvement, the mortgages, liens, pledges, security interests or other
encumbrances shall not apply to any property that Duke Energy owns other
than real property that is unimproved up to that time; and
o the replacement, extension or renewal of any mortgage, lien, pledge,
security interest or other encumbrance described above; or the
replacement, extension or renewal (not exceeding the principal amount of
indebtedness so secured together with any premium, interest, fee or
expense payable in connection with any such replacement, extension or
renewal) of the indebtedness so secured; provided that such replacement,
extension or renewal is limited to all or a part of the same property
that secured the mortgage, lien, pledge, security interest or other
encumbrance replaced, extended or renewed, plus improvements on it or
additions or accessions to it.
In addition, Duke Energy may create or assume any other mortgage, lien, pledge,
security interest or other encumbrance not excepted in the Senior Indenture
without Duke Energy equally and ratably securing the Senior Notes, if
immediately after that creation or assumption, the principal amount of
indebtedness for borrowed money of Duke Energy that all such other mortgages,
liens, pledges, security interests and other encumbrances secure does not exceed
an amount equal to 10% of Duke Energy's common stockholders' equity as shown on
its consolidated balance sheet for the accounting period occurring immediately
before the creation or assumption of that mortgage, lien, pledge, security
interest or other encumbrance.
Defeasance and Covenant Defeasance
The Senior Indenture provides that Duke Energy may be:
o discharged from its obligations, with certain limited exceptions, with
respect to any series of Senior Notes, as described in the Senior
Indenture, such a discharge being called a "defeasance" in this
prospectus; and
o released from its obligations under certain restrictive covenants
especially established with respect to any series of Senior Notes,
including the covenant described under "Negative Pledge," as described in
the Senior Indenture, such a release being called a "covenant defeasance"
in this prospectus.
Duke Energy must satisfy certain conditions to effect a defeasance or covenant
defeasance. Those conditions include the irrevocable deposit with the Senior
Indenture Trustee, in trust, of money or government obligations which through
their scheduled payments of principal and interest would provide sufficient
money to pay the principal and any premium and interest on those Senior Notes on
the maturity dates of those payments or upon redemption.
25
Following a defeasance, payment of the Senior Notes defeased may not be
accelerated because of an event of default under the Senior Indenture. Following
a covenant defeasance, the payment of Senior Notes may not be accelerated by
reference to the covenants from which Duke Energy has been released. A
defeasance may occur after a covenant defeasance.
Under current United States federal income tax laws, a defeasance would be
treated as an exchange of the relevant Senior Notes in which holders of those
Senior Notes might recognize gain or loss. In addition, the amount, timing and
character of amounts that holders would thereafter be required to include in
income might be different from that which would be includible in the absence of
that defeasance. Duke Energy urges investors to consult their own tax advisors
as to the specific consequences of a defeasance, including the applicability and
effect of tax laws other than United States federal income tax laws.
Under current United States federal income tax law, unless accompanied by
other changes in the terms of the Senior Notes, a covenant defeasance should not
be treated as a taxable exchange.
Concerning the Senior Indenture Trustee
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) is the
Senior Indenture Trustee and is also the trustee under Duke Energy's
Subordinated Indenture and the trustee under Duke Energy's First and Refunding
Mortgage. Duke Energy and certain of its affiliates maintain deposit accounts
and banking relationships with JPMorgan Chase Bank. JPMorgan Chase Bank also
serves as trustee or agent under other indentures and agreements pursuant to
which securities of Duke Energy and of certain of its affiliates are
outstanding.
The Senior Indenture Trustee will perform only those duties that are
specifically set forth in the Senior Indenture unless an event of default under
the Senior Indenture occurs and is continuing. In case an event of default
occurs and is continuing, the Senior Indenture Trustee will exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs.
DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES
Duke Energy will issue the Junior Subordinated Notes in one or more series
under its Subordinated Indenture dated as of December 1, 1997 between Duke
Energy and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as
Trustee, as supplemented from time to time. The Subordinated Indenture is an
exhibit to the registration statement, of which this prospectus is a part.
The Junior Subordinated Notes are unsecured obligations of Duke Energy and
are junior in right of payment to "Senior Indebtedness" of Duke Energy. You will
find a description of the subordination provisions of the Junior Subordinated
Notes, including a description of Senior Indebtedness of Duke Energy, under
"Subordination."
Duke Energy conducts its non-electric operations, and certain of its
electric operations outside its service area in the Carolinas, through
subsidiaries. Accordingly, its ability to meet its obligations under the Junior
Subordinated Notes is partly dependent on the earnings and cash flows of those
subsidiaries and the ability of those subsidiaries to pay dividends or to
advance or repay funds to Duke Energy. In addition, the rights that Duke Energy
and its creditors would have to participate in the assets of any such subsidiary
upon the subsidiary's liquidation or recapitalization will be subject to the
prior claims of the subsidiary's creditors. Certain of Duke Energy's
subsidiaries have incurred substantial amounts of debt in the expansion of their
businesses and Duke Energy anticipates that certain of its subsidiaries will do
so in the future.
The following description of the Junior Subordinated Notes is only a
summary and is not intended to be comprehensive. For additional information you
should refer to the Subordinated Indenture.
General
The Subordinated Indenture does not limit the amount of Subordinated Notes,
including Junior Subordinated Notes, that Duke Energy may issue under it. Duke
Energy may issue Subordinated Notes,
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including Junior Subordinated Notes, from time to time under the Subordinated
Indenture in one or more series by entering into supplemental indentures or by
its Board of Directors or a duly authorized committee authorizing the issuance.
Two forms of supplemental indenture to the Subordinated Indenture (one with
respect to Junior Subordinated Notes initially issued to a Trust and the other
with respect to Junior Subordinated Notes initially issued to the public) are
exhibits to the registration statement, of which this prospectus is a part.
The Junior Subordinated Notes of a series need not be issued at the same
time, bear interest at the same rate or mature on the same date.
The Subordinated Indenture does not protect the holders of Junior
Subordinated Notes if Duke Energy engages in a highly leveraged transaction.
Provisions Applicable to Particular Series
The prospectus supplement for a particular series of Junior Subordinated
Notes being offered will disclose the specific terms related to the offering,
including the price or prices at which the Junior Subordinated Notes to be
offered will be issued. Those terms may include some or all of the following:
o the title of the series;
o the total principal amount of the Junior Subordinated Notes of the
series;
o the date or dates on which principal is payable or the method for
determining the date or dates, and any right that Duke Energy has to
change the date on which principal is payable;
o the interest rate or rates, if any, or the method for determining the
rate or rates, and the date or dates from which interest will accrue;
o any interest payment dates and the regular record date for the interest
payable on each interest payment date, if any;
o whether Duke Energy may extend the interest payment periods and, if so,
the terms of the extension;
o the place or places where payments will be made;
o whether Duke Energy has the option to redeem the Junior Subordinated
Notes and, if so, the terms of its redemption option;
o any obligation that Duke Energy has to redeem the Junior Subordinated
Notes through a sinking fund or to purchase the Junior Subordinated Notes
through a purchase fund or at the option of the holder;
o whether the provisions described under "Defeasance and Covenant
Defeasance" will not apply to the Junior Subordinated Notes;
o the currency in which payments will be made if other than U.S. dollars,
and the manner of determining the equivalent of those amounts in U.S.
dollars;
o if payments may be made, at Duke Energy's election or at the holder's
election, in a currency other than that in which the Junior Subordinated
Notes are stated to be payable, then the currency in which those payments
may be made, the terms and conditions of the election and the manner of
determining those amounts;
o the portion of the principal payable upon acceleration of maturity, if
other than the entire principal;
o whether the Junior Subordinated Notes will be issuable as global
securities and, if so, the securities depositary;
o any changes in the events of default or covenants with respect to the
Junior Subordinated Notes;
o any index or formula used for determining principal, premium or interest;
o if the principal payable on the maturity date will not be determinable on
one or more dates prior to the maturity date, the amount which will be
deemed to be such principal amount or the manner of determining it;
o the subordination of the Junior Subordinated Notes to any other of Duke
Energy's indebtedness, including other series of Subordinated Notes;
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o the date or dates after which holder may convert the Junior Subordinated
Notes into shares of Duke Energy common stock and the terms for that
conversion;
o the date or dates upon which the Junior Subordinated Notes will be
mandatorily converted into shares of Duke Energy common stock and the
terms for that conversion;
o the terms for the attachment to Junior Subordinated Notes of rights to
purchase or sell common stock or other securities of Duke Energy; and
o any other terms.
The interest rate and interest and other payment dates of each series of
Junior Subordinated Notes issued to a Trust will correspond to the rate at which
distributions will be paid and the distribution and other payment dates of the
Preferred Securities of that Trust.
Unless Duke Energy states otherwise in the applicable prospectus
supplement, Duke Energy will issue the Junior Subordinated Notes only in fully
registered form without coupons, and there will be no service charge for any
registration of transfer or exchange of the Junior Subordinated Notes. Duke
Energy may, however, require payment to cover any tax or other governmental
charge payable in connection with any transfer or exchange. Subject to the terms
of the Subordinated Indenture and the limitations applicable to global
securities, transfers and exchanges of the Junior Subordinated Notes may be made
at JPMorgan Chase Bank, Institutional Trust Services, 4 New York Plaza, 15th
Floor, New York, New York 10004 or at any other office maintained by Duke Energy
for such purpose.
The Junior Subordinated Notes will be issuable in denominations of $1,000
and any integral multiples of $1,000, unless Duke Energy states otherwise in the
applicable prospectus supplement.
Duke Energy may offer and sell the Junior Subordinated Notes, including
original issue discount Junior Subordinated Notes, at a substantial discount
below their principal amount. The applicable prospectus supplement will describe
special United States federal income tax and any other considerations applicable
to those securities. In addition, the applicable prospectus supplement may
describe certain special United States federal income tax or other
considerations, if any, applicable to any Junior Subordinated Notes that are
denominated in a currency other than U.S. dollars.
Global Securities
Duke Energy may issue some or all of the Junior Subordinated Notes as
book-entry securities. Any such book-entry securities will be represented by one
or more fully registered global certificates. Duke Energy will register each
global security with or on behalf of a securities depositary identified in the
applicable prospectus supplement. Each global security will be deposited with
the securities depositary or its nominee or a custodian for the securities
depositary.
As long as the securities depositary or its nominee is the registered
holder of a global security representing Junior Subordinated Notes, that person
will be considered the sole owner and holder of the global security and the
Junior Subordinated Notes it represents for all purposes. Except in limited
circumstances, owners of beneficial interests in a global security:
o may not have the global security or any Junior Subordinated Notes it
represents registered in their names;
o may not receive or be entitled to receive physical delivery of
certificated Junior Subordinated Notes in exchange for the global
security; and
o will not be considered the owners or holders of the global security or
any Junior Subordinated Notes it represents for any purposes under the
Junior Subordinated Notes or the Subordinated Indenture.
Duke Energy will make all payments of principal and any premium and
interest on a global security to the securities depositary or its nominee as the
holder of the global security. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of securities in
definitive form. These laws may impair the ability to transfer beneficial
interests in a global security.
Ownership of beneficial interests in a global security will be limited to
institutions having accounts with the securities depositary or its nominee,
which are called "participants" in this discussion, and to persons that
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hold beneficial interests through participants. When a global security
representing Junior Subordinated Notes is issued, the securities depositary will
credit on its book-entry, registration and transfer system the principal amounts
of Junior Subordinated Notes the global security represents to the accounts of
its participants. Ownership of beneficial interests in a global security will be
shown only on, and the transfer of those ownership interests will be effected
only through, records maintained by:
o the securities depositary, with respect to participants' interests; and
o any participant, with respect to interests the participant holds on
behalf of other persons.
Payments participants make to owners of beneficial interests held through
those participants will be the responsibility of those participants. The
securities depositary may from time to time adopt various policies and
procedures governing payments, transfers, exchanges and other matters relating
to beneficial interests in a global security. None of the following will have
any responsibility or liability for any aspect of the securities depositary's or
any participant's records relating to beneficial interests in a global security
representing Junior Subordinated Notes, for payments made on account of those
beneficial interests or for maintaining, supervising or reviewing any records
relating to those beneficial interests:
o Duke Energy;
o the Subordinated Indenture Trustee;
o the Trust (if the Junior Subordinated Notes are issued to a Trust); or
o any agent of any of them.
Redemption
Provisions relating to the redemption of Junior Subordinated Notes will be
set forth in the applicable prospectus supplement. Unless Duke Energy states
otherwise in the applicable prospectus supplement, Duke Energy may redeem Junior
Subordinated Notes only upon notice mailed at least 30 but not more than 60 days
before the date fixed for redemption.
Duke Energy will not be required to:
o issue, register the transfer of, or exchange any Junior Subordinated
Notes of a series during the period beginning 15 days before the date the
notice is mailed identifying the Junior Subordinated Notes of that series
that have been selected for redemption; or
o register the transfer of or exchange any Junior Subordinated Note of that
series selected for redemption except the unredeemed portion of a Junior
Subordinated Note being partially redeemed.
Consolidation, Merger, Conveyance or Transfer
The Subordinated Indenture provides that Duke Energy may consolidate or
merge with or into, or convey or transfer all or substantially all of its
properties and assets to, another corporation or other entity. Any successor
must, however, assume Duke Energy's obligations under the Subordinated Indenture
and the Subordinated Notes, including the Junior Subordinated Notes, and Duke
Energy must deliver to the Subordinated Indenture Trustee a statement by certain
of its officers and an opinion of counsel that affirm compliance with all
conditions in the Subordinated Indenture relating to the transaction. When those
conditions are satisfied, the successor will succeed to and be substituted for
Duke Energy under the Subordinated Indenture, and Duke Energy will be relieved
of its obligations under the Subordinated Indenture and any Subordinated Notes,
including the Junior Subordinated Notes.
Modification; Waiver
Duke Energy may modify the Subordinated Indenture with the consent of the
holders of a majority in principal amount of the outstanding Subordinated Notes
of all series that are affected by the modification,
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voting as one class. The consent of the holder of each outstanding Subordinated
Note affected is, however, required to:
o change the maturity date of the principal or any installment of principal
or interest on that Subordinated Note;
o reduce the principal amount, the interest rate or any premium payable
upon redemption on that Subordinated Note;
o reduce the amount of principal due and payable upon acceleration of
maturity;
o change the currency of payment of principal, premium or interest on that
Subordinated Note;
o impair the right to institute suit to enforce any such payment on or
after the maturity date or redemption date;
o reduce the percentage in principal amount of Subordinated Notes of any
series required to modify the Subordinated Indenture, waive compliance
with certain restrictive provisions of the Subordinated Indenture or
waive certain defaults; or
o with certain exceptions, modify the provisions of the Subordinated
Indenture governing modifications of the Subordinated Indenture or
governing waiver of covenants or past defaults.
In addition, Duke Energy may modify the Subordinated Indenture for certain other
purposes, without the consent of any holders of Subordinated Notes, including
Junior Subordinated Notes.
The holders of a majority in principal amount of the outstanding Junior
Subordinated Notes of any series may waive, for that series, Duke Energy's
compliance with certain restrictive provisions of the Subordinated Indenture.
The holders of a majority in principal amount of the outstanding Subordinated
Notes of all series under the Subordinated Indenture with respect to which a
default has occurred and is continuing, voting as one class, may waive that
default for all those series, except a default in the payment of principal or
any premium or interest on any Subordinated Note or a default with respect to a
covenant or provision which cannot be modified without the consent of the holder
of each outstanding Subordinated Note of the series affected.
Duke Energy may not amend the Subordinated Indenture to change the
subordination of any outstanding Junior Subordinated Notes without the consent
of each holder of Senior Indebtedness that the amendment would adversely affect.
Events of Default
The following are events of default under the Subordinated Indenture with
respect to any series of Junior Subordinated Notes, unless Duke Energy states
otherwise in the applicable prospectus supplement:
o failure to pay principal of or any premium on any Junior Subordinated
Note of that series when due;
o failure to pay when due any interest on any Junior Subordinated Note of
that series that continues for 60 days; for this purpose, the date on
which interest is due is the date on which Duke Energy is required to
make payment following any deferral of interest payments by it under the
terms of Junior Subordinated Notes that permit such deferrals;
o failure to make any sinking fund payment when required for any Junior
Subordinated Note of that series that continues for 60 days;
o failure to perform any covenant in the Subordinated Indenture (other than
a covenant expressly included solely for the benefit of other series)
that continues for 90 days after the Subordinated Indenture Trustee or
the holders of at least 33% of the outstanding Junior Subordinated Notes
of that series give Duke Energy written notice of the default; and
o certain bankruptcy, insolvency or reorganization events with respect to
Duke Energy.
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In the case of the fourth event of default listed above, the Subordinated
Indenture Trustee may extend the grace period. In addition, if holders of a
particular series have given a notice of default, then holders of at least the
same percentage of Junior Subordinated Notes of that series, together with the
Subordinated Indenture Trustee, may also extend the grace period. The grace
period will be automatically extended if Duke Energy has initiated and is
diligently pursuing corrective action.
Duke Energy may establish additional events of default for a particular
series and, if established, any such events of default will be described in the
applicable prospectus supplement.
If an event of default with respect to Junior Subordinated Notes of a
series occurs and is continuing, then the Subordinated Indenture Trustee or the
holders of at least 33% in principal amount of the outstanding Junior
Subordinated Notes of that series may declare the principal amount of all Junior
Subordinated Notes of that series to be immediately due and payable. However,
that event of default will be considered waived at any time after the
declaration but before a judgment for payment of the money due has been obtained
if:
o Duke Energy has paid or deposited with the Subordinated Indenture Trustee
all overdue interest, the principal and any premium due otherwise than by
the declaration and any interest on such amounts, and any interest on
overdue interest, to the extent legally permitted, in each case with
respect to that series, and all amounts due to the Subordinated Indenture
Trustee; and
o all events of default with respect to that series, other than the
nonpayment of the principal that became due solely by virtue of the
declaration, have been cured or waived.
In the case of Junior Subordinated Notes issued to a Trust, a holder of
Preferred Securities may institute a legal proceeding directly against Duke
Energy, without first instituting a legal proceeding against the Property
Trustee of the Trust by which those Preferred Securities were issued or any
other person or entity, for enforcement of payment to that holder of principal
or interest on an equivalent amount of Junior Subordinated Notes of the related
series on or after the due dates specified in those Junior Subordinated Notes.
The Subordinated Indenture Trustee is under no obligation to exercise any
of its rights or powers at the request or direction of any holders of Junior
Subordinated Notes unless those holders have offered the Subordinated Indenture
Trustee security or indemnity against the costs, expenses and liabilities that
it might incur as a result. The holders of a majority in principal amount of the
outstanding Junior Subordinated Notes of any series have, with certain
exceptions, the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Subordinated Indenture Trustee or
the exercise of any power of the Subordinated Indenture Trustee with respect to
those Junior Subordinated Notes. The Subordinated Indenture Trustee may withhold
notice of any default, except a default in the payment of principal or interest,
from the holders of any series if the Subordinated Indenture Trustee in good
faith considers it in the interest of the holders to do so.
The holder of any Junior Subordinated Note will have an absolute and
unconditional right to receive payment of the principal, any premium and, within
certain limitations, any interest on that Junior Subordinated Note on its
maturity date or redemption date and to enforce those payments.
Duke Energy is required to furnish each year to the Subordinated Indenture
Trustee a statement by certain of its officers to the effect that it is not in
default under the Subordinated Indenture or, if there has been a default,
specifying the default and its status.
Payments; Paying Agent
The paying agent will pay the principal of any Junior Subordinated Notes
only if those Junior Subordinated Notes are surrendered to it. The paying agent
will pay interest on Junior Subordinated Notes issued as global securities by
wire transfer to the holder of those global securities. Unless Duke Energy
states
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otherwise in the applicable prospectus supplement, the paying agent will pay
interest on Junior Subordinated Notes that are not in global form at its office
or, at Duke Energy's option:
o by wire transfer to an account at a banking institution in the United
States that is designated in writing to the Subordinated Indenture
Trustee at least 16 days prior to the date of payment by the person
entitled to that interest; or
o by check mailed to the address of the person entitled to that interest as
that address appears in the security register for those Junior
Subordinated Notes.
Unless Duke Energy states otherwise in the applicable prospectus
supplement, the Subordinated Indenture Trustee will act as paying agent for that
series of Junior Subordinated Notes, and the principal corporate trust office of
the Subordinated Indenture Trustee will be the office through which the paying
agent acts. Duke Energy may, however, change or add paying agents or approve a
change in the office through which a paying agent acts.
Any money that Duke Energy has paid to a paying agent for principal or
interest on any Junior Subordinated Notes that remains unclaimed at the end of
two years after that principal or interest has become due will be repaid to Duke
Energy at its request. After repayment to Duke Energy, holders should look only
to Duke Energy for those payments.
Defeasance and Covenant Defeasance
The Subordinated Indenture provides that Duke Energy may be:
o discharged from its obligations, with certain limited exceptions, with
respect to any series of Junior Subordinated Notes, as described in the
Subordinated Indenture, such a discharge being called a "defeasance" in
this prospectus; and
o released from its obligations under certain restrictive covenants
especially established with respect to a series of Junior Subordinated
Notes, as described in the Subordinated Indenture, such a release being
called a "covenant defeasance" in this prospectus.
Duke Energy must satisfy certain conditions to effect a defeasance or
covenant defeasance. Those conditions include the irrevocable deposit with the
Subordinated Indenture Trustee, in trust, of money or government obligations
which through their scheduled payments of principal and interest would provide
sufficient money to pay the principal and any premium and interest on those
Junior Subordinated Notes on the maturity dates of those payments or upon
redemption. Following a defeasance, payment of the Junior Subordinated Notes
defeased may not be accelerated because of an event of default under the
Subordinated Indenture.
Under current United States federal income tax laws, a defeasance would be
treated as an exchange of the relevant Junior Subordinated Notes in which
holders of those Junior Subordinated Notes might recognize gain or loss. In
addition, the amount, timing and character of amounts that holders would
thereafter be required to include in income might be different from that which
would be includible in the absence of that defeasance. Duke Energy urges
investors to consult their own tax advisors as to the specific consequences of a
defeasance, including the applicability and effect of tax laws other than United
States federal income tax laws.
Junior Subordinated Notes issued to a Trust will not be subject to covenant
defeasance.
Subordination
Each series of Junior Subordinated Notes will be subordinate and junior in
right of payment, to the extent set forth in the Subordinated Indenture, to all
Senior Indebtedness as defined below. If:
o Duke Energy makes a payment or distribution of any of its assets to
creditors upon its dissolution, winding-up, liquidation or
reorganization, whether in bankruptcy, insolvency or otherwise;
32
o a default beyond any grace period has occurred and is continuing with
respect to the payment of principal, interest or any other monetary
amounts due and payable on any Senior Indebtedness; or
o the maturity of any Senior Indebtedness has been accelerated because of a
default on that Senior Indebtedness,
then the holders of Senior Indebtedness generally will have the right to receive
payment, in the case of the first instance, of all amounts due or to become due
upon that Senior Indebtedness, and, in the case of the second and third
instances, of all amounts due on the Senior Indebtedness, or Duke Energy will
make provision for those payments, before the holders of any Junior Subordinated
Notes have the right to receive any payments of principal or interest on their
Junior Subordinated Notes.
"Senior Indebtedness" means, with respect to any series of Junior
Subordinated Notes, the principal, premium, interest and any other payment in
respect of any of the following:
o all of Duke Energy's indebtedness that is evidenced by notes, debentures,
bonds or other securities Duke Energy sells for money or other
obligations for money borrowed;
o all indebtedness of others of the kinds described in the preceding
category which Duke Energy has assumed or guaranteed or which Duke Energy
has in effect guaranteed through an agreement to purchase, contingent or
otherwise; and
o all renewals, extensions or refundings of indebtedness of the kinds
described in either of the preceding two categories.
Any such indebtedness, renewal, extension or refunding, however, will not
be Senior Indebtedness if the instrument creating or evidencing it or the
assumption or guarantee of it provides that it is not superior in right of
payment to or is equal in right of payment with those Junior Subordinated Notes.
Senior Indebtedness will be entitled to the benefits of the subordination
provisions in the Subordinated Indenture irrespective of the amendment,
modification or waiver of any term of the Senior Indebtedness.
Future series of Subordinated Notes that are not Junior Subordinated Notes
may rank senior to outstanding series of Junior Subordinated Notes and would
constitute Senior Indebtedness with respect to those series.
The Subordinated Indenture does not limit the amount of Senior Indebtedness
that Duke Energy may issue. As of June 30, 2003, Duke Energy's Senior
Indebtedness totaled approximately $5,888,000,000.
Concerning the Subordinated Indenture Trustee
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) is the
Subordinated Indenture Trustee and is also the Senior Indenture Trustee and the
trustee under Duke Energy's First and Refunding Mortgage. Duke Energy and
certain of its affiliates maintain deposit accounts and banking relationships
with JPMorgan Chase Bank. JPMorgan Chase Bank also serves as trustee or agent
under other indentures and agreements pursuant to which securities of Duke
Energy and of certain of its affiliates are outstanding.
The Subordinated Indenture Trustee will perform only those duties that are
specifically set forth in the Subordinated Indenture unless an event of default
under the Subordinated Indenture occurs and is continuing. In case an event of
default occurs and is continuing, the Subordinated Indenture Trustee will
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs.
DESCRIPTION OF THE FIRST AND REFUNDING MORTGAGE BONDS
Duke Energy will issue the First and Refunding Mortgage Bonds in one or
more series under its First and Refunding Mortgage, dated as of December 1,
1927, to JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as
Trustee, as supplemented and amended. The First and Refunding Mortgage is
sometimes called the "Mortgage" and the First and Refunding Mortgage Bonds are
sometimes called the
33
"Bonds" in this prospectus. The trustee under the Mortgage is sometimes called
the "Bond Trustee" in this prospectus. The Mortgage is an exhibit to the
registration statement, of which this prospectus is a part.
The following description of the Bonds is only a summary and is not
intended to be comprehensive. For additional information you should refer to the
Mortgage.
General
The amount of Bonds that Duke Energy may issue under the Mortgage is
unlimited. Duke Energy's Board of Directors will determine the terms of each
series of Bonds, including denominations, maturity, interest rate and payment
terms and whether the series will have redemption or sinking fund provisions or
will be convertible into shares of common stock or other securities of Duke
Energy. The Bonds may also be issued as part of the medium term note series
established under the Mortgage.
Unless Duke Energy states otherwise in the applicable prospectus
supplement, Duke Energy will issue the Bonds only in fully registered form
without coupons and there will be no service charge for any transfers and
exchanges of the Bonds. Duke Energy may, however, require payment to cover any
stamp tax or other governmental charge payable in connection with any transfer
or exchange. Transfers and exchanges of the Bonds may be made at JPMorgan Chase
Bank, Institutional Trust Services, 4 New York Plaza, 15th Floor, New York, New
York 10004 or at any other office maintained by Duke Energy for such purpose.
The Bonds will be issuable in denominations of $1,000 and multiples of
$1,000, unless Duke Energy states otherwise in the applicable prospectus
supplement. The Bonds will be exchangeable for an equivalent principal amount of
Bonds of other authorized denominations of the same series.
The prospectus supplement for a particular series of Bonds will describe
the maturity, interest rate and payment terms of those Bonds and any relevant
redemption or sinking fund provisions.
Security
The Mortgage creates a continuing lien to secure the payment of principal
and interest on the Bonds. All the Bonds are equally and ratably secured without
preference, priority or distinction. With some exceptions, the lien of the
Mortgage covers substantially all of Duke Energy's properties, real, personal
and mixed, and Duke Energy's franchises, including properties acquired after the
date of the Mortgage and the date hereof. Those exceptions include cash,
accounts receivable, inventories of materials and supplies, merchandise held for
sale, securities that Duke Energy holds, after-acquired property not useful in
Duke Energy's electric business, after-acquired franchises and after-acquired
non-electric properties.
We have not made any appraisal of the value of the properties subject to
the lien. The value of the properties in the event of liquidation will depend on
market and economic conditions, the availability of buyers and other factors. In
the event of liquidation, if the proceeds were not sufficient to repay amounts
under all of the Bonds then outstanding, then holders of the Bonds, to the
extent not repaid from the proceeds of the sale of the collateral, would only
have an unsecured claim against our remaining assets. As of June 30, 2003, we
had total senior secured indebtedness of approximately $1,290 million and total
senior unsecured indebtedness of approximately $4,599 million.
The lien of the Mortgage is subject to certain permitted liens and to liens
that exist upon properties that Duke Energy acquired after it entered into the
Mortgage to the extent of the amounts of prior lien bonds secured by those
properties (not, however, exceeding 75% of the cost or value of those
properties) and additions to those properties. "Prior lien bonds" are bonds or
other indebtedness that are secured at the time of acquisition by a lien upon
property that Duke Energy acquires after the date of the Mortgage that becomes
subject to the lien of the Mortgage.
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Issuance of Additional Bonds
If Duke Energy satisfies the conditions in the Mortgage, the Bond Trustee
may authenticate and deliver additional Bonds in an aggregate principal amount
not exceeding:
o the amount of cash that Duke Energy has deposited with the Bond Trustee
for that purpose;
o the amount of previously authenticated and delivered Bonds or refundable
prior lien bonds that have been or are to be retired which, with some
exceptions, Duke Energy has deposited with the Bond Trustee for that
purpose; or
o 66 2/3% of the aggregate of the net amounts of additional property
(electric) certified to the Bond Trustee after February 18, 1949.
The Bond Trustee may not authenticate and deliver any additional Bonds
under the Mortgage, other than some types of refunding Bonds, unless Duke
Energy's available net earnings for twelve consecutive calendar months within
the immediately preceding fifteen calendar months have been at least twice the
amount of the annual interest charges on all Bonds outstanding under the
Mortgage, including the Bonds proposed to be issued, and on all outstanding
prior lien bonds that the Bond Trustee does not hold under the Mortgage.
Duke Energy may not apply to the Bond Trustee to authenticate and deliver
any Bonds (1) in an aggregate principal amount exceeding $26,000,000 on the
basis of additional property (electric) that Duke Energy acquired or constructed
prior to January 1, 1949 or (2) on the basis of Bonds or prior lien bonds paid,
purchased or redeemed prior to February 1, 1949. Duke Energy may not certify any
additional property (electric) which is subject to the lien of any prior lien
bonds for the purpose of establishing those prior lien bonds as refundable if
the aggregate principal amount of those prior lien bonds exceeds 66 2/3% of the
net amount of the additional property that is subject to the lien of such prior
lien bonds.
Release Provisions
The Mortgage permits Duke Energy to dispose of certain property and to take
other actions without the Bond Trustee releasing that property. The Mortgage
also permits the release of mortgaged property if Duke Energy deposits cash or
other consideration equal to the value of the mortgaged property to be released.
In certain events and within certain limitations, the Bond Trustee is required
to pay out cash that the Bond Trustee receives -- other than for the Replacement
Fund or as the basis for issuing Bonds -- upon Duke Energy's application.
Duke Energy may withdraw cash that it deposited with the Bond Trustee as
the basis for issuing Bonds in an amount equal to the principal amount of any
Bonds that it is entitled to have authenticated and delivered on the basis of
additional property (electric), on the basis of Bonds previously authenticated
and delivered or on the basis of refundable prior lien bonds.
Replacement Fund
The Mortgage requires Duke Energy to deposit with the Bond Trustee
annually, for the Replacement Fund established under the Mortgage, the sum of
the "replacement requirements" for all years beginning with 1949 and ending with
the last calendar year preceding the deposit date, less certain deductions.
Those deductions are (1) the aggregate original cost of all fixed property
(electric) retired during that time period, not exceeding the aggregate of the
gross amounts of additional property (electric) that Duke Energy acquired or
constructed during the same period, and (2) the aggregate amount of cash that
Duke Energy deposited with the Bond Trustee up to that time, or that Duke Energy
would have been required to deposit except for permitted reductions, under the
Replacement Fund.
The "replacement requirement" for any year is 2 1/2% of the average "amount
of depreciable fixed property" (electric) owned by Duke Energy at the beginning
and end of that year, not exceeding, however, the amount Duke Energy is
permitted to charge as an operating expense for depreciation or retirement by
any governmental authority, or the amount deductible as depreciation or similar
expense for federal income tax purposes. The "amount of depreciable fixed
property" (electric) is the amount by which the sum of
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$192,913,385 plus the aggregate gross amount of all depreciable additional
property (electric) that Duke Energy acquired or constructed from January 1,
1949 to the date as of which such amount is determined exceeds the original cost
of all of Duke Energy's depreciable fixed property (electric) retired during
that period or released from the lien of the Mortgage.
Duke Energy may reduce the amount of cash at any time required to be
deposited in the Replacement Fund and may withdraw any cash that it previously
deposited that is held in the Replacement Fund:
o in an amount equal to 150% of the principal amount of Bonds previously
authenticated and delivered under the Mortgage, or refundable prior lien
bonds, deposited with the Bond Trustee and on the basis of which Duke
Energy would otherwise have been entitled to have additional Bonds
authenticated and delivered; and
o in an amount equal to 150% of the principal amount of Bonds which Duke
Energy would otherwise be entitled to have authenticated and delivered on
the basis of additional property (electric).
Upon Duke Energy's application, the Bond Trustee will apply cash that Duke
Energy deposited in the Replacement Fund and has not previously withdrawn to the
payment, purchase or redemption of Bonds issued under the Mortgage or to the
purchase of refundable prior lien bonds.
Duke Energy has never deposited any cash with the Bond Trustee for the
Replacement Fund. If Duke Energy deposits any cash in the future, it has agreed
not to apply that cash to the redemption of the Bonds as long as any Bonds then
outstanding remain outstanding.
Amendments of the Mortgage
Duke Energy may amend the Mortgage with the consent of the holders of
66 2/3% in principal amount of the Bonds, except that no such amendment may:
o affect the terms of payment of principal at maturity or of interest or
premium on any Bond;
o affect the rights of Bondholders to sue to enforce any such payment at
maturity; or
o reduce the percentage of Bonds required to consent to an amendment.
No amendment may affect the rights under the Mortgage of the holders of
less than all of the series of Bonds outstanding unless the holders of 66 2/3%
in principal amount of the Bonds of each series affected consent to the
amendment.
The covenants included in the supplemental indenture for any series of
Bonds to be issued will be solely for the benefit of the holders of those Bonds.
Duke Energy may modify any such covenant only with the consent of the holders of
66 2/3% in principal amount of those Bonds outstanding, without the consent of
Bondholders of any other series.
Events of Default
The Bond Trustee may, and at the written request of the holders of a
majority in principal amount of the outstanding Bonds will, declare the
principal of all outstanding Bonds due when any event of default under the
Mortgage occurs. The holders of a majority in principal amount of the
outstanding Bonds may, however, waive the default and rescind the declaration if
Duke Energy cures the default.
Events of default under the Mortgage include:
o default in the payment of principal;
o default for 60 days in the payment of interest;
o default in the performance of any other covenant in the Mortgage
continuing for 60 days after the Bond Trustee or the holders of not less
than 10% in principal amount of the Bonds then outstanding give notice of
the default;
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o Duke Energy is adjudicated insolvent or bankrupt by decree of a court or
a receiver is appointed of all or any substantial part of the mortgaged
property in an insolvency or bankruptcy proceeding and the order or
decree remains unstayed and in effect for 60 days; and
o Duke Energy files a petition in voluntary bankruptcy, makes an assignment
for the benefit of creditors or consents to the appointment of a receiver
of all or any substantial part of the mortgaged property or to any
adjudication of insolvency or bankruptcy.
Duke Energy provides a statement by its officers each year to the Bond
Trustee stating whether it has complied with the covenants of the Mortgage.
Concerning the Bond Trustee
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) is the
Bond Trustee and is also the Senior Indenture Trustee and the Subordinated
Indenture Trustee. Duke Energy and some of its affiliates maintain deposit
accounts and banking relationships with JPMorgan Chase Bank. JPMorgan Chase Bank
also serves as trustee or agent under other indentures and agreements pursuant
to which securities of Duke Energy and of some of its affiliates are
outstanding.
The Bond Trustee is under no obligation to exercise any of its powers at
the request of any of the holders of the Bonds unless those Bondholders have
offered to the Bond Trustee security or indemnity satisfactory to it against the
cost, expenses and liabilities it might incur as a result. The holders of a
majority in principal amount of the Bonds outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Bond Trustee, or the exercise of any trust or power of the Bond Trustee. The
Bond Trustee will not be liable for any action that it takes or omits to take in
good faith in accordance with any such direction.
DESCRIPTION OF THE COMMON STOCK
The following description of Duke Energy's Common Stock is only a summary
and is not intended to be comprehensive. For additional information you should
refer to the applicable provisions of the North Carolina Business Corporation
Act and Duke Energy's Restated Articles of Incorporation (Articles) and By-Laws.
The Articles and By-Laws are exhibits to the registration statement, of which
this prospectus is a part.
General
Duke Energy is authorized to issue up to 2,000,000,000 shares of Common
Stock. At June 30, 2003, approximately 904,000,000 shares of Common Stock were
outstanding. Duke Energy is also authorized to issue up to 12,500,000 shares of
Preferred Stock, 10,000,000 shares of Preferred Stock A, 20,000,000 shares of
Serial Preferred Stock and 1,500,000 shares of Preference Stock. At June 30,
2003, approximately 1,404,984 shares of Preferred Stock, 1,257,185 shares of
Preferred Stock A and no shares of Serial Preferred Stock or Preference Stock
were outstanding. The Preferred Stock, Preferred Stock A, Serial Preferred Stock
and Preference Stock together are sometimes called the "Preferred Stocks."
Dividends
Holders of Common Stock are entitled to such dividends as may be declared
from time to time by the Board of Directors from legally available funds but
only if full dividends on all outstanding series of the Preferred Stocks for the
then current and all prior dividend periods and any required sinking fund
payments with respect to any outstanding series of such securities have been
paid or provided for.
Voting Rights
Subject to the rights, if any, of the holders of the Preferred Stocks that
may be outstanding or as otherwise provided by law, the holders of Common Stock
have exclusive voting rights, each share being entitled to one vote. Holders of
Common Stock have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors can elect 100%
of the directors and the holders of the remaining shares voting for the election
of directors will not be able to elect any directors.
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Whenever dividends on any part of any outstanding Preferred Stock or
Preferred Stock A are in arrears in an amount equivalent to the total dividends
required to be paid on that Preferred Stock or Preferred Stock A in any period
of 12 calendar months, the holders of the Preferred Stock as a class have the
exclusive right to elect a majority of the authorized number of directors and
the holders of the Preferred Stock A as a class have the exclusive right to
elect two directors. Those rights cease whenever Duke Energy pays all accrued
and unpaid dividends in full. Whenever six quarterly dividends on any
outstanding series of the Preference Stock are in arrears or any required
sinking fund payments are in default, the holders of the Preference Stock as a
class have the exclusive right to elect two directors. This right ceases
whenever all dividends and required sinking fund obligations in default have
been paid in full or provided for. In addition, the consent of the holders of
specified percentages of any outstanding Preferred Stock, Preferred Stock A or
Preference Stock, or some or all of the holders of such classes, is required in
connection with certain increases in authorized amounts of or changes in stock
senior to the Common Stock or in connection with any sale of substantially all
of Duke Energy's assets or certain mergers.
The holders of the Serial Preferred Stock will have such voting rights as a
series or otherwise with respect to the election of directors or otherwise as
may be fixed by the Board of Directors at the time of the creation of the
series, in addition to any voting rights provided by law.
Rights Upon Liquidation
The holders of Common Stock are entitled in liquidation to share ratably in
the assets of Duke Energy after payment of all debts and liabilities and after
required preferential payments to the holders of outstanding Preferred Stocks.
Miscellaneous
The outstanding shares of Common Stock are, and the shares of Common Stock
sold hereunder will be, upon payment for them, fully paid and nonassessable.
Holders of Common Stock have no preemptive rights and no conversion rights. The
Common Stock is not subject to redemption and is not entitled to the benefit of
any sinking fund provisions.
If so provided by the Board of Directors at the time of creation of any
series of Serial Preferred Stock, the shares of such series may be convertible
or exchangeable into shares of Common Stock or other securities of Duke Energy
or of any other corporation or other entity, upon terms fixed at the time of
creation of the series.
Transfer Agent and Registrar
Duke Energy acts as transfer agent and registrar for the Common Stock.
Preference Stock Purchase Rights
Each share of Common Stock has attached to it a Preference Stock Purchase
Right. The Rights initially are represented only by the certificates for the
shares of Common Stock and will not trade separately from those shares unless
and until:
o ten days after it is publicly announced that a person or group (with
certain exceptions) has acquired, or has obtained the right to acquire,
the beneficial ownership of 15% or more of the outstanding Common Stock
(an "acquiring person"); or
o ten business days (or a later date determined by Duke Energy's Board of
Directors) after the date a person or group commences, or public
announcement is made that the person or group intends to commence, a
tender or exchange offer that would result in the person or group
becoming an acquiring person.
If and when the Rights separate, each Right will entitle the holder to purchase
1/10,000 of a share of Duke Energy's Series A Participating Preference Stock for
an exercise price that is presently $190.
In the event that a person or group becomes an acquiring person, each Right
(except for Rights beneficially owned by the acquiring person or its
transferees, which Rights become void) will entitle its holder to purchase, for
the exercise price, a number of shares of Common Stock having a market value of
twice the
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exercise price. Also, if, after ten days following the date of the announcement
that a person or group has become an acquiring person:
o Duke Energy is involved in a merger or similar form of business
combination in which Duke Energy is not the surviving corporation or in
which Duke Energy is the surviving corporation but the Common Stock is
changed or exchanged; or
o more than 50% of Duke Energy's assets or earning power is sold or
transferred;
then each Right (except for voided Rights) will entitle its holder to purchase,
for the exercise price, a number of shares of common stock of the acquiring
company having a value of twice the exercise price. If any person or group
acquires from 15% to but excluding 50% of the outstanding Common Stock, Duke
Energy's Board of Directors may, at its option, exchange each outstanding Right
(except for those held by an acquiring person or its transferees) for one share
of Common Stock or 1/10,000 of a share of Series A Participating Preference
Stock.
Duke Energy's Board of Directors may redeem the Rights for $0.01 per Right
prior to ten business days after the date of the public announcement that a
person or group has become an acquiring person.
The Rights will not prevent a takeover of Duke Energy. However, the
existence of the Rights may cause substantial dilution to a person or group that
acquires 15% or more of the Common Stock unless the Board of Directors first
redeems those Rights.
Certain Anti-Takeover Matters
Duke Energy's Articles and By-Laws include a number of provisions that may
have the effect of encouraging persons considering unsolicited tender offers or
other unilateral takeover proposals to negotiate with the Board of Directors
rather than pursue non-negotiated takeover attempts. Those provisions include:
Classified Board of Directors; Removal of Directors; Vacancies
Duke Energy's Articles provide for a Board of Directors divided into three
classes, with one class being elected each year to serve for a three-year term.
As a result, at least two annual meetings of shareholders may be required for
shareholders to change a majority of the Board of Directors. Duke Energy's
shareholders may remove directors only for cause. Vacancies and newly created
directorships on the Board of Directors may be filled only by the affirmative
vote of a majority of the directors remaining in office, and no decrease in the
number of directors may shorten the term of an incumbent director. The
classification of directors and the inability of shareholders to remove
directors without cause and to fill vacancies and newly created directorships on
the Board of Directors will make it more difficult to change the composition of
the Board of Directors, but will promote continuity of existing management.
Advance Notice Requirements
Duke Energy's By-Laws establish advance notice procedures with regard to
shareholder proposals relating to the nomination of persons for election as
directors or new business to be brought before annual meetings of shareholders.
These procedures provide that shareholders must give timely notice of such
proposals in writing to the Secretary of Duke Energy. Generally, to be timely
with respect to an annual meeting of shareholders, notice must be received at
Duke Energy's principal executive offices not less than 90 days nor more than
120 days prior to the first anniversary date of the annual meeting for the
preceding year. The notice must contain certain information specified in the
By-Laws.
Special Meetings of Shareholders
Neither the Articles nor the By-Laws of Duke Energy give shareholders the
right to call a special meeting of shareholders. The By-Laws provide that
special meetings of shareholders may be called only by the Board of Directors or
the Chairman of the Board.
Amendment of Charter and By-Laws
Duke Energy's Articles require the approval of not less than 80% of the
voting power of all outstanding shares of Common Stock to amend provisions
relating to the minimum and maximum size of the Board of Directors, the
classification of the Board of Directors, the removal of directors, the filling
of vacancies and
39
newly created directorships on the Board of Directors and the requirement that a
decrease in the number of directors constituting the Board of Directors may not
shorten the term of any incumbent director. Duke Energy's Articles also require
the affirmative vote of the holders of at least a majority of the combined
voting power of the then outstanding shares of stock of all classes entitled to
vote generally in the election of directors, voting together as a single class,
for the shareholders to adopt, amend or repeal any provisions in the By-Laws.
This voting requirement also applies to any amendment or repeal of this
provision or the adoption of any provision inconsistent with it. These amendment
provisions will make it more difficult to dilute the anti-takeover effects of
Duke Energy's Articles and By-Laws.
Serial Preferred Stock
Serial Preferred Stock can be, and has been, used by corporations
specifically for anti-takeover purposes. For example, shares of Serial Preferred
Stock can be privately placed with purchasers who support a board of directors
in opposing a tender offer or other hostile takeover bid, or can be issued to
dilute the stock ownership and voting power of a third party seeking a merger or
other extraordinary corporate transaction. Under these and similar
circumstances, the Serial Preferred Stock can serve to perpetuate incumbent
management and can adversely affect shareholders who may want to participate in
the tender offer or other transaction.
Duke Energy's Board of Directors has adopted resolutions that state that
the Serial Preferred Stock:
a) not be used for the principal purpose of acting as an anti-takeover
device without shareholder approval; and
b) not be given supermajority voting rights except possibly with respect to
proposed amendments to the Articles of Incorporation altering materially
existing provisions of the Serial Preferred Stock or creating, or
increasing the authorized amount of, any class of stock ranking, as to
dividend or assets, prior to the Serial Preferred Stock.
DESCRIPTION OF THE STOCK PURCHASE CONTRACTS
AND THE STOCK PURCHASE UNITS
Duke Energy may issue stock purchase contracts representing contracts
obligating holders to purchase from Duke Energy, and Duke Energy to sell to the
holders, a specified number of shares of Common Stock (or a range of numbers of
shares pursuant to a predetermined formula) at a future date or dates. The price
per share of Common Stock may be fixed at the time the stock purchase contracts
are issued or may be determined by reference to a specific formula set forth in
the stock purchase contracts.
The stock purchase contracts may be issued separately or as a part of
units, often known as stock purchase units, consisting of a stock purchase
contract and either:
o Senior Notes, Junior Subordinated Notes or other debt securities of Duke
Energy or one of its subsidiaries;
o debt obligations of third parties, including U.S. Treasury securities; or
o Preferred Securities or trust preferred securities issued by trusts, all
of whose common securities are owned by Duke Energy or by subsidiaries of
Duke Energy,
securing the holder's obligations to purchase the Common Stock under the stock
purchase contracts.
The stock purchase contracts may require Duke Energy to make periodic
payments to the holders of the stock purchase units or vice versa, and such
payments may be unsecured or prefunded on some basis. The stock purchase
contracts may require holders to secure their obligations in a specified manner
and in certain circumstances Duke Energy may deliver newly issued prepaid stock
purchase contracts, often known as prepaid securities, upon release to a holder
of any collateral securing such holder's obligations under the original stock
purchase contract.
The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units and, if applicable, prepaid
securities. The description in the applicable prospectus supplement will not
contain all of the information that you may find useful. For more information,
you should review the stock purchase contracts, the collateral arrangements and
depositary arrangements, if applicable, relating to
40
such stock purchase contracts or stock purchase units and, if applicable, the
prepaid securities and the document pursuant to which the prepaid securities
will be issued. These documents will be filed with the SEC promptly after the
offering of such stock purchase contracts or stock purchase units and, if
applicable, prepaid securities.
DESCRIPTION OF THE PREFERRED SECURITIES
Each Trust may issue only one series of Preferred Securities. The Trust
Agreement of each Trust will authorize the Administrative Trustees to issue the
Preferred Securities of that Trust on behalf of that Trust. For additional
information you should refer to the applicable Trust Agreement. The form of
Trust Agreement is an exhibit to the registration statement, of which this
prospectus is a part.
The prospectus supplement for a particular series of Preferred Securities
being offered will disclose the specific terms related to the offering,
including the price or prices at which the Preferred Securities to be offered
will be issued. Those terms will include some or all of the following:
o the title of the series;
o the number of Preferred Securities of the series;
o the yearly distribution rate, or the method of determining that rate, and
the date or dates on which distributions will be payable;
o the date or dates, or method of determining the date or dates, from which
distributions will be cumulative;
o the amount that will be paid out of the assets of the Trust to the
holders of the Preferred Securities upon the voluntary or involuntary
dissolution, winding-up or termination of the Trust;
o any obligation that the Trust has to purchase or redeem the Preferred
Securities, and the price at which, the period within which, and the
terms and conditions upon which the Trust will purchase or redeem them;
o any voting rights of the Preferred Securities that are in addition to
those legally required, including any right that the holders of the
Preferred Securities have to approve certain actions under or amendments
to the Trust Agreement;
o any right that the Trust has to defer distributions on the Preferred
Securities in the event that Duke Energy extends the interest payment
period on the related Junior Subordinated Notes; and
o any other rights, preferences, privileges, limitations or restrictions
upon the Preferred Securities of the series.
Duke Energy will guarantee each series of Preferred Securities to the
extent described below under the caption "Description of the Guarantees."
The applicable prospectus supplement will describe any material United
States federal income tax considerations that apply to the Preferred Securities.
DESCRIPTION OF THE GUARANTEES
Duke Energy will execute the Guarantees from time to time for the benefit
of the holders of the Preferred Securities of the respective Trusts. JPMorgan
Chase Bank will act as Guarantee Trustee under each Guarantee. The Guarantee
Trustee will hold each Guarantee for the benefit of the holders of the Preferred
Securities to which it relates.
The following description of the Guarantees is only a summary and is not
intended to be comprehensive. The form of Guarantee is an exhibit to the
registration statement, of which this prospectus is a part.
General
Duke Energy will irrevocably and unconditionally agree under each Guarantee
to pay the Guarantee Payments that are defined below, to the extent specified in
that Guarantee, to the holders of the Preferred Securities to which the
Guarantee relates, to the extent that the Guarantee Payments are not paid by or
on behalf of the related Trust. Duke Energy is required to pay the Guarantee
Payments to the extent specified in
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the relevant Guarantee regardless of any defense, right of set-off or
counterclaim that Duke Energy may have or may assert against any person.
The following payments and distributions on the Preferred Securities of a
Trust are Guarantee Payments:
o any accrued and unpaid distributions required to be paid on the Preferred
Securities of the Trust, but only to the extent that the Trust has funds
legally and immediately available for those distributions;
o the redemption price for any Preferred Securities that the Trust calls
for redemption, including all accrued and unpaid distributions to the
redemption date, but only to the extent that the Trust has funds legally
and immediately available for the payment; and
o upon a dissolution, winding-up or termination of the Trust, other than in
connection with the distribution of Junior Subordinated Notes to the
holders of Trust Securities of the Trust or the redemption of all the
Preferred Securities of the Trust, the lesser of:
o the sum of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities of the Trust to the payment
date, to the extent that the Trust has funds legally and immediately
available for the payment; and
o the amount of assets of the Trust remaining available for distribution
to holders of the Preferred Securities of the Trust in liquidation of
the Trust.
Duke Energy may satisfy its obligation to make a Guarantee Payment by
making that payment directly to the holders of the related Preferred Securities
or by causing the Trust to make the payment to those holders.
Each Guarantee will be a full and unconditional guarantee, subject to
certain subordination provisions, of the Guarantee Payments with respect to the
related Preferred Securities from the time of issuance of those Preferred
Securities, except that the Guarantee will apply to the payment of distributions
and other payments on the Preferred Securities only when the Trust has
sufficient funds legally and immediately available to make those distributions
or other payments.
IF DUKE ENERGY DOES NOT MAKE THE REQUIRED PAYMENTS ON THE JUNIOR
SUBORDINATED NOTES THAT THE PROPERTY TRUSTEE HOLDS UNDER A TRUST, THAT TRUST
WILL NOT MAKE THE RELATED PAYMENTS ON ITS PREFERRED SECURITIES.
Subordination
Duke Energy's obligations under each Guarantee will be unsecured
obligations of Duke Energy. Those obligations will rank:
o subordinate and junior in right of payment to all of Duke Energy's other
liabilities, other than obligations or liabilities that rank equal in
priority or subordinate by their terms;
o equal in priority with Duke Energy's Preferred Stock and Preferred Stock
A and similar guarantees; and
o senior to Duke Energy's Common Stock.
Duke Energy has Preferred Stock and Preferred Stock A outstanding that will
rank equal in priority with the Guarantees and has Common Stock outstanding that
will rank junior to the Guarantees.
Each Guarantee will be a guarantee of payment and not of collection. This
means that the guaranteed party may institute a legal proceeding directly
against Duke Energy, as guarantor, to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or entity.
The terms of the Preferred Securities will provide that each holder of the
Preferred Securities, by accepting those Preferred Securities, agrees to the
subordination provisions and other terms of the related Guarantee.
Amendments and Assignment
Duke Energy may amend each Guarantee without the consent of any holder of
the Preferred Securities to which that Guarantee relates if the amendment does
not materially and adversely affect the rights of those
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holders. Duke Energy may otherwise amend each Guarantee with the approval of the
holders of at least 66 2/3% of the outstanding Preferred Securities to which
that Guarantee relates.
Termination
Each Guarantee will terminate and be of no further effect when:
o the redemption price of the Preferred Securities to which the Guarantee
relates is fully paid;
o Duke Energy distributes the related Junior Subordinated Notes to the
holders of those Preferred Securities; or
o the amounts payable upon liquidation of the related Trust are fully paid.
Each Guarantee will remain in effect or will be reinstated if at any time
any holder of the related Preferred Securities must restore payment of any sums
paid to that holder with respect to those Preferred Securities or under that
Guarantee.
Events of Default
An event of default will occur under any Guarantee if Duke Energy fails to
perform any of its payment obligations under that Guarantee. The holders of a
majority of the Preferred Securities of any series may waive any such event of
default and its consequences on behalf of all of the holders of the Preferred
Securities of that series. The Guarantee Trustee is obligated to enforce the
Guarantee for the benefit of the holders of the Preferred Securities of a series
if an event of default occurs under the related Guarantee.
The holders of a majority of the Preferred Securities to which a Guarantee
relates have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee with respect to
that Guarantee or to direct the exercise of any trust or power that the
Guarantee Trustee holds under that Guarantee. Any holder of the related
Preferred Securities may institute a legal proceeding directly against Duke
Energy to enforce that holder's rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee or any other person
or entity.
Concerning the Guarantee Trustee
JPMorgan Chase Bank will be the Guarantee Trustee. It is also the Property
Trustee, the Subordinated Indenture Trustee, the Senior Indenture Trustee and
the Bond Trustee. Duke Energy and certain of its affiliates maintain deposit
accounts and banking relationships with JPMorgan Chase Bank. JPMorgan Chase Bank
also serves as trustee or agent under other indentures and agreements pursuant
to which securities of Duke Energy and certain of its affiliates are
outstanding.
The Guarantee Trustee will perform only those duties that are specifically
set forth in each Guarantee unless an event of default under the Guarantee
occurs and is continuing. In case an event of default occurs and is continuing,
the Guarantee Trustee will exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
those provisions, the Guarantee Trustee is under no obligation to exercise any
of its powers under any Guarantee at the request of any holder of the related
Preferred Securities unless that holder offers reasonable indemnity to the
Guarantee Trustee against the costs, expenses and liabilities which it might
incur as a result.
Agreements as to Expenses and Liabilities
Duke Energy will enter into an Agreement as to Expenses and Liabilities
under each Trust Agreement. Each Agreement as to Expenses and Liabilities will
provide that Duke Energy will, with certain exceptions, irrevocably and
unconditionally guarantee the full payment of any indebtedness, expenses or
liabilities of the related Trust to each person or entity to whom that Trust
becomes indebted or liable. The exceptions are the obligations of the Trust to
pay to the holders of the related Preferred Securities or other similar
interests in that Trust the amounts due to the holders under the terms of those
Preferred Securities or those similar interests.
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PLAN OF DISTRIBUTION
Duke Energy and the Trusts may sell securities to one or more underwriters
or dealers for public offering and sale by them, or it may sell the securities
to investors directly or through agents. The prospectus supplement relating to
the securities being offered will set forth the terms of the offering and the
method of distribution and will identify any firms acting as underwriters,
dealers or agents in connection with the offering, including:
o the name or names of any underwriters;
o the purchase price of the securities and the proceeds to Duke Energy or
the Trusts from the sale;
o any underwriting discounts and other items constituting underwriters'
compensation;
o any public offering price;
o any discounts or concessions allowed or reallowed or paid to dealers; and
o any securities exchange or market on which the securities may be listed.
Only those underwriters identified in the prospectus supplement are deemed
to be underwriters in connection with the securities offered in the prospectus
supplement.
Duke Energy and the Trusts may distribute the securities from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at prices determined as the prospectus supplement specifies. Duke Energy may
sell securities through forward contracts or similar arrangements. In connection
with the sale of securities, underwriters, dealers or agents may be deemed to
have received compensation from Duke Energy in the form of underwriting
discounts or commissions and also may receive commissions from securities
purchasers for whom they may act as agent. Underwriters may sell the securities
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for whom they may act as agent.
Duke Energy may sell the securities directly or through agents it
designates from time to time. Any agent involved in the offer or sale of the
securities covered by this prospectus, other than at the market offerings of
common stock, will be named in a prospectus supplement relating to such
securities. At the market offerings of common stock may be made by agents.
Commissions payable by Duke Energy to agents will be set forth in a prospectus
supplement relating to the securities being offered. Unless otherwise indicated
in a prospectus supplement, any such agents will be acting on a best-efforts
basis for the period of their appointment.
Some of the underwriters, dealers or agents and some of their affiliates
who participate in the securities distribution may engage in other transactions
with, and perform other services for, Duke Energy and its subsidiaries or
affiliates in the ordinary course of business.
Any underwriting or other compensation which Duke Energy pays to
underwriters or agents in connection with the securities offering, and any
discounts, concessions or commissions which underwriters allow to dealers, will
be set forth in the applicable prospectus supplement. Underwriters, dealers and
agents participating in the securities distribution may be deemed to be
underwriters, and any discounts and commissions they receive and any profit they
realize on the resale of the securities may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933. Underwriters, and
their controlling persons, and agents may be entitled, under agreements entered
into with Duke Energy and the Trusts, to indemnification against certain civil
liabilities, including liabilities under the Securities Act of 1933.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from Duke Energy's Annual
Report on Form 10-K for the year ended December 31, 2002 have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report (which
report expresses an unqualified opinion and includes an explanatory paragraph
relating to the adoption of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" on January 1,
2001 and the adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" on January 1, 2002), which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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VALIDITY OF THE SECURITIES
Robert T. Lucas III, Esq., who is Duke Energy's Associate General Counsel
and Assistant Secretary, and Simpson Thacher & Bartlett LLP, New York, New York,
will issue opinions about the validity of the securities offered by Duke Energy
in the applicable prospectus supplement for Duke Energy. Richards, Layton &
Finger, P.A., special Delaware counsel, will issue opinions about the validity
of the Preferred Securities offered in the applicable prospectus supplement for
the Trusts. Counsel named in the applicable prospectus supplement will issue
opinions about the validity of the securities offered by Duke Energy for any
underwriters.
WHERE YOU CAN FIND MORE INFORMATION
Duke Energy is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission, or the SEC. Such reports and other information can be
inspected and copied at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also obtain copies of these documents at
prescribed rates from the Public Reference Section of the SEC at its Washington
address. Please call the SEC at 1-800-SEC-0330 for further information.
Duke Energy's filings are also available to the public through:
o Duke Energy's web site at http://www.duke-energy.com;
o the SEC web site at http://www.sec.gov; and
o The New York Stock Exchange
20 Broad Street
New York, New York 10005.
Additional information about Duke Energy is also available on its web site
at http://www.duke-energy.com. Such web site is not a part of this prospectus.
The SEC allows Duke Energy to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that Duke Energy
files later with the SEC will automatically update and supersede this
information. Duke Energy incorporates by reference the documents listed below
and any future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 until Duke Energy completes its offering
of the securities:
o Duke Energy's annual report on Form 10-K for the year ended December 31,
2002;
o Duke Energy's quarterly reports on Form 10-Q for the quarters ended March
31, 2003 and June 30, 2003; and
o Duke Energy's current reports on Form 8-K filed on February 18, 2003 and
May 8, 2003.
Duke Energy will provide without charge a copy of these filings, other than
any exhibits unless the exhibits are specifically incorporated by reference into
this prospectus. You may request your copy by writing Duke Energy at the
following address or telephoning one of the following numbers:
Investor Relations Department
Duke Energy Corporation
P.O. Box 1005
Charlotte, North Carolina 28201
(704) 382-3853 or (800) 488-3853 (toll-free)
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