AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 2003
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DUKE ENERGY CORPORATION
(Exact name of Registrant as Specified in Its Charter)
NORTH CAROLINA
(State or Other Jurisdiction of Incorporation or Organization)
56-0205520
(IRS Employer Identification No.)
526 SOUTH CHURCH STREET
CHARLOTTE, NORTH CAROLINA 28202
(704) 594-6200
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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ROBERT P. BRACE
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
DUKE ENERGY CORPORATION
526 SOUTH CHURCH STREET
CHARLOTTE, NORTH CAROLINA 28202
(704) 594-6200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
COPY TO:
VINCENT PAGANO, JR., ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE FEE
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First and Refunding Mortgage Bonds,
3.75% Series B due 2008............... $500,000,000 100% $500,000,000 $40,450
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY , 2003
PROSPECTUS
[DUKE ENERGY LOGO]
$500,000,000
Offer to exchange all outstanding First and Refunding Mortgage Bonds, 3.75%
Series A due 2008 for an equal amount of First and Refunding Mortgage Bonds,
3.75% Series B due 2008, which have been registered under the Securities Act of
1933.
THE EXCHANGE OFFER
- We will exchange all outstanding bonds that are validly tendered and not
validly withdrawn for an equal principal amount of exchange bonds that
are freely tradeable, except in limited circumstances described below.
- You may withdraw tenders of outstanding bonds at any time prior to the
expiration of the exchange offer.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2003, unless extended. We do not currently intend to extend
the expiration date.
- The exchange of outstanding bonds for exchange bonds in the exchange
offer will not be a taxable event for U.S. federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
THE EXCHANGE BONDS
- The exchange bonds are being offered in order to satisfy certain of our
obligations under the registration rights agreement entered into in
connection with the placement of the outstanding bonds.
- The terms of the exchange bonds to be issued in the exchange offer are
substantially identical to the outstanding bonds, except that the
exchange bonds will be freely tradeable, except in limited circumstances
described below.
RESALES OF EXCHANGE BONDS
- The exchange bonds may be sold in the over-the-counter market, in
negotiated transactions or through a combination of such methods. We do
not plan to list the exchange bonds on a national market.
If you are a broker-dealer and you receive exchange bonds for your own
account, you must acknowledge that you will deliver a prospectus in connection
with any resale of such exchange bonds. By making such acknowledgement, you will
not be deemed to admit that you are an "underwriter" under the Securities Act of
1933. Broker-dealers may use this prospectus in connection with any resale of
exchange bonds received in exchange for outstanding bonds where the outstanding
bonds were acquired by the broker-dealer as a result of market-making activities
or trading activities. We have agreed to make this prospectus, and any amendment
or supplement thereto, available to any such broker-dealer for use in connection
with any resale of any Exchange Bonds for a period of the lesser of 90 days
after the consummation of the Exchange Offer and the date on which all
broker-dealers have sold all Exchange Bonds held by them (unless such Exchange
Offer period is extended). A broker-dealer may not participate in the exchange
offer with respect to outstanding bonds acquired other than as a result of
market-making activities or trading activities. See "Plan of Distribution."
If you are an affiliate of Duke Energy Corporation or are engaged in, or
intend to engage in, or have an agreement or understanding to participate in, a
distribution of the exchange bonds, you cannot rely on the applicable
interpretations of the Securities and Exchange Commission and you must comply
with the registration requirements of the Securities Act of 1933 in connection
with any resale transaction.
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 8 OF
THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2003.
TABLE OF CONTENTS
PAGE
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About This Prospectus................ i
Forward-Looking Statements........... i
Where You Can Find More
Information........................ iii
Prospectus Summary................... 1
Risk Factors......................... 8
Ratio of Earnings to Fixed Charges... 22
Use of Proceeds...................... 22
Selected Historical Consolidated
Financial Information.............. 23
PAGE
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The Exchange Offer................... 25
Description of the Bonds............. 35
Certain United States Federal Income
Tax Consequences................... 43
Plan of Distribution................. 43
Legal Matters........................ 44
Experts.............................. 44
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ABOUT THIS PROSPECTUS
In this prospectus, the terms "we," "our," "us," "Company" and "Duke
Energy" mean Duke Energy Corporation including, unless the context otherwise
requires or as otherwise expressly stated, our subsidiaries. Unless the context
otherwise requires, "bonds" refers to the outstanding bonds and the exchange
bonds.
You should rely only on the information contained in this document. Neither
Duke Energy nor the exchange agent has authorized anyone to provide you with
information different from that contained in this document. We are not offering
to exchange, or soliciting any offers to exchange, securities pursuant to the
exchange offer in any jurisdiction in which those offers or exchanges would not
be permitted. The information contained in this document is accurate only as of
the date of this document regardless of the time of delivery of this document or
the time of any exchange of securities in the exchange offer.
This document incorporates important business and financial information
about us from documents filed with the Securities and Exchange Commission that
have not been included in or delivered with this document. This information is
available without charge upon written or oral request. See "Where You Can Find
More Information" beginning on page iii.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus contains or incorporates 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;
i
- 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 events
described in the forward-looking statements 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.
ii
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.
Duke Energy's filings are also available to the public through:
- Duke Energy's 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 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. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until we complete our offering of the
securities:
- Duke Energy's annual report on Form 10-K for the year ended December 31,
2002;
- Duke Energy's quarterly report on Form 10-Q for the quarter ended March
31, 2003; and
- Duke Energy's current report on Form 8-K filed on 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)
IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST FOR
DOCUMENTS SHOULD BE MADE NO LATER THAN [FIVE BUSINESS DAYS BEFORE THE EXPIRATION
DATE], 2003 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE EXPIRATION
DATE OF THE EXCHANGE OFFER. IN THE EVENT THAT WE EXTEND THE EXCHANGE OFFER, YOU
MUST SUBMIT YOUR REQUEST AT LEAST FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE,
AS EXTENDED. If you request any such documents from us, we will mail them to you
by first class mail, or another equally prompt means, within one business day
after we receive your request.
iii
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus and does not contain all of the information you need to consider. You
should read carefully this entire prospectus.
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 segments:
- Franchised Electric
- Natural Gas Transmission
- Field Services
- Duke Energy North America
- International Energy
- Other Operations
FRANCHISED ELECTRIC generates, transmits, distributes and sells electricity
in central and western North Carolina and western South Carolina. It conducts
operations primarily through Duke Power and Nantahala Power and Light. 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 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 acquired Westcoast Energy Inc. on March 14, 2002. Duke Energy Gas
Transmission's natural gas transmission and storage operations in the United
States are subject to the FERC's and the Texas Railroad Commission'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, markets and
stores natural gas liquids, or NGLs. 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. In 2002, management combined Duke Energy Merchants Holdings with
the Other Energy Services segment. Previous periods have been reclassified to
conform to the current presentation.
1
In April 2003, Duke Energy announced that it would discontinue 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 region and natural gas
marketing in Northwest Europe.
OTHER OPERATIONS is composed of diverse businesses, operating through
Crescent Resources, LLC, DukeNet Communications, LLC, Duke Capital Partners,
LLC, Duke Energy Merchants, Duke/Fluor Daniel and Energy Delivery Services.
Beginning in 2003, the business segments formally known as Other Energy Services
and Duke Ventures were combined into a segment called 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 U.S. DukeNet develops and manages fiber optic communications
systems for wireless, local and long distance communications companies and
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 commodity buying and selling, and risk management and financial
services in non-regulated energy commodity markets other than physical natural
gas and power (such as petroleum products). On April 11, 2003, Duke Energy
announced that it will also discontinue proprietary trading at Duke Energy
Merchants. Duke/Flour Daniel provides comprehensive engineering, procurement,
construction, commissioning and operating plant services for fossil-fueled
electric power generating facilities worldwide. Duke/Flour Daniel is a 50/50
partnership between Duke Energy and Fluor Enterprises, Inc., a wholly owned
subsidiary of Fluor Corporation. 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 segments is
only a general summary and is not intended to be comprehensive. For additional
information about Duke Energy and its business segments, you should refer to the
information described under the caption "Where You Can Find More Information" in
this prospectus.
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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.
2
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On February 25, 2003, we completed the private offering of the outstanding
bonds. References to the "bonds" in this prospectus are references to both the
outstanding bonds and the exchange bonds. This prospectus is part of a
registration statement covering the exchange of the outstanding bonds for the
exchange bonds.
The outstanding bonds were issued and the exchange bonds offered hereby
will be issued as part of a series of First and Refunding Mortgage Bonds under
our 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-First Supplemental Indenture,
dated as of February 25, 2003. The First and Refunding Mortgage, as supplemented
and amended, is sometimes called the "Mortgage."
In connection with the private offering, we entered into a registration
rights agreement, dated as of February 25, 2003, with the initial purchasers in
the private offering, or the Registration Rights Agreement, in which we agreed,
among other things, to deliver this prospectus to you as part of the exchange
offer and we agreed to complete the exchange offer within 210 days after the
date of original issuance of the outstanding bonds. You are entitled to exchange
in the exchange offer your outstanding bonds for exchange bonds, which are
identical in all material respects to the outstanding bonds except:
- the exchange bonds have been registered under the Securities Act;
- the exchange bonds are not entitled to certain registration rights which
are applicable to the outstanding bonds under the Registration Rights
Agreement; and
- the special interest premium is no longer applicable.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
The Exchange Offer............ We are offering to exchange up to $500,000,000
aggregate principal amount of our First and
Refunding Mortgage Bonds, 3.75% Series B due
2008, which we refer to in this prospectus as
the exchange bonds, for up to $500,000,000
aggregate principal amount of our First and
Refunding Mortgage Bonds, 3.75% Series A due
2008, which we refer to in this prospectus as
the outstanding bonds. Outstanding bonds may be
exchanged only in integral multiples of $1,000.
Resale........................ Based on an interpretation by the staff of the
Securities and Exchange Commission, or the SEC,
set forth in no-action letters issued to third
parties, we believe that the exchange bonds
issued pursuant to the exchange offer in
exchange for outstanding bonds may be offered
for resale, resold and otherwise transferred by
you (unless you are an "affiliate" of Duke
Energy Corporation within the meaning of Rule
405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that you are acquiring the exchange
bonds in the ordinary course of your business
and that you have not engaged in, do not intend
to engage in, and have no arrangement or
understanding with any person to participate
in, a distribution of the exchange bonds.
Each participating broker-dealer that receives
exchange bonds for its own account pursuant to
the exchange offer in exchange for outstanding
bonds that were acquired as a result of market-
making or other trading activity must
acknowledge that it will
3
deliver a prospectus in connection with any
resale of the exchange bonds. See "Plan of
Distribution."
Any holder of outstanding bonds who:
- is an affiliate of Duke Energy Corporation,
- does not acquire exchange bonds in the
ordinary course of its business, or
- tenders in the exchange offer with the
intention to participate, or for the purpose
of participating, in a distribution of
exchange bonds
cannot rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated
or similar no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the exchange
bonds.
Expiration Date; Withdrawal of
Tender........................ The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2003, or
such later date and time to which we extend it,
which date we refer to as the "expiration
date." We do not currently intend to extend the
expiration date. A tender of outstanding bonds
pursuant to the exchange offer may be withdrawn
at any time prior to the expiration date. Any
outstanding bonds not accepted for exchange for
any reason will be returned without expense to
the tendering holder promptly after the
expiration or termination of the exchange
offer.
Certain Conditions to the
Exchange Offer................ The exchange offer is subject to customary
conditions, which we may waive. Please read the
section of this prospectus captioned "The
Exchange Offer -- Certain Conditions to the
Exchange Offer" for more information regarding
the conditions to the exchange offer.
Procedures for Tendering
Outstanding Bonds............. If you wish to participate in the exchange
offer, you must complete, sign and date the
accompanying letter of transmittal, or a
facsimile of the letter of transmittal
according to the instructions contained in this
prospectus and the letter of transmittal. You
must also mail or otherwise deliver the letter
of transmittal, or a facsimile of the letter of
transmittal, together with the outstanding
bonds and any other required documents, to the
exchange agent at the address set forth on the
cover page of the letter of transmittal. If you
hold outstanding bonds through The Depository
Trust Company, or DTC, and wish to participate
in the exchange offer, you must comply with the
Automated Tender Offer Program procedures of
DTC, by which you will agree to be bound by the
letter of transmittal. By signing, or
4
agreeing to be bound by the letter of
transmittal, you will represent to us that,
among other things:
- any exchange bonds that you receive will be
acquired in the ordinary course of your
business;
- you have no arrangement or understanding with
any person or entity to participate in a
distribution of the exchange bonds;
- if you are a broker-dealer that will receive
exchange bonds for your own account in
exchange for outstanding bonds that were
acquired as a result of market-making
activities, that you will deliver a
prospectus, as required by law, in connection
with any resale of such exchange bonds; and
- you are not an "affiliate," as defined in
Rule 405 of the Securities Act, of Duke
Energy Corporation or, if you are an
affiliate, you will comply with any
applicable registration and prospectus
delivery requirements of the Securities Act.
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of outstanding
bonds that are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee, and you wish to tender such
outstanding bonds in the exchange offer, you
should contact such registered holder promptly
and instruct such registered holder to tender
on your behalf. If you wish to tender on your
own behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding bonds, either make
appropriate arrangements to register ownership
of the outstanding bonds in your name or obtain
a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may
not be able to be completed prior to the
expiration date.
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding bonds
and your outstanding bonds are not immediately
available or you cannot deliver your
outstanding bonds, the letter of transmittal or
any other documents required by the letter of
transmittal or comply with the applicable
procedures under DTC's Automated Tender Offer
Program prior to the expiration date, you must
tender your outstanding bonds according to the
guaranteed delivery procedures set forth in
this prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures."
Effect on Holders of
Outstanding Bonds............. As a result of the making of, and upon
acceptance for exchange of all validly tendered
outstanding bonds pursuant to the terms of the
exchange offer, we will have fulfilled a
covenant contained in the Registration Rights
Agreement and, accordingly, there will be no
increase in the interest rate on the
outstanding bonds under the circumstances
described in the Registration Rights Agreement.
If you are a holder of outstanding bonds and
you do not tender your outstanding bonds in the
exchange offer, you will continue to hold such
outstanding bonds and you will be entitled to
all the rights and limitations applicable to
the outstanding
5
bonds in the Mortgage, except for any rights
under the Mortgage or the Registration Rights
Agreement that by their terms terminate upon
the consummation of the exchange offer.
To the extent that outstanding bonds are
tendered and accepted in the exchange offer,
the trading market for outstanding bonds could
be adversely affected.
Consequences of Failure to
Exchange...................... All untendered outstanding bonds will continue
to be subject to the restrictions on transfer
provided for in the outstanding bonds and in
the Mortgage. In general, the outstanding bonds
may not be offered or sold, unless registered
under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. Other than in connection with
the exchange offer, we do not currently
anticipate that we will register the
outstanding bonds under the Securities Act.
Certain Income Tax
Considerations................ The exchange of outstanding bonds for exchange
bonds in the exchange offer will not be a
taxable event for United States federal income
tax purposes. See "Certain United States
Federal Income Tax Considerations."
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of exchange bonds pursuant to the
exchange offer.
Exchange Agent................ JPMorgan Chase Bank is the exchange agent for
the exchange offer. The address and telephone
number of the exchange agent are set forth in
the section of this prospectus captioned "The
Exchange Offer -- Exchange Agent."
6
SUMMARY OF THE TERMS OF THE EXCHANGE BONDS
Issuer........................ Duke Energy Corporation.
Bonds Offered................. $500,000,000 in aggregate principal amount of
First and Refunding Mortgage Bonds, 3.75%
Series B due 2008.
Maturity Date................. March 5, 2008.
Interest Payment Dates........ March 5 and September 5 of each year, beginning
September 5, 2003. The initial interest payment
will include accrued interest from February 25,
2003.
Interest Rate................. 3.75% per year.
Ranking....................... The outstanding bonds are, and the exchange
bonds will be, a series of First and Refunding
Mortgage Bonds of Duke Energy Corporation. All
series of the First and Refunding Mortgage
Bonds are equally and ratably secured without
preference, priority or distinction.
Optional Redemption........... We may redeem some or all of the bonds at the
redemption prices set forth under "Description
of the Bonds -- Optional Redemption."
Use of Proceeds............... There will be no cash proceeds to us from the
exchange offer.
Certain Covenants............. The Mortgage governing the 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 Bonds" in this
prospectus.
Absence of a Public Market for
the Exchange Bonds............ The exchange bonds generally will be freely
transferable but will also be new securities
for which there will not initially be a market.
Accordingly, we cannot assure you whether a
market for the exchange bonds will develop or
as to the liquidity of any market. We do not
intend to apply for a listing of the exchange
bonds on any securities exchange or automated
dealer quotation system. The initial purchasers
in the private offering of the outstanding
bonds have advised us that they currently
intend to make a market in the exchange bonds.
However, they are not obligated to do so, and
any market making with respect to the exchange
bonds may be discontinued without notice.
---------------------
You should carefully consider the risk factors set forth under the caption
of this "Risk Factors" and the other information included in this prospectus
before tendering your outstanding bonds in the exchange offer.
7
RISK FACTORS
You should carefully consider the following factors and other information
contained in this prospectus before deciding to tender outstanding bonds in the
exchange offer. The risk factors set forth below are generally applicable to the
outstanding bonds as well as the exchange bonds. Any of these risks could
materially adversely affect our business, financial condition and results of
operations, which could in turn materially adversely affect the price of the
bonds.
RISKS RELATED TO THE EXCHANGE OFFER
IF YOU CHOOSE NOT TO EXCHANGE YOUR OUTSTANDING BONDS, THE PRESENT TRANSFER
RESTRICTIONS WILL REMAIN IN FORCE AND THE MARKET PRICE OF YOUR OUTSTANDING
BONDS COULD DECLINE.
If you do not exchange your outstanding bonds for exchange bonds under the
exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding bonds as set forth in the offering memorandum
distributed in connection with the private offering of the outstanding bonds. In
general, the outstanding bonds may not be offered or sold unless they are
registered or exempt from registration under the Securities Act and applicable
state securities laws. Except as required by the Registration Rights Agreement,
we do not intend to register resales of the outstanding bonds under the
Securities Act. You should refer to "Prospectus Summary -- Summary of Terms of
the Exchange Offer" and "The Exchange Offer" for information about how to tender
your outstanding bonds.
The tender of outstanding bonds under the exchange offer will reduce the
principal amount of the outstanding bonds outstanding, which may have an adverse
effect upon, and increase the volatility of, the market price of the outstanding
bonds due to a reduction in liquidity.
YOU MUST FOLLOW THE EXCHANGE OFFER PROCEDURES CAREFULLY IN ORDER TO RECEIVE
THE EXCHANGE BONDS.
If you do not follow the procedures described herein, you will not receive
the exchange bonds. The exchange bonds will be issued to you in exchange for
your outstanding bonds only after timely receipt by the exchange agent of:
- a properly completed and executed letter of transmittal and all other
required documents; or
- a book-entry delivery by electronic transmittal of an agent's message
through DTC.
If you want to tender your outstanding bonds in exchange for exchange
bonds, you should allow sufficient time to ensure timely delivery. No one is
under any obligation to give you notification of defects or irregularities with
respect to tenders of outstanding bonds for exchange. For additional
information, please refer to the sections captioned "The Exchange Offer" and
"Plan of Distribution" in this prospectus.
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.
8
Our Duke Energy North America business sells power from 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;
- seasonality;
- 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;
- general economic conditions, including downturns in the U.S. or other
economies which impact consumption;
- transmission or transportation constraints or inefficiencies which impact
our merchant energy operations;
- availability of competitively priced alternative energy sources;
- natural gas, crude oil, refined products and coal production levels;
- electric generation capacity;
- 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.
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.
We actively manage the risk inherent in our energy, debt and foreign
currency 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. If prices significantly
deviate from historical prices, our risk management systems may not protect us
from significant losses. Adverse changes in energy prices, interest rates and
foreign currency exchange rates 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, marketing
and risk management systems, their effectiveness remains uncertain.
9
OUR HEDGING PROCEDURES MAY NOT PROTECT OUR SALES AND NET INCOME FROM
VOLATILITY.
To lower our financial exposure related to price fluctuations, 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, we 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. 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 transmission 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. As a result, our overall operating results
in the future may fluctuate substantially on a seasonal basis. Further, extreme
weather conditions such as heat waves or winter storms could cause these
seasonal fluctuations to be more pronounced. The pattern of this fluctuation may
change depending on the nature and location of our facilities and pipeline
systems and the terms of power sale contracts and gas transmission arrangements
we enter into.
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 recent decline of
natural gas prices in North America, the filing of bankruptcy by Enron
Corporation, and investigations by governmental authorities into energy trading
activities and increased litigation related to these matters, companies
generally in the regulated and unregulated utility businesses have been 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. In addition, in our
marketing and trading activities, we often extend credit to our trading
counterparties. Despite performing credit analysis prior to extending credit, 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 lose money.
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 the FERC's
market-based tariffs 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
10
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.
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
Recently, 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 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
11
recently 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 California
electricity supply situation are ongoing before the FERC and in California and
several other western state courts against sellers of energy in California. Duke
Energy and some of its subsidiaries are named as defendants in a number of
lawsuits brought by or on behalf of electricity purchasers in California, with
one suit filed on behalf of a Washington State electricity purchaser. 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 cannot predict the outcome
of any such lawsuits and other 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 and the Commodity Futures Trading Commission, or CFTC, have
requested information from us regarding pricing information that we provided to
publications that produce price indices. We have been responding to the FERC and
CFTC, but we cannot predict the outcome of this investigation or whether this
investigation 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. 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
12
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 certain 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
generation and distribution 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 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. Certain 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 proposed rules would limit
communications between a jurisdictional company and all our affiliates engaged
in energy activities. The rulemaking is pending at the FERC and the precise
scope and effect of the rule is unclear.
13
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 DUE TO THE FERC AND
REGIONAL REGULATION OF WHOLESALE MARKET TRANSACTIONS FOR ELECTRICITY AND GAS.
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.
The FERC has 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 whether and to what extent the
industry will comply with these initiatives, or whether the regulations will
fully accomplish their objectives. In addition, other companies' ability to
access and compete for our existing "native-load" transmission customers may
negatively affect our business leading to declining prices for transmission
services as a result of this competition.
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. 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
14
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.
THE RATE FREEZE AFFECTING OUR NORTH CAROLINA UTILITY WILL LIMIT 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
freezes electric utility rates until 2007, subject to certain conditions, 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.
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 certain 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.
15
Certain 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 certain 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 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
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. Certain 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.
16
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;
- 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.
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 A-,
A3 and A-, respectively. Our Standard & Poor's and Fitch ratings are both on
negative outlook and our Moody's rating is on review for potential downgrade. 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, many 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, such as our inability to successfully execute a
significant portion of planned asset divestitures, could cause our ratings to be
lowered.
17
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.
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.
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, certain countries in which we operate, including Canada, 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 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 NCUC. Also, we may not be able to obtain or maintain from time to time
all required environmental regulatory approvals for certain 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
18
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
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
certain acquisitions and sales of assets, we may obtain, or be required to
provide, indemnification against certain 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.
ACCOUNTING POLICY RISKS
POTENTIAL CHANGES IN ACCOUNTING PRACTICES FOR THE ENERGY INDUSTRY MAY CAUSE
US TO REVISE OUR FINANCIAL DISCLOSURE IN THE FUTURE, WHICH MAY CHANGE THE WAY
ANALYSTS MEASURE OUR BUSINESS OR FINANCIAL PERFORMANCE.
Recently discovered accounting irregularities in various industries have
forced regulators and legislators to take a renewed look at accounting
practices, financial disclosures, companies' relationships with their
independent auditors and retirement plan practices. It is still unclear how some
proposed laws and regulations will develop and what new laws and regulations
will be promulgated. As a result, we cannot predict the ultimate impact of any
future changes in accounting regulations or practices in general with respect to
public companies or the energy industry or in our operations specifically. In
addition, new accounting standards could be enacted by the Financial Accounting
Standards Board, or FASB, the Emerging Issues Task Force, or EITF, or the SEC
which could impact the way we are required to record revenues, assets and
liabilities. These and other future changes in accounting standards could lead
to negative impacts on reported earnings or increases in liabilities which in
turn could affect our reported results of operations.
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 and political
conditions in certain 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 or tax policy, that are greater than in
the United States. The uncertainty of the legal environment in certain 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 certain 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. In certain conditions under
which we develop or acquire projects, or make investments, 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
19
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.
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. The location
of pipelines near populated areas, including residential areas, commercial
business centers and industrial sites, could increase the level of damages
resulting from these risks.
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.
20
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.
21
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
YEAR ENDED DECEMBER 31,
-------------------------------- THREE MONTHS ENDED
1998 1999 2000 2001 2002 MARCH 31, 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 exchange offer is intended to satisfy our obligations under the
Registration Rights Agreement that we entered into in connection with the
private offering of the outstanding bonds. We will not receive any cash proceeds
from the issuance of the exchange bonds in the exchange offer. In consideration
for issuing the exchange bonds as contemplated in this prospectus, we will
receive in exchange a like principal amount of outstanding bonds, the terms of
which are identical in all material respects to the exchange bonds. The
outstanding bonds surrendered in exchange for the exchange bonds will be retired
and canceled and cannot be reissued. Accordingly, issuance of the exchange bonds
will not result in any change in our capitalization.
We received net proceeds of approximately $496.4 million from the offering
and sale of the outstanding bonds, after deducting discounts, commissions and
other expenses of the offering of the outstanding bonds payable by us.
The net proceeds from the offering of the outstanding bonds were used (i)
to pay upon maturity $100 million of a series of 6.625% First and Refunding
Mortgage Bonds due in February 2003, (ii) to repay approximately $200 million of
an intercompany loan bearing a weighted average interest rate of 1.49% and a
maturity of less than one year and (iii) for general corporate purposes. The
intercompany loan was incurred by Duke Energy for general corporate purposes.
22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected historical consolidated financial information (1)
for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 have been
derived from our audited consolidated financial statements and (2) for the three
month periods ended March 31, 2003 and March 31, 2002 have been derived from our
unaudited condensed consolidated financial statements.
You should read the following table in conjunction with our "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
consolidated financial statements and the related notes that are incorporated by
reference in this prospectus.
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
2003 2002 2002 2001 2000 1999(A) 1998
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT
Operating revenues(b)............ $ 6,324 $ 3,308 $15,663 $18,197 $15,342 $10,135 $ 8,636
Operating expenses(b)............ 5,431 2,640 13,212 14,494 12,253 8,560 6,278
Gains on sale of other assets,
net............................ -- -- 49 238 214 132 48
------- ------- ------- ------- ------- ------- -------
Operating income................. 893 668 2,500 3,941 3,303 1,707 2,406
Other income and expenses, net... 81 102 369 315 711 336 241
Interest expense................. 340 198 1,110 785 911 601 514
Minority interest expense........ 52 32 107 327 307 142 96
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes..... 582 540 1,652 3,144 2,796 1,300 2,037
Income taxes..................... 195 158 618 1,150 1,020 453 777
------- ------- ------- ------- ------- ------- -------
Income before extraordinary item
and cumulative effect of change
in accounting principles....... 387 382 1,034 1,994 1,776 847 1,260
Extraordinary gain (loss), net of
tax............................ -- -- -- -- -- 660 (8)
Cumulative effect of change in
accounting principles, net of
tax and minority interest...... (162) -- -- (96) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income....................... 225 382 1,034 1,898 1,776 1,507 1,252
Preferred and preference stock
dividends...................... 3 3 13 14 19 20 21
------- ------- ------- ------- ------- ------- -------
Earnings available for common
stockholders................... $ 222 $ 379 $ 1,021 $ 1,884 $ 1,757 $ 1,487 $ 1,231
------- ------- ------- ------- ------- ------- -------
COMMON STOCK DATA(C)
Shares of common stock
outstanding
Period-end....................... 900 829 895 777 739 733 726
Weighted average................. 897 788 836 767 736 729 722
Earnings per share (before
extraordinary item and
cumulative effect of change in
accounting principle)
Basic............................ $ 0.43 $ 0.48 $ 1.22 $ 2.58 $ 2.39 $ 1.13 $ 1.72
Diluted.......................... 0.43 0.48 1.22 2.56 2.38 1.13 1.71
Earnings per share
Basic............................ $ 0.25 $ 0.48 $ 1.22 $ 2.45 $ 2.39 $ 2.04 $ 1.70
Diluted.......................... 0.25 0.48 1.22 2.44 2.38 2.03 1.70
Dividends per share.............. 0.275 0.275 1.10 1.10 1.10 1.10 1.10
------- ------- ------- ------- ------- ------- -------
BALANCE SHEET
Total assets..................... $63,245 $62,546 $60,966 $48,531 $58,232 $33,409 $26,806
Long-term debt, less current
maturities..................... 20,480 18,323 20,221 12,321 10,717 8,683 6,272
23
---------------
(a) Financial information reflects a pre-tax $800 million charge for estimated
injuries and damages claims. The earnings-per-share effect of this charge
was $0.67 per share.
(b) Operating revenues and expenses for 1998 through 2002 have been updated to
the extent required to show the impact of the gross versus net presentation
of revenues under the partial consensus reached in June 2002 on Emerging
Issues Task Force Issue (EITF) No. 02-03, "Issues Involved in Accounting for
Derivative Contracts Held for Trading and Risk Management Activities." In
the calculation of net revenues, Duke Energy has continued to enhance its
methodologies around the application of this complex accounting literature
since the third quarter of 2002 when these trading revenues were first
reported on a net basis. Effective January 1, 2003, in connection with the
implementation of the remaining provisions of EITF Issue No. 02-03, gains
and losses for certain derivative and non-derivative contracts that were
previously reported on a net basis are now reported on a gross basis.
Adopting the final consensus on EITF Issue No. 02-03 did not require a
change to prior periods.
(c) Amounts prior to 2001 were restated to reflect the two-for-one common stock
split effective January 26, 2001.
24
THE EXCHANGE OFFER
GENERAL
Duke Energy hereby offers, upon the terms and subject to the conditions set
forth in this prospectus and in the accompanying letter of transmittal (which
together constitute the exchange offer), to exchange up to $500 million
aggregate principal amount of our First and Refunding Mortgage Bonds, 3.75%
Series A due 2008, which we refer to in this prospectus as the outstanding
bonds, for a like aggregate principal amount of our First and Refunding Mortgage
Bonds, 3.75% Series B due 2008, which we refer to in this prospectus as the
exchange bonds, properly tendered prior to the expiration date and not withdrawn
as permitted pursuant to the procedures described below. The exchange offer is
being made with respect to all of the outstanding bonds.
As of the date of this prospectus, $500 million aggregate principal amount
of the outstanding bonds is outstanding. This prospectus, together with the
letter of transmittal, is first being sent on or about , 2003, to all
holders of outstanding bonds known to Duke Energy. Duke Energy's obligation to
accept outstanding bonds for exchange pursuant to the exchange offer is subject
to certain conditions set forth under "-- Certain Conditions to the Exchange
Offer" below. Duke Energy currently expects that each of the conditions will be
satisfied and that no waivers will be necessary.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into a Registration Rights Agreement with the initial
purchasers of the outstanding bonds in which we agreed, under some
circumstances, to file a registration statement relating to an offer to exchange
the outstanding bonds for exchange bonds. We also agreed to use our reasonable
best efforts to cause the exchange offer registration statement to become
effective under the Securities Act within 210 days after the closing date and
keep the exchange offer registration statement effective for not less than 20
business days after the date notice of the registered exchange offer is mailed
to the holders (or longer if required by applicable law). The exchange bonds
will have terms substantially identical to the outstanding bonds, except that
the exchange bonds will not contain terms with respect to transfer restrictions,
registration rights and additional interest for failure to observe certain
obligations in the Registration Rights Agreement. The outstanding bonds were
issued on February 25, 2003.
Under the circumstances set forth in the Registration Rights Agreement, we
will use our reasonable best efforts to cause the SEC to declare effective a
shelf registration statement with respect to the resale of the outstanding bonds
and keep the statement effective for up to the earliest of (i) two years from
the date the outstanding bonds were originally issued by us, (ii) the date on
which the outstanding bonds become eligible for resale without volume
limitations pursuant to Rule 144 under the Securities Act, or (iii) for such
shorter period that will terminate when all outstanding bonds covered by the
shelf registration statement have been sold pursuant to the shelf registration
statement or cease to be outstanding or otherwise to be outstanding bonds.
If we fail to comply with certain obligations under the Registration Rights
Agreement, we will be required to pay additional interest to holders of the
outstanding bonds.
Each holder of outstanding bonds that wishes to exchange outstanding bonds
for transferable exchange bonds in the exchange offer will be required to make
the following representations:
- any exchange bonds will be acquired in the ordinary course of its
business;
- the holder will have no arrangements or understanding with any person to
participate in the distribution of the outstanding bonds or the exchange
bonds within the meaning of the Securities Act;
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours or if it is an affiliate, that it will comply
with applicable registration and prospectus delivery requirements of the
Securities Act to the extent applicable;
25
- if the holder is not a broker-dealer, that it is not engaged in, and does
not intend to engage in, the distribution of the exchange bonds; and
- if the holder is a broker-dealer, that it will receive exchange bonds for
its own account in exchange for outstanding bonds that were acquired as a
result of market-making activities or other trading activities and that
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of the exchange bonds. See "Plan of
Distribution."
RESALE OF EXCHANGE BONDS
Based on interpretations of the SEC staff set forth in no-action letters
issued to unrelated third parties, we believe that exchange bonds issued under
the exchange offer in exchange for outstanding bonds may be offered for resale,
resold and otherwise transferred by any exchange bond holder without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:
- the holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act;
- the exchange bonds are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of the
exchange bonds.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange bonds:
- cannot rely on the position of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of exchange bonds only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired the
outstanding bonds as a result of market-making activities or other trading
activities may participate in the exchange offer. Each broker-dealer that
receives exchange bonds for its own account in exchange for outstanding bonds,
where the outstanding bonds were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange bonds.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of exchange bonds.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
outstanding bonds properly tendered and not withdrawn prior to the expiration
date. We will issue $1,000 principal amount of exchange bonds in exchange for
each $1,000 principal amount of outstanding bonds surrendered under the exchange
offer. Outstanding bonds may be tendered only in integral multiples of $1,000.
The form and terms of the exchange bonds will be substantially identical to
the form and terms of the outstanding bonds except the exchange bonds will be
registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any additional amounts upon our failure to
fulfill our obligations under the Registration Rights Agreement to file, and
cause to be effective, a registration statement. The exchange bonds will
evidence the same debt as the outstanding bonds. The exchange bonds will be
issued under and entitled to the benefits of the same Mortgage that authorized
the issuance of the outstanding bonds.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding bonds being tendered for exchange.
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As of the date of this prospectus, $500 million aggregate principal amount
of the outstanding bonds are outstanding. This prospectus and a letter of
transmittal are being sent to all registered holders of outstanding bonds. There
will be no fixed record date for determining registered holders of outstanding
bonds entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the exchange offer and Registration Rights Agreement, the applicable
requirements of the Securities Act and the Securities Exchange Act of 1934 and
the rules and regulations of the SEC. Outstanding bonds that are not tendered
for exchange in the exchange offer will remain outstanding and continue to
accrue interest and will be entitled to the rights and benefits the holders have
under the Mortgage relating to the outstanding bonds, except for any rights
under the Mortgage or the Registration Rights Agreement that by their terms
terminate upon the consummation of the exchange offer.
We will be deemed to have accepted for exchange properly tendered
outstanding bonds when we have given oral (promptly confirmed in writing) or
written notice of the acceptance to the exchange agent. The exchange agent will
act as agent for the tendering holders for the purposes of receiving the
exchange bonds from us and delivering exchange bonds to the holders. Under the
terms of the exchange offer and Registration Rights Agreement, we reserve the
right to amend or terminate the exchange offer, and not to accept for exchange
any outstanding bonds not previously accepted for exchange, upon the occurrence
of any of the conditions specified below under the caption "-- Certain
Conditions to the Exchange Offer."
Holders who tender outstanding bonds in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding bonds. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "-- Fees and Expenses" below for
more details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 2003, unless in our sole discretion we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally (promptly confirmed in writing) or in writing of any extension. We will
notify the registered holders of outstanding bonds of the extension no later
than 9:00 a.m., New York City time, on the business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any outstanding bonds;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding bonds not previously accepted if any of the
conditions set forth below under "-- Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral (promptly confirmed in
writing) or written notice of the delay, extension or termination to the
exchange agent; or
- under the terms of the exchange offer and Registration Rights Agreement,
to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of outstanding bonds. If we amend the exchange offer in a manner that we
determine constitutes a material change, we will promptly disclose the amendment
in a manner reasonably calculated to inform the holder of outstanding bonds of
the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to
27
publish, advertise, or otherwise communicate any public announcement, other than
by making a timely release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange bonds for, any outstanding bonds,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding bonds for exchange if in our reasonable judgment:
- the exchange bonds to be received will not be tradable by the holder,
without restriction under the Securities Act, the Securities Exchange Act
and without material restrictions under the blue sky or securities laws
of substantially all of the states of the United States;
- the exchange offer, or the making of any exchange by a holder of
outstanding bonds, would violate applicable law or any applicable
interpretation of the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the
outstanding bonds of any holder that has not made to us:
- the representations described under "-- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering" and "Plan of
Distribution;" and
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
it an appropriate form for registration of the exchange bonds under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any outstanding bonds by giving oral or written notice of
the extension to their holders. During any such extensions, all bonds previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange. We will return any outstanding bonds that we do not accept for
exchange for any reason without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding bonds not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, nonacceptance, or termination to the holders of the outstanding bonds
as promptly as practicable.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of this right. Each right will be deemed an ongoing right that we may
assert at any time or at various times.
In addition, we will not accept for exchange any outstanding bonds
tendered, and will not issue exchange bonds in exchange for any outstanding
bonds, if at the time any stop order will be threatened or in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the Eighty-First Supplemental Indenture under the
Trust Indenture Act.
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PROCEDURES FOR TENDERING
Only a holder of outstanding bonds may tender the outstanding bonds in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the accompanying letter of transmittal, or a
facsimile of the letter of transmittal; have the signature on the letter
of transmittal guaranteed if the letter of transmittal so requires; and
mail or deliver the letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive the outstanding bonds along with the
accompanying letter of transmittal;
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of the outstanding bonds into the
exchange agent's account at DTC according to the procedures for
book-entry transfer described below and a properly transmitted agent's
message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of a letter of transmittal and other required documents at the address
set forth below under "-- Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal.
The method of delivery of outstanding bonds, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding bonds to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.
Any beneficial owner whose outstanding bonds are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owner's behalf. If the beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the accompanying letter
of transmittal and delivering its outstanding bonds either:
- make appropriate arrangements to register ownership of the outstanding
bonds in such owner's name; or
- obtain a properly completed bond power from the registered holder of
outstanding bonds.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States
29
or another "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act, unless the outstanding bonds are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
accompanying letter of transmittal; or
- for the account of an eligible guarantor institution.
If the accompanying letter of transmittal is signed by a person other than
the registered holder of any outstanding bonds listed on the outstanding bonds,
the outstanding bonds must be endorsed or accompanied by a properly completed
bond power. The bond power must be signed by the registered holder as the
registered holder's name appears on the outstanding bonds and an eligible
guarantor institution must guarantee the signature on the bond power.
If the accompanying letter of transmittal or any outstanding bonds or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, these persons should so indicate when signing. Unless
waived by us, they should also submit evidence satisfactory to us of their
authority to deliver the accompanying letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the accompanying letter of transmittal and delivering it
to the exchange agent, transmit their acceptance of the exchange offer
electronically. They may do so by causing DTC to transfer the outstanding bonds
to the exchange agent in accordance with its procedures for transfer. DTC will
then send an agent's message to the exchange agent. The term "agent's message"
means a message transmitted by DTC, received by the exchange agent and forming
part of the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding bonds that
are the subject of the book-entry confirmation;
- the participant has received and agrees to be bound by the terms of the
accompanying letter of transmittal, or, in the case of an agent's message
relating to guaranteed delivery, that the participant has received and
agrees to be bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against that participant.
We will determine in our sole discretion all outstanding questions as to
the validity, form, eligibility, including time of receipt, acceptance of
tendered outstanding bonds and withdrawal of tendered outstanding bonds. Our
determination will be final and binding. We reserve the absolute right to reject
any outstanding bonds not properly tendered or any outstanding bonds the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular outstanding bonds. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the accompanying
letter of transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of outstanding bonds
must be cured within such time as we will determine. Although we intend to
notify holders of defects or irregularities with respect to tenders of
outstanding bonds, neither we, the exchange agent nor any other person will
incur any liability for failure to give the notification. Tenders of outstanding
bonds will not be deemed made until any defects or irregularities have been
cured or waived. Any outstanding bonds received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent without cost to the
tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
30
In all cases, we will issue exchange bonds for outstanding bonds that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
- outstanding bonds or a timely book-entry confirmation of the outstanding
bonds into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the accompanying letter of transmittal or authorizing the
transmission of the agent's message, each tendering holder of outstanding bonds
will represent or be deemed to have represented to us that, among other things:
- any exchange bonds that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange bonds;
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the exchange bonds;
- if the holder is a broker-dealer that will receive exchange bonds for its
own account in exchange for outstanding bonds that were acquired as a
result of market-making activities or other trading activities, that it
will deliver a prospectus, as required by law, in connection with any
resale of any exchange bonds. See "Plan of Distribution;" and
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ours or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding bonds at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution participating in
DTC's system may make book-entry delivery of outstanding bonds by causing DTC to
transfer the outstanding bonds into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of outstanding bonds who
are unable to deliver confirmation of the book-entry tender of their outstanding
bonds into the exchange agent's account at DTC or all other documents required
by the letter of transmittal to the exchange agent prior to the expiration date
must tender their outstanding bonds according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding bonds but whose outstanding
bonds are not immediately available or who cannot deliver their outstanding
bonds, the accompanying letter of transmittal or any other required documents to
the exchange agent or comply with the applicable procedures under DTC's
Automated Tender Offer Program prior to the expiration date may tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration date, the exchange agent receives from the
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery, by facsimile transmission, mail
or hand delivery, or a properly transmitted agent's message relating to
guaranteed delivery:
1. setting forth the name and address of the holder, the registered
number(s) of the outstanding bonds and the principal amount of
outstanding bonds tendered;
2. stating that the tender is being made thereby; and
31
3. guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the accompanying letter of transmittal, or
facsimile thereof, together with the outstanding bonds or a book-entry
confirmation, and any other documents required by the accompanying
letter of transmittal will be deposited by the eligible guarantor
institution with the exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal, or facsimile thereof, as well as all tendered outstanding
bonds in proper form for transfer or a book-entry confirmation, and all
other documents required by the accompanying letter of transmittal,
within three New York Stock Exchange trading days after the expiration
date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding bonds according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
bonds may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal, which
notice may be by telegram, telex, facsimile transmission or letter of
withdrawal at the address set forth below under "-- Exchange Agent," or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding bonds to be
withdrawn;
- identify the outstanding bonds to be withdrawn, including the principal
amount of the outstanding bonds; and
- where certificates for outstanding bonds have been transmitted, specify
the name in which the outstanding bonds were registered, if different
from that of the withdrawing holder.
If certificates for outstanding bonds have been delivered or otherwise
identified to the exchange agent, then, prior to the release of the
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
guarantor institution unless the holder is an eligible guarantor
institution.
If outstanding bonds have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding bonds and otherwise comply with the procedures of that facility. We
will determine all questions as to the validity, form and eligibility, including
time of receipt, of the notices, and our determination will be final and binding
on all parties. We will deem any outstanding bonds so withdrawn not to have been
validly tendered for exchange for purposes of the exchange offer. Any
outstanding bonds that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder, or, in the case of outstanding bonds tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
above, the outstanding bonds will be credited to an account maintained with DTC
for outstanding bonds, as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn, outstanding
bonds may be retendered by following one of the procedures described under
"-- Procedures for Tendering" above at any time prior to the expiration date.
32
EXCHANGE AGENT
JPMorgan Chase Bank has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or for the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent as follows:
By Regular Mail: By Registered, Certified Mail, By Facsimile Transmission
Overnight Courier or Hand: (for Eligible Guarantor
JPMorgan Chase Bank Institutions only):
ITS Bond Events JPMorgan Chase Bank
P.O. Box 2320 ITS Bond Events (214) 468-6494
Dallas, TX 75221 2001 Bryan Street, 9th Floor Attention: Frank Ivins
Dallas, TX 75201
Attention: Frank Ivins To Confirm by Telephone:
(214) 468-6464
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitations by
telephone or in person by our officers and regular employees and those of our
affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptance of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$200,000. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and Trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding bonds under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
- certificates representing outstanding bonds for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding bonds tendered;
- tendered outstanding bonds are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding bonds under the exchange offer.
If satisfactory evidence of payment of the taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes will be billed to that
tendering holder.
Holders who tender their outstanding bonds for exchange will not be
required to pay any transfer taxes. However, holders who instruct us to register
exchange bonds in the name of, or request that
33
outstanding bonds not tendered or not accepted in the exchange offer be returned
to, a person other than the registered tendering holder will be required to pay
any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding bonds who do not exchange their outstanding bonds
for exchange bonds under the exchange offer will remain subject to the
restrictions on transfer of the outstanding bonds:
- as set forth in the legend printed on the outstanding bonds as a
consequence of the issuance of the outstanding bonds under the exemption
from, or in transactions not subject to, the registration requirements of
the Securities Act and applicable state securities laws; and
- otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the outstanding bonds.
In general, you may not offer or sell the outstanding bonds unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the Registration Rights Agreement, we do not intend to
register resales of the outstanding bonds under the Securities Act. Based on
interpretations of the SEC staff, exchange bonds issued under the exchange offer
may be offered for resale, resold or otherwise transferred by their holders
(other than any holder that is our "affiliate" within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holders
acquired the exchange bonds in the ordinary course of the holders' business and
the holders have no arrangement or understanding with respect to the
distribution of the exchange bonds to be acquired in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the exchange bonds:
- cannot rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
We will record the exchange bonds in our accounting records at the same
carrying value as the outstanding bonds, which is the aggregate principal
amount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. We will amortize the expenses of the
exchange offer over the life of the exchange bonds.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding bonds in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding bonds that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding bonds.
34
DESCRIPTION OF THE BONDS
The outstanding bonds were issued and the exchange bonds offered hereby
will be issued as part of a series of First and Refunding Mortgage Bonds under
our 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-First Supplemental Indenture,
dated as of February 25, 2003. The First and Refunding Mortgage, as supplemented
and amended, is sometimes called the "Mortgage." 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.
The following description is only a summary of the material provisions of
the Mortgage and the Registration Rights Agreement. We urge you to read the
Mortgage and the Registration Rights Agreement because they, not this
description, define your rights as holders of these bonds. You may request
copies of these agreements at our address set forth under the heading "Where You
Can Find More Information."
PRINCIPAL, MATURITY AND INTEREST
The exchange bonds will be limited in aggregate principal amount to
$500,000,000. We may issue additional bonds from time to time after the offering
of the exchange bonds. The amount of bonds that Duke Energy may issue under the
Mortgage is unlimited subject to the provisions stated below under "-- Issuance
of Additional Bonds." The bonds and any additional bonds subsequently issued
under the Mortgage will be treated as a single class for all purposes under the
Mortgage, including, without limitation, waivers, amendments, redemptions and
offers to purchase. Unless the context otherwise requires, for all purposes of
the Mortgage and this "Description of the Bonds," references to the bonds
include any additional bonds actually issued.
The bonds will mature on March 5, 2008. Interest on the bonds will accrue
at the rate of 3.75% per annum and will be payable semi-annually on March 5 and
September 5 of each year, commencing on September 5, 2003, to the holder of
record at the close of business on the 15th day preceding the applicable
interest payment date until the relevant principal amount has been paid or made
available for payment. Interest on these bonds accrues from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest on the 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 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 bonds to be redeemed and (2) the sum of the present
values of the remaining scheduled payments of principal and interest on such
bonds (exclusive of interest accrued to the redemption date) discounted to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 15 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 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 bonds.
"Comparable Treasury Price" means with respect to any redemption date for
bonds, the average of three Reference Treasury Dealer Quotations for such
redemption date.
"Quotation Agent" means a Reference Treasury Dealer appointed by us.
"Reference Treasury Dealers" means Banc One Capital Markets, Inc., Deutsche
Bank Securities Inc. and UBS Warburg LLC, and their respective successors;
provided, however, that if any of the foregoing
35
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 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 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 bonds or portions of such 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. 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 after the date hereof, with certain exceptions. Those exceptions
include cash, accounts receivable, inventories of materials and supplies,
merchandise held for sale, securities that Duke Energy holds, certain
after-acquired property not useful in Duke Energy's electric business, certain
after-acquired franchises and certain after-acquired non-electric properties.
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.
36
ISSUANCE OF ADDITIONAL BONDS
If Duke Energy satisfies the conditions in the Mortgage, the Trustee may
authenticate and deliver additional bonds in an aggregate principal amount not
exceeding:
- the amount of cash that Duke Energy has deposited with the Trustee for
that purpose;
- the amount of previously authenticated and delivered bonds or refundable
prior lien bonds that have been or are to be retired which, with certain
exceptions, Duke Energy has deposited with the Trustee for that purpose;
or
- 66 2/3% of the aggregate of the net amounts of additional property
(electric) certified to the Trustee after February 18, 1949.
The Trustee may not authenticate and deliver any additional bonds under the
Mortgage, other than certain 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 Trustee does not hold under the Mortgage.
We may not apply to the Trustee to authenticate and deliver any bonds (1)
in an aggregate principal amount exceeding $26 million 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. We 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 Trustee releasing that property. The Mortgage also
permits the release of mortgaged property if we deposit cash or other
consideration equal to the value of the mortgaged property to be released. In
certain events and within certain limitations, the Trustee is required to pay
out cash that the Trustee receives -- other than for the Replacement Fund or as
the basis for issuing bonds -- upon Duke Energy's application.
We may withdraw cash that we deposited with the Trustee as the basis for
issuing bonds in an amount equal to the principal amount of any bonds that we
are 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 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 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
37
$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.
We may reduce the amount of cash at any time required to be deposited in
the Replacement Fund and may withdraw any cash that we previously deposited that
is held in the Replacement Fund:
- 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 Trustee and on the basis of which Duke Energy
would otherwise have been entitled to have additional bonds authenticated
and delivered; and
- 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 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 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
presently outstanding remain outstanding.
AMENDMENTS OF THE MORTGAGE
We 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:
- affect the terms of payment of principal at maturity or of interest or
premium on any bond;
- affect the rights of bondholders to sue to enforce any such payment at
maturity; or
- 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 Eighty-First Supplemental Indenture for the
bonds will be solely for the benefit of the holders of the bonds and the
exchange bonds referred to herein. We may modify any such covenant only with the
consent of the holders of 66 2/3% in principal amount of the bonds and any
exchange bonds outstanding, without the consent of holders of any other series
of bonds.
EVENTS OF DEFAULT
The 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:
- default in the payment of principal;
- default for 60 days in the payment of interest;
38
- default in the performance of any other covenant in the Mortgage
continuing for 60 days after the Trustee or the holders of not less than
10% in principal amount of the bonds then outstanding give notice of the
default; and
- certain bankruptcy or insolvency events with respect to Duke Energy.
We provide a statement by certain of our officers each year to the Trustee
stating whether we have complied with the covenants of the Mortgage.
CONCERNING THE TRUSTEE
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) is the
Trustee and is also the senior indenture trustee and the subordinated indenture
trustee for Duke Energy under its unsecured senior indenture and subordinated
indenture, respectively. 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. We have also appointed JPMorgan Chase Bank as registrar and paying
agent with regard to the bonds.
The Trustee is under no obligation to exercise any of its powers at the
request of any of the holders of the bonds unless those holders have offered to
the 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 Trustee, or the
exercise of any trust or power of the Trustee. The Trustee will not be liable
for any action that it takes or omits to take in good faith in accordance with
any such direction.
BOOK-ENTRY
We will issue the exchange bonds in the form of one or more fully
registered global securities. The global securities will be deposited with, or
on behalf of, The Depository Trust Company, or DTC, and will be registered in
the name of DTC or its nominee. Investors may hold their beneficial interests in
a global security directly through DTC or indirectly through organizations which
are participants in the DTC system.
Unless and until they are exchanged in whole or in part for certificated
securities, the global securities may not be transferred except as a whole by
DTC or its nominee. DTC has advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act.
- DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and other organizations.
Indirect access to the DTC system is available to others, including
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Upon the issuance of the global securities, DTC or its custodian will
credit, on its internal system, the respective principal amounts of the
securities represented by the global securities to the accounts of those persons
who have accounts with DTC designated by the Initial Purchasers. Ownership of
beneficial interests in the global securities will be limited to persons who
have accounts with DTC or persons who hold interests through the persons who
have accounts with DTC. Persons who have accounts with DTC are referred to as
"participants." Ownership of beneficial interests in the global securities will
be shown on,
39
and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee, with respect to interests of participants, and
the records of participants, with respect to interests of persons other than
participants.
As long as DTC or its nominee is the registered owner or holder of the
global securities, DTC or the nominee, as the case may be, will be considered
the sole record owner or holder of the securities represented by the global
securities for all purposes under the Mortgage and the securities. No beneficial
owners of an interest in the global securities will be able to transfer that
interest except according to DTC's applicable procedures, in addition to those
provided for under the Mortgage. Owners of beneficial interests in the global
securities will not:
- be entitled to have the securities represented by the global securities
registered in their names,
- receive or be entitled to receive physical delivery of certificated
securities in definitive form, and
- be considered to be the owners or holders of any securities under the
global securities.
Accordingly, each person owning a beneficial interest in the global
securities must rely on the procedures of DTC and, if a person is not a
participant, on the procedures of the participant through which that person owns
its interests, to exercise any right of a holder of securities under the global
securities. We understand that under existing industry practice, if an owner of
a beneficial interest in the global securities desires to take any action that
DTC, as the holder of the global securities, is entitled to take, DTC would
authorize the participants to take that action, and that the participants would
authorize beneficial owners owning through the participants to take that action
or would otherwise act upon the instructions of beneficial owners owning through
them.
Payments of the principal of, premium, if any, and interest on the
securities represented by the global securities will be made by us to the
Trustee and from the Trustee to DTC or its nominee, as the case may be, as the
registered owner of the global securities. Neither we, the Trustee, nor any
paying agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the global securities or for maintaining, supervising or reviewing
any records relating to the beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the global securities will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial ownership interests in the principal amount of the global
securities, as shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in the global
securities held through these participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for these
customers. These payments will be the responsibility of these participants.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of securities only at the direction of one or more participants to whose
account the DTC interests in the global securities are credited. Further, DTC
will take any action permitted to be taken by a holder of securities only in
respect of that portion of the aggregate principal amount of securities as to
which the participant or participants has or have given that direction.
Although DTC has agreed to these procedures in order to facilitate
transfers of interests in the global securities among participants of DTC, it is
under no obligation to perform these procedures, and may discontinue them at any
time. Neither we nor the trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
40
Beneficial interests in global securities may be exchanged for certificated
securities only if:
- DTC notifies the Trustee that it is unwilling or unable to continue as a
depositary for the global securities or DTC ceases to be a clearing
agency registered under the Exchange Act and, in either case, we fail to
appoint a successor depositary within 90 days; or
- we decide at any time not to have the securities represented by global
securities and so notify the Trustee.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the initial purchasers entered into the Registration Rights
Agreement on February 25, 2003, which we call the "issue date." We have agreed
pursuant to the Registration Rights Agreement that we will, subject to certain
exceptions,
(1) prepare and, as soon as practicable but not later than 130 calendar
days following the issue date, file with the SEC a registration
statement with respect to a registered offer, or the Registered
Exchange Offer, to exchange the outstanding bonds for a like principal
amount of exchange bonds of the Company;
(2) use our reasonable best efforts to cause the registration statement to
be declared effective under the Securities Act not later than 180
calendar days following the issue date;
(3) keep the Registered Exchange Offer open for not less than 20 business
days (or longer if required by applicable law) after the date notice of
the Registered Exchange Offer is mailed to the holders of the
outstanding bonds;
(4) use our reasonable best efforts to cause the exchange offer to be
consummated within 210 calendar days following the issue date; and
(5) promptly commence the exchange offer upon the effectiveness of the
Exchange Offer Registration Statement.
For each outstanding bond tendered to us pursuant to the Registered
Exchange Offer, we will issue to the holder of such outstanding bond an exchange
bond having a principal amount equal to that of the surrendered outstanding
bond. Interest on the exchange bonds will accrue from the most recent interest
payment date to which interest has been paid on the outstanding bonds
surrendered in exchange therefor or, if no interest has been paid on such
outstanding bonds, from the date of original issuance.
Under existing SEC interpretations, the exchange bonds will be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of the
exchange bonds represents to us in the Registered Exchange Offer that it is not
an affiliate of ours within the meaning of Rule 405 under the Securities Act,
(b) is not a broker-dealer tendering outstanding bonds acquired directly from us
for its own account, (c) acquired the exchange bonds in the ordinary course of
its business and (d) has no arrangements or understandings with any person to
participate in the exchange offer for the purpose of distributing the exchange
bonds); provided, however, that broker-dealers receiving exchange bonds in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such exchange bonds.
A holder of outstanding bonds (other than certain specified holders) who
wishes to exchange such outstanding bonds for exchange bonds in the Registered
Exchange Offer will be required to represent that any exchange bonds to be
received by it will be acquired in the ordinary course of its business and that
at the time of the commencement of the Registered Exchange Offer it has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the exchange bonds and that it is
not an "affiliate" of the Company, as defined in Rule 405 of the Securities Act,
or if it is an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
41
In the event that:
(1) because of any changes of law, SEC rules or regulations or applicable
interpretations thereof by the staff of the SEC, we are not permitted
to effect such a Registered Exchange Offer; or
(2) for any other reason we do not consummate the Registered Exchange Offer
within 210 calendar days of the issue date (provided that we are not
then actively pursuing such effectiveness or consummation, as the case
may be),
then, we will, subject to certain exceptions:
(A) as promptly as practicable, file with the SEC, and thereafter shall use
our reasonable best efforts to cause to be declared effective as
promptly as practicable but no later than 210 calendar days after the
issue date, a shelf registration statement relating to the offer and
sale of the outstanding bonds by the holders of such outstanding bonds
from time to time in accordance with the methods of distribution as set
forth in such shelf registration statement; and
(B) use our reasonable best efforts to keep the shelf registration
statement continuously effective in order to permit the prospectus
forming part thereof to be usable by holders of the outstanding bonds
for a period ending on the earliest of (i) two years from the date the
outstanding bonds were originally issued by the us, (ii) the date on
which the outstanding bonds become eligible for resale without volume
limitations pursuant to Rule 144 under the Securities Act, or (iii) for
such shorter period that will terminate when all outstanding bonds
covered by the shelf registration statement have been sold pursuant to
the shelf registration statement or cease to be outstanding or
otherwise to be outstanding bonds.
If the Registered Exchange Offer is not consummated and the shelf
registration statement is not declared effective within 210 days after the issue
date, the interest rate on the bonds will be increased by 0.25% per annum,
commencing 210 days after the issue date, until the Registered Exchange Offer is
consummated or the shelf registration statement is declared effective by the
SEC. In the case of a shelf registration statement, if we are unable to cause
such shelf registration statement to become effective because holders of
outstanding bonds have not provided information with respect to themselves as
required by law to be included therein pursuant to our request as provided in
the Registration Rights Agreement, such 0.25% increase in the interest rate
shall be payable only to holders that have furnished such information required
by law to be included therein to us pursuant to our request under the
Registration Rights Agreement from but excluding the date such information is
provided to us to but excluding the date the shelf registration statement is
declared effective by the SEC.
If we effect the Registered Exchange Offer, we will be entitled to close
the Registered Exchange Offer 20 business days after the commencement thereof
provided that we have accepted all outstanding bonds theretofore validly
tendered in accordance with the terms of the Registered Exchange Offer.
42
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
EXCHANGE OF BONDS
The exchange of outstanding bonds for exchange bonds in the exchange offer
will not constitute a taxable event to holders for United States federal income
tax purposes. Consequently, no gain or loss will be recognized by a holder upon
receipt of an exchange bond, the holding period of the exchange bond will
include the holding period of the outstanding bond exchanged therefor and the
basis of the exchange bond will be the same as the basis of the outstanding bond
immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING BONDS FOR
EXCHANGE BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange bonds for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange bonds. This prospectus,
as it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of exchange bonds received in exchange for
outstanding bonds where the outstanding bonds were acquired as a result of
market-making activities or other trading activities. We have agreed that we
will make such prospectus, and any amendment or supplement thereto, available to
any such broker-dealer for use in connection with any resale of any exchange
bonds for a period of the lesser of 90 days after the consummation of the
Exchange Offer and the date on which all broker-dealers have sold all exchange
bonds held by them (unless such period is extended pursuant to the terms of the
Registration Rights Agreement). We have also agreed that we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal.
We will not receive any proceeds from any sale of exchange bonds by
broker-dealers. Exchange bonds received by broker-dealers for their own accounts
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange bonds or a combination of these methods
of resale, at market prices prevailing at the time of resale, at prices related
to the prevailing market prices or negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer or
the purchasers of any exchange bonds. Any broker-dealer that resells exchange
bonds that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of the
exchange bonds may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any resale of exchange bonds and any
commissions or concessions received by these persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the outstanding bonds,
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of outstanding bonds, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange bonds pursuant to the exchange offer hereby agrees to notify us prior
to using the prospectus in connection with the sale or transfer of exchange
bonds, and acknowledges and agrees that, upon receipt of notice from us of the
happening of any event which makes any statement in this prospectus untrue in
any material respect or which requires the making of any changes in this
prospectus in order to make the statements therein not
43
misleading or which may impose upon us disclosure obligations that may have a
material adverse effect on us (which notice we agree to deliver promptly to such
broker-dealer) such broker-dealer will suspend use of this prospectus until we
have notified such broker-dealer that delivery of this prospectus may resume and
have furnished copies of any amendment or supplement to this prospectus to such
broker-dealer.
LEGAL MATTERS
The validity of the exchange bonds offered by this prospectus 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 exchange bonds will be passed upon for Duke Energy by
Simpson Thacher & Bartlett, New York, New York. In rendering their opinion,
Simpson Thacher & Bartlett will rely upon Mr. Lucas as to all matters of North
Carolina law and Ms. Mack as to all matters of South Carolina law.
EXPERTS
The consolidated financial statements of Duke Energy appearing in 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 incorporated herein by reference (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). Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
44
(DUKE ENERGY LOGO)
OFFER TO EXCHANGE ALL OUTSTANDING FIRST AND REFUNDING MORTGAGE BONDS, 3.75%
SERIES A DUE 2008 FOR FIRST AND REFUNDING MORTGAGE BONDS, 3.75% SERIES B DUE
2008, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
---------------------
PROSPECTUS
---------------------
UNTIL , 2003, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
, 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the North Carolina Business Corporation
Act and the By-Laws of Duke Energy Corporation permit indemnification of its
directors and officers in a variety of circumstances, which may include
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
In addition, Duke Energy Corporation has purchased insurance permitted by the
law of North Carolina on behalf of directors, officers, employees or agents,
which may cover liabilities under the Securities Act. The Restated Articles of
Incorporation of Duke Energy Corporation provide that a director shall not be
personally liable for monetary damages for breach of fiduciary duty as a
director except to the extent such exemption from liability or limitation
thereof is not permitted under the North Carolina Business Corporation Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
3.1 Restated Articles of Incorporation of Duke Energy
Corporation, dated June 18, 1997 (filed with Form S-8, No.
333-29563, effective June 19, 1997, as Exhibit 4(G)).
3.2 Articles of Amendment to Restated Articles of Incorporation
of Duke Energy Corporation (filed with Post-Effective
Amendment No. 2 to Form S-3 of the registrant, file number
333-81573, filed December 12, 2001 as Exhibit 4(B)-1).
3.3 Articles of Amendment to Restated Articles of Incorporation
of Duke Energy Corporation (filed with Form 10-Q of the
registrant for the quarter ended March 31, 2002, File No.
1-4928, as Exhibit 3).
3.4 By-Laws of Duke Energy Corporation, as amended (filed with
Form 10-K for the year ended December 31, 2002, File No.
001-04928, as Exhibit 3-4)).
4.1 First and Refunding Mortgage from Duke Energy Corporation to
Guaranty Trust Company of New York, as Trustee, dated as of
December 1, 1927 (filed with Form S-1, File No. 2-7224,
effective October 15, 1947, as Exhibit 7(a)).
4.2 Supplemental Indenture, dated as of March 12, 1930,
supplementing said Mortgage (filed with Form S-1, File No.
2-7224, effective October 15, 1947, as Exhibit 7(b)).
4.3 Supplemental Indenture, dated as of July 1, 1935,
supplementing said Mortgage (filed with Form S-1, File No.
2-7224, effective October 15, 1947, as Exhibit 7(c)).
4.4 Supplemental Indenture, dated as of December 1, 1935,
supplementing said Mortgage (filed with Form S-1, File No.
2-7224, effective October 15, 1947, as Exhibit 7(d)).
4.5 Supplemental Indenture, dated as of September 1, 1936,
supplementing said Mortgage (filed with Form S-1, File No.
2-7224, effective October 15, 1947, as Exhibit 7(e)).
4.6 Supplemental Indenture, dated as of January 1, 1941,
supplementing said Mortgage (filed with Form S-1, File No.
2-7224, effective October 15, 1947, as Exhibit 7(f)).
4.7 Supplemental Indenture, dated as of April 1, 1944,
supplementing said Mortgage (filed with Form S-1, File No.
2-7224, effective October 15, 1947, as Exhibit 7(g)).
4.8 Supplemental Indenture, dated as of September 1, 1947,
supplementing said Mortgage (filed with Form S-1, File No.
2-7224, effective October 15, 1947, as Exhibit 7(h)).
4.9 Supplemental Indenture, dated as of September 8, 1947,
supplementing said Mortgage (filed with Form S-1, File No.
2-10401, effective August 21, 1953, as Exhibit 4-B-9).
4.10 Supplemental Indenture, dated as of February 1, 1949,
supplementing said Mortgage (filed with Form S-1, File No.
2-7808, effective February 3, 1949, as Exhibit 7(j)).
4.11 Supplemental Indenture, dated as of March 1, 1949,
supplementing said Mortgage (filed with Form S-1, File No.
2-8877, effective April 6, 1951, as Exhibit 7(k)).
II-1
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
4.12 Supplemental Indenture, dated as of April 1, 1951,
supplementing said Mortgage (filed with Form S-1, File No.
2-8877, effective April 6, 1951, as Exhibit 7(1)).
4.13 Supplemental Indenture, dated as of September 1, 1953,
supplementing said Mortgage (filed with Form S-1, File No.
2-10401, effective August 21, 1953, as Exhibit 4-B-13).
4.14 Supplemental Indenture, dated as of October 1, 1954,
supplementing said Mortgage (filed with Form S-9, File No.
2-11297, effective December 30, 1954, as Exhibit 2-B-14).
4.15 Supplemental Indenture, dated as of January 1, 1955,
supplementing said Mortgage (filed with Form S-9, File No.
2-11297, effective December 30, 1954, as Exhibit 2-B-15).
4.16 Supplemental Indenture, dated as of May 1, 1956,
supplementing said Mortgage (filed with Form S-9, File No.
2-12402, effective April 26, 1956, as Exhibit 2-B-16).
4.17 Supplemental Indenture, dated as of January 1, 1960,
supplementing said Mortgage (filed with Form 10, effective
June 29, 1961, as Exhibit 3-B-18).
4.18 Supplemental Indenture, dated as of February 1, 1960,
supplementing said Mortgage (filed with Form 10, effective
June 29, 1961, as Exhibit 3-B-19).
4.19 Supplemental Indenture, dated as of February 1, 1962,
supplementing said Mortgage (filed with Form S-9, File No.
2-20577, effective August 16, 1962, as Exhibit 2-B-20).
4.20 Supplemental Indenture, dated as of August 1, 1962,
supplementing said Mortgage (filed with Form S-1, File No.
2-25367, effective August 23, 1966, as Exhibit 4-B-19).
4.21 Supplemental Indenture, dated as of June 15, 1964,
supplementing said Mortgage (filed with Form S-1, File No.
2-25367, effective August 23, 1966, as Exhibit 4-B-20).
4.22 Supplemental Indenture, dated as of February 1, 1965,
supplementing said Mortgage (filed with Form S-1, File No.
2-25367, effective August 23, 1966, as Exhibit 4-B-21).
4.23 Supplemental Indenture, dated as of April 1, 1967,
supplementing said Mortgage (filed with Form S-9, File No.
2-28023, effective February 15, 1968, as Exhibit 2-B-25).
4.24 Supplemental Indenture, dated as of February 1, 1968,
supplementing said Mortgage (filed with Form S-9, File No.
2-31304, effective January 21, 1969, as Exhibit 2-B-26).
4.25 Supplemental Indenture, dated as of February 1, 1969,
supplementing said Mortgage (filed with Form S-7, File No.
2-34289, effective August 27, 1969, as Exhibit 2-B-27).
4.26 Supplemental Indenture, dated as of September 1, 1969,
supplementing said Mortgage (filed with Form S-7, File No.
2-36095, effective February 16, 1970, as Exhibit 2-B-39).
4.27 Supplemental Indenture, dated as of March 1, 1970,
supplementing said Mortgage (filed with Form S-7, File No.
2-37953, effective July 28, 1970, as Exhibit 2-B-42).
4.28 Supplemental Indenture, dated as of August 1, 1970,
supplementing said Mortgage (filed with Form S-7, File No.
2-39451, effective March 4, 1971, as Exhibit 2-B-28).
4.29 Supplemental Indenture, dated as of March 1, 1971,
supplementing said Mortgage (filed with Form S-7, File No.
2-42404, effective December 7, 1971, as Exhibit 2-B-29).
4.30 Supplemental Indenture, dated as of December 1, 1971,
supplementing said Mortgage (filed with Form S-7, File No.
2-43122, effective March 7, 1972, as Exhibit 2-B-30).
4.31 Supplemental Indenture, dated as of April 1, 1972,
supplementing said Mortgage (filed with Form S-7, File No.
2-46208, effective November 20, 1972, as Exhibit 2-B-31).
4.32 Supplemental Indenture, dated as of December 1, 1972,
supplementing said Mortgage (filed with Form S-7, File No.
2-48058, effective June 5, 1973, as Exhibit 2-B-32).
4.33 Supplemental Indenture, dated as of June 1, 1973,
supplementing said Mortgage (filed with Form S-7, File No.
2-49333, effective November 5, 1973, as Exhibit 2-B-33).
4.34 Supplemental Indenture, dated as of November 1, 1973,
supplementing said Mortgage (filed with Form S-7, File No.
2-50493, effective April 25, 1974, as Exhibit 2-B-34).
4.35 Supplemental Indenture, dated as of May 1, 1974,
supplementing said Mortgage (filed with Form S-7, File No.
2-52669, effective February 11, 1975, as Exhibit 2-B-35).
4.36 Supplemental Indenture, dated as of February 1, 1975,
supplementing said Mortgage (filed with Form S-7, File No.
2-57118, effective October 5, 1976, as Exhibit 2-B-36).
II-2
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
4.37 Supplemental Indenture, dated as of July 1, 1975,
supplementing said Mortgage (filed with Form S-7, File No.
2-57118, effective October 5, 1976, as Exhibit 2-B-37).
4.38 Supplemental Indenture, dated as of October 1, 1976,
supplementing said Mortgage (filed with Form S-7, File No.
2-59494, effective August 10, 1977, as Exhibit 2-B-38).
4.39 Supplemental Indenture, dated as of September 1, 1977,
supplementing said Mortgage (filed with Form S-7, File No.
2-61995, effective July 26, 1978, as Exhibit 2-B-39).
4.40 Supplemental Indenture, dated as of August 1, 1978,
supplementing said Mortgage (filed with Form S-7, File No.
2-64541, effective June 7, 1979, as Exhibit 2-B-40).
4.41 Supplemental Indenture, dated as of June 1, 1979,
supplementing said Mortgage (filed with Form S-7, File No.
2-65371, effective October 2, 1979, as Exhibit 2-B-41).
4.42 Supplemental Indenture, dated as of October 1, 1979,
supplementing said Mortgage (filed with Form S-7, File No.
2-66659, effective March 12, 1980, as Exhibit 2-B-42).
4.43 Supplemental Indenture, dated as of March 1, 1980,
supplementing said Mortgage (filed with Form S-16, File No.
2-68571, effective August 19, 1980, as Exhibit 2-B-43).
4.44 Supplemental Indenture, dated as of August 1, 1980,
supplementing said Mortgage (filed with Form S-16, File No.
2-75951, effective February 23, 1982, as Exhibit 2-B-44).
4.45 Supplemental Indenture, dated as of March 1, 1982,
supplementing said Mortgage (filed with Form S-3, File No.
2-78882, effective August 30, 1982, as Exhibit 4-B-45).
4.46 Supplemental Indenture, dated as of September 1, 1982,
supplementing said Mortgage (filed with Form S-3, File No.
2-95931, effective April 1, 1985, as Exhibit 4-B-46).
4.47 Supplemental Indenture, dated as of May 1, 1983,
supplementing said Mortgage (filed with Form S-3, File No.
2-95931, effective April 1, 1985, as Exhibit 4-B-47).
4.48 Supplemental Indenture, dated as of September 1, 1983,
supplementing said Mortgage (filed with Form S-3, File No.
2-95931, effective April 1, 1985, as Exhibit 4-B-48).
4.49 Supplemental Indenture, dated as of September 1, 1984,
supplementing said Mortgage (filed with Form S-3, File No.
2-95931, effective April 1, 1985, as Exhibit 4-B-49).
4.50 Supplemental Indenture, dated as of March 1, 1985,
supplementing said Mortgage (filed with Form S-3, File No.
2-95931, effective April 1, 1985, as Exhibit 4-B-50).
4.51 Supplemental Indenture, dated as of December 1, 1985,
supplementing said Mortgage (filed with Form S-3, File No.
33-5163, effective May 2, 1986, as Exhibit 4-B-51).
4.52 Supplemental Indenture, dated as of April 1, 1986,
supplementing said Mortgage (filed with Form S-3, File No.
33-5163, effective May 2, 1986, as Exhibit 4-B-52).
4.53 Supplemental Indenture, dated as of May 1, 1986,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1986, File No. 1-4928, as Exhibit
4-B-53).
4.54 Supplemental Indenture, dated as of June 1, 1986,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1986, File No. 1-4928, as Exhibit
4-B-54).
4.55 Supplemental Indenture, dated as of February 1, 1987,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1986, File No. 1-4928, as Exhibit
4-B-55).
4.56 Supplemental Indenture, dated as of February 15, 1987,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1986, File No. 1-4928, as Exhibit
4-B-56).
4.57 Supplemental Indenture, dated as of March 1, 1987,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1986, File No. 1-4928, as Exhibit
4-B-57).
4.58 Supplemental Indenture, dated as of October 1, 1987,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1987, File No. 1-4928, as Exhibit
4-B-58).
4.59 Supplemental Indenture, dated as of February 1, 1990,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1989, File No. 1-4928, as Exhibit
4-B-59).
4.60 Supplemental Indenture, dated as of March 1, 1990,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1990, File No. 1-4928, as Exhibit
4-B-60).
4.61 Supplemental Indenture, dated as of May 1, 1990,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1990, File No. 1-4928, as Exhibit
4-B-61).
II-3
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
4.62 Supplemental Indenture, dated as of May 15, 1990,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1990, File No. 1-4928, as Exhibit
4-B-62).
4.63 Supplemental Indenture, dated as of March 1, 1991,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1990, File No. 1-4928, as Exhibit
4-B-63).
4.64 Supplemental Indenture, dated as of July 1, 1991,
supplementing said Mortgage (filed with Form S-3, File No.
33-45501, effective February 13, 1992, as Exhibit 4-B-64).
4.65 Supplemental Indenture, dated as of December 1, 1991,
supplementing said Mortgage (filed with Form S-3, File No.
33-44501, effective February 13, 1992, as Exhibit 4-B-65).
4.66 Supplemental Indenture, dated as of March 1, 1992,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1991, File No. 1-4928, as Exhibit
4-B-66).
4.67 Supplemental Indenture, dated as of June 1, 1992,
supplementing said Mortgage (filed with Form S-3, File No.
33-50592, effective August 11, 1992, as Exhibit 4-B-67).
4.68 Supplemental Indenture, dated as of July 1, 1992,
supplementing said Mortgage (filed with Form S-3, File No.
33-50592, effective August 11, 1992, as Exhibit 4-B-68).
4.69 Supplemental Indenture, dated as of September 1, 1992,
supplementing said Mortgage (filed with Form S-3, File No.
33-53308, effective November 24, 1992, as Exhibit 4-B-69).
4.70 Supplemental Indenture, dated as of February 1, 1993,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1992, File No. 1-4928, as Exhibit
4-B-70).
4.71 Supplemental Indenture, dated as of March 1, 1993,
supplementing said Mortgage (filed with Form S-3, No.
33-59448, effective March 17, 1993, as Exhibit 4-B-71).
4.72 Supplemental Indenture, dated as of April 1, 1993,
supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-72).
4.73 Supplemental Indenture, dated as of May 1, 1993,
supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-73).
4.74 Supplemental Indenture, dated as of June 1, 1993,
supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-74).
4.75 Supplemental Indenture, dated as of July 1, 1993,
supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-75).
4.76 Supplemental Indenture, dated as of August 1, 1993,
supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-76).
4.77 Supplemental Indenture, dated as of August 20, 1993,
supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-77).
4.78 Supplemental Indenture, dated as of May 1, 1994,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1994, File No. 1-4928, as Exhibit
4-B-78).
4.79 Supplemental Indenture, dated as of November 1, 1994,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1994, File No. 1-4928, as Exhibit
4-B-79).
4.80 Supplemental Indenture, dated as of August 1, 1995,
supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1995, File No. 1-4928, as Exhibit
4-B-80).
4.81* Eighty-First Supplemental Indenture, dated as of February
25, 2003, supplementing said Mortgage.
4.82* Form of First and Refunding Mortgage Bond, 3.75% Series B
due 2008 (included in Exhibit 4.81 filed herewith).
4.83* Registration Rights Agreement, dated as of February 25,
2003.
5.1* Opinion of Simpson Thacher & Bartlett.
5.2* Opinion of Robert T. Lucas III, Esq.
5.3* Opinion of Karol P. Mack, Esq.
12.1* Computation of Ratio of Earnings to Fixed Charges.
23.1* Consent of Simpson Thacher & Bartlett (included in Exhibit
5.1 filed herewith).
23.2* Consent of Robert T. Lucas III, Esq. (included in Exhibit
5.2 filed herewith).
II-4
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
23.3* Consent of Karol P. Mack, Esq. (included in Exhibit 5.3
filed herewith).
23.4* Independent Auditors' Consent.
24.1* Power of Attorney of certain officers and directors of Duke
Energy Corporation.
24.2* Resolution of the Board of Directors of Duke Energy
Corporation.
25.1* Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of JPMorgan Chase Bank (formerly known as
The Chase Manhattan Bank), as Bond Trustee.
99.1* Form of Letter of Transmittal.
99.2* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees.
99.3* Form of Letter to Clients.
99.4* Form of Notice of Guaranteed Delivery.
---------------
* Filed herewith.
ITEM 22. UNDERTAKINGS
(a) Undertaking related to Rule 415 offering:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a posteffective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertaking related to filings incorporating subsequent Exchange Act
documents by reference:
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
II-5
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Undertaking related to acceleration of effectiveness:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by
the director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(d) Undertaking related to requests for information:
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(e) Undertaking related to post-effective amendments:
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of North
Carolina, on May 16, 2003.
DUKE ENERGY CORPORATION
By: /s/ R.B. PRIORY
------------------------------------
Richard B. Priory
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board and May 16, 2003
------------------------------------------------ Chief Executive Officer
Richard B. Priory (Principal Executive Officer)
Executive Vice President and May 16, 2003
------------------------------------------------ Chief Financial Officer
Robert P. Brace (Principal Financial Officer)
Senior Vice President and Controller May 16, 2003
------------------------------------------------ (Principal Accounting Officer)
Keith G. Butler
------------------------------------------------
G. Alex Bernhardt, Sr.
------------------------------------------------
Robert J. Brown
------------------------------------------------
William T. Esrey
------------------------------------------------
Ann M. Gray
------------------------------------------------
George D. Johnson, Jr.
A majority of the Directors May 16, 2003
------------------------------------------------
Max Lennon
------------------------------------------------
Leo E. Linbeck, Jr.
II-7
SIGNATURE TITLE DATE
--------- ----- ----
------------------------------------------------
James G. Martin
------------------------------------------------
Richard B. Priory
------------------------------------------------
James T. Rhodes
Myron L. Caldwell, by signing his name hereto, does hereby sign this document on
behalf of Duke Energy Corporation and on behalf of each of the above-named
persons pursuant to a power of attorney duly executed by Duke Energy Corporation
and such persons, filed with the Securities and Exchange Commission as an
exhibit hereto.
/s/ MYRON L. CALDWELL
--------------------------------------
Myron L. Caldwell
Attorney-in-Fact
II-8